Review of the Terms of Trade in Selected Countries and Iran

Abstract

Article InformationNowadays the terms of trade have great importance for developing countries compared to developed countries. Because worsening terms of trade, that all other conditions are constant, reduces economic welfare. It is believed that the decline in the terms of trade of developing countries to developed countries causes the transfer of income from developing countries to developed countries and increases the income gap between these two groups of countries. This paper aims to examine the Prebisch-Singer hypothesis in different countries. The study examines the relationship between net terms of trade and income terms of trade between oil -exporting developing countries, agricultural commodities exporting developing countries and developed countries exporter of manufactured goods as well as the terms of trade of Iran in 1980-2010. Prebisch-Singer hypothesis states about changes in net terms of trade that this variable, changes to the detriment of developing countries and primary commodities exporter (other than oil and agricultural commodities) and to the benefit of developed countries exporter of manufactured goods.Classification JEL: F19

Oil Prices and Terms of Trade of Saudi Arabia: An Empirical Analysis

“…This makes the terms of trade of Saudi Arabia greatly dependent on oil prices. The result of this study supports the observations of Aleisa and Dibooglu (2004) and Naziri et al (2015) that oil prices strongly influence the terms of trade. This study also supports the observations of Mussa (2000) and Allegret et al (2015) that in oil-exporting economies, the oil price has a positive impact on the terms of trade.…”

“…The way out is diversification of the export basket. Export diversification to improve terms of trade is also recommended by Naziri et al (2015).…”

“…The variation in the oil prices makes favorable terms of trade for the oil-exporting countries, while it results in unfavorable terms of trade for the oil-importing countries (Mirfachi,2006). The terms of trade is heavily influenced by oil price shocks, which make the export earnings unstable (Naziri et al, 2015). Positive price shocks in oil deteriorate the terms of trade of oil-importing countries, but it also leads to a transfer of wealth to oil-exporting countries.…”

The Correlates of Terms of Trade in Oil Exporting Countries of Gulf Cooperation Council Region

“…In some of the recent empirical studies, terms of trade is positively associated with economic growth and terms of trade in Pakistan for the period 1990-2008 (Fatima, 2010); in Columbia for the period 1994-2011 (Hernandez, 2011); and in Sub-Saharna African countries for the period 1985-2010 (Awel, 2010). While Naziri et al, 2015 in their study for the period 1980-2010 refuted the Prebisch-Singer hypothesis for certain developing countries exporting agricultural products namely: Bangladesh, Pakistan, Argentina, Brazil, Colombia and Indonesia. But for oil-exporting countries namely Algeria, Iran, Jordan, Nigeria, Venezuela and Ecuador, the terms of trade, depend strongly on oil prices.…”

“…As the elasticity of import with the domestic activity is greater than one therefore, an increase in oil price is offset by an increase in the export to the oil exporting countries (Kamps and Beck, 2009). In oil-exporting countries namely Iran, Jordan, Algeria, Ecuador, Nigeria and Venezuela, the terms of trade, is strongly based on oil prices (Naziri et al, 2015).…”