Trends in the Terms of Trade, Export Earnings and Import Payments of LDCs

Abstract

In some respects rather more important than the degree of instability about a particular trend in export prices and earnings is the nature of the trend itself. It may even be that the nature of the instability problem as such depends on the trend. Thus, where the trend in export earnings is upwards, instability may be less of a problem than where the export trend is downwards. Long-term and short-term relative price movements may be related in other, rather more direct ways. The long-run demand for a primary product may, for instance, be adversely affected by short-run price instability, especially where consumers have the option of substituting a synthetic commodity which is more stable in price. Again, long-run supply may be adversely affected by the vagaries of price and the implied difficulties of forecasting returns.