Terms of Trade The gains from international trade depend upon the terms of trade which refers to the ratio of export prices to import prices. . . Meaning It is the rate at which the goods of one country are exchanged for goods of another country.
It is expressed as the relation between export prices and import prices. Terms of trade improves when average price of exports is higher than average price of imports. . .
Types of Terms of Trade The different concepts of terms of trade were classified by Gerald M.Meier into the following three categories: Terms of Trade related to the Ratio of Exchange between Commodities . Net Barter Terms of Trade This type was developed by Taussig in .The ratio between the prices of exports and of imports is called the “net barter terms of trade’. It is named by Viner as the ‘commodity terms of trade’. It is expressed as: T n = (P x / P m ) x Terms Of Trade (TOT) = Index Of Export Prices X Index Of Import Prices Net Barter Terms of Trade - Taussig Gross Barter Terms of Trade - Taussig Income Terms of Trade - G.S.Dorrance Terms of Trade - - International Economics Where, T n = Net Barter Terms of Trade P x = Index number of export prices P m = Index number of import prices This is used to measure the gain from international trade.
If ‘Tn’ is greater than , then it is a favourable terms of trade which will mean that for a rupee of export, more of imports can be received by a country. Gross Barter Terms of Trade This was developed by Taussig in as an improvement over the net terms of trade. It is an index of relationship between total physical quantity of imports and the total physical quantity of exports. T g = (Q x /Q m ) x Where, Q m = Index of import quantities Q x = Index of export quantities If for a given quantity of export, more