When, however, we want to compare changes in terms of trade between two periods, the following ratio is applied:. Here in the base year p m each of the two index numbers or prices of exports and imports. Now, if in the current year, the export price index is and the import price index is , then the terms of trade will be:. This means, in the current year, the terms of trade show an improvement of 50 per cent. It follows that if export prices rise relative to import prices, the terms of trade rise or move favourably to the country.
If import prices rise relative to export prices over a period of time, the terms of trade will fall or become unfavourable to the country.
The concept of net barter terms of trade has come to be widely accepted as a useful device for measuring short-term changes in trading positions. Net Barter Terms of Trade Index appears in:. Handbook of Research on Global Indicators of Search inside this book for more research materials. Recommend to a Librarian Recommend to a Colleague. Looking for research materials? Full text search our database of , titles for Net Barter Terms of Trade Index to find related research papers.
Analyzing the Economics of Financial Market The prosperity and stability of any economic struc Utilizing Evidence-Based Lessons Learned for This concept involves the use of index numbers of export and import prices.
The construction of index numbers is beset with several problems related to the choice of commodities, obtaining of price quotations, choice of base year, use of appropriate weights and the method for computing index numbers. The net barter terms of trade are based on indices of export and import prices. These can measure the relative changes in prices between the current and base period. If there are qualitative changes in output in the two trading countries during a given period, they remain neglected.
In such a situation, net barter terms of trade cannot measured exactly the changes in welfare due to foreign trade in general and terms of trade in particular. If the export price index of a country falls, the import price index remaining the same, there is worsening of the net barter terms of trade.
As export prices are lower than the import prices, the country will be able to get a smaller quantity of import in exchange of the goods exported. The conclusion may be derived that the economic position of the country has deteriorated. It is possible that the fall in export prices has resulted from a fall in costs of producing export goods.
If the productivity in export sector increases at a greater rate than the worsening of net barter terms of trade, the country actually does not suffer due to trade, it rather gains. From this it follows that the net barter terms of trade can sometimes result in misleading conclusions. The concept of net barter terms of trade is an inappropriate criterion for explaining the distribution of gains from trade between two countries one of which is advanced and the other is less developed.
Suppose the import price index has risen relatively less than the export price index in the latter. It signifies an improvement in the terms of trade and the conclusion is derived that the less developed country gains from trade. However, if the profits from foreign investments rise large enough to off-set the increase in export prices, the LDC may not derive any gain from trade. Similarly, if the export prices fall but there is also an equivalent fall in the profits of foreign investments, the position of the country is not worse off even though the net barter terms of trade are unfavourable.
Net Barter Terms of Trade. The ratio between the prices of exports and imports is called the net barter terms of trade or as Viner puts it, "the commodity terms of trade." To express this symbolically: Where. T stands for net barter terms of trade, P stands for price index, x for exports, and. m for imports.
The commodity or net barter terms of trade is the ratio between the price of a country’s export goods and import goods. Symbolically, it can be expressed as: Tc = Px/Pm. Where Tc stands for the commodity terms of trade, P for .
If the net barter terms of trade are to be applied to more than one export and import commodities and the changes in terms of trade over a given period are to be computed, the index numbers of export and import prices rather than prices of individual commodities are taken into account. United Nations Conference on Trade and Development, Handbook of Statistics and data files, and International Monetary Fund, International Financial Statistics.
Net barter terms of trade DEFINITION: Net barter terms of trade are the ratio of the export price index to the corresponding import price index measured relative to the base year = What is Net Barter Terms of Trade Index? Definition of Net Barter Terms of Trade Index: Defined as the ratio of a country’s exports price index to its imports price index.