Question
How is a country affected by changes in the world price of commodities that it exports and imports?
Terms-of-Trade Effect
Determines the effect of a change in the world price of a commodity on the value of a country's exports and imports as a percent of GDP.
Data Requirements
- Value of exports and imports of a commodity
- Proportional change in world price of exports and imports over time
- GDP
| Variables | |
|---|---|
| i | commodity |
| xi | value of export i |
| mi | value of import i |
| Δ pi / pi | proportional change in the world price of export or import i, depending on if it is preceded by x (exports) or m (imports). |
| GDP | gross domestic product of the country |
The analysis can be applied to individual commodities or to broad categories.
Output
Estimates a percentage effect on GDP from a change in world commodity prices.