The Debate Over Trends in the Terms of Trade

Abstract

This chapter is concerned with the debate over the long-run behaviour of the net barter terms of trade between primary products and manufactures. Defined as the ratio of the price of primary commodities to the price of manufactured goods, the net barter terms of trade between .primaries and manufactures (referred to hereafter as NBTT) may alternatively be interpreted as a measure of the real price of primary commodities (e.g. Ray, 1977). The next two sections of this chapter survey the existing literature, while the penultimate section presents a simple trend analysis of the behaviour of the NBTT over the period since 1900, which is designed, among other things, to resolve the controversy which surrounds the direction of its long-run trend. In the final section, the chapter’s main findings are summarised.

The work reported in this chapter was completed while the author was employed in the Commodities Division of the Research Department of the International Monetary Fund in Washington DC. The author is indebted to Ke-Young Chu, Nihad Kaibni and Tom Morrison (IMF) and to Alan Winters (World Bank and University College of North Wales, Bangor) and Hans Singer (University of Sussex) for their comments on earlier versions. Especial thanks are due to Ximena Cheetham for her outstanding research assistance. All views expressed in this paper, and any remaining errors, are the responsibility of the author alone.