Terms of trade volatility, exports, and GDP

Thorsten Janus

Economic Change and Restructuring, 2020, vol. 53, issue 1, No 2, 25-38

Abstract: Abstract This paper relates terms of trade volatility to exports and output in a two-sector model where entrepreneurs can produce non-tradable goods or pay a fixed cost in order to export. In order to compensate exporters for the fixed entry cost, the expected return to exporting must exceed the expected return to non-tradable production. As a result, exporters are more risk-exposed and trade volatility decreases entry into the export sector. However, terms of trade insurance and hedging strategies can increase exports, GDP, and welfare.

Keywords: Terms of trade volatility; Exports; Small open economies; Hedging (search for similar items in EconPapers)
JEL-codes: F40 F44 O19 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10644-019-09247-7

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