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Terms of Trade in the Medium-run

Vahagn Galstyan

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: This paper contributes to empirical research on the dynamics of the terms of trade. We start by proposing a method for constructing different measures of the terms of trade. This is achieved by estimating a range of substitution elasticities using a panel data approach and highly disaggregated data on trade flows. Next, various measures of the terms of trade and trade margins are related to productivity and demand proxies. We find that domestic demand side movements are positively related to the terms of trade, while domestic productivity gains result in a deterioration of the terms of trade. Our results suggest that higher relative productivity raises the real component of exports relative to imports along the intensive margin inducing a weakening of the terms of trade.

Keywords: Terms of trade; Trade margins; International prices (search for similar items in EconPapers)
JEL-codes: F40 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-opm
Date: 2011-10
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