terms of trade

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Terms of trade

The weighted average of a nation's export prices relative to its import prices.

Terms of Trade

1. The conditions the parties agree to follow in the trade of a security. Necessary terms of trade include the price and the number of shares or bonds traded. The terms of trade may also include special conditions.

2. In international trade, the difference between price indices on imports and exports.

3. See: Balance of trade.
Terms of tradeclick for a larger image
Fig. 183 Terms of trade. See entry. Source: Office for National Statistics, 2004.

terms of trade

a PRICE INDEX that shows a country's EXPORT prices relative to its IMPORT prices. It is constructed by taking an index of prices received for exports, on the one hand, and an index of prices paid for imports, on the other, and then dividing the first by the second (see Fig. 183 ). An improvement in a country's terms of trade occurs if its export prices rise at a faster rate than import prices over time and a worsening of the terms of trade if export prices rise more slowly than import prices; or, vice-versa, if export prices fall at a slower rate than import prices (as in Fig. 183), then the terms of trade are improved.

Superficially, an improvement in a country's terms of trade may be considered to be beneficial: in foreign-exchange terms, a given amount of exports will now finance the purchase of a greater amount of imports, or, put another way, a given amount of imports can now be purchased for a smaller amount of exports. A critical factor in this regard, however, is the PRICE- ELASTICITY OF DEMAND for exports and imports. If, for example, export demand is price-elastic, then price rises (which make the country's exports less competitive in world markets) will result in a more than proportionate fall in export volume, thus lowering foreign-exchange receipts and adversely affecting domestic output and employment. See also BALANCE OF PAYMENTS EQUILIBRIUM, DEVALUATION, REVALUATION.

References in periodicals archive ?
We assume that, holding its local price fixed, each government achieves higher welfare when its terms of trade improve:
The first term reflects the fact that an increase in the tax rate by the rival exporting nation B, results in an improved terms of trade for nation A.
Priority for identifying the relative strength of each country's demand for the other's product as the determinant of the terms of trade goes to James Pennington, Robert Torrens, and, above all, John Stuart Mill.
Impact on current balances of changes in terms of trade and domestic demand Differences from baseline, $ billion A.
along each terms of trade line (ray from origin) (see Dinopoulos-Kreinin [1989]).
From 1961 to 2007 labour's terms of trade improved slightly, helping to offset the effect of the fall in labour share on the growth in consumption wages.
Table 16 Terms of Trade Annual percentage change 2003 2004 2005 2006 Manufactured goods 0.
Cheong and D'Silva (1984) have computed the terms of trade indices by using the estimates of GDP at factor costs in current prices originating in agricultural and manufacturing sectors and their corresponding estimates at constant prices.
This article compares fluctuations in New Zealand's terms of trade since 1970 to those of a group of advanced economies.
Summary: The Sharjah Investment and Development Authority (Shurooq) and the Sharjah Chamber of Commerce and Industry (SCCI) have signed four separate MoUs with US based authorities with the aim of strengthening commercial ties, developing reciprocal cooperation and expanding the strategic partnership in terms of trade exchange between Sharjah and the USA.
New Zealand's terms of trade fell for a sixth consecutive quarter to their lowest level in three years in the fourth quarter as weaker dairy prices weighed on exports and outpaced a fall in import prices, official data showed.