Different Concepts Of Terms Of Trade

Gerald M. Meier has classified the various concepts of terms of trade as below:

1. Related to the ratio of exchange between commodities:

• Net Barter Terms of Trade: Net barter terms of trade, measure the relative changes in the import and export prices and is expressed as,

  N = Px/Pm. Where Px and Pm are price index numbers of imports and exports, respectively.

• Gross Barter Terms of Trade: The gross barter terms of trade in the ratio of the physical quantity of imports to physical quantity of exports.

  G = Qm/Qx

  Where Qm and Qx are the volume index numbers of imports and exports, respectively.

• Income Terms of Trade: G.S. Dorrance has altered that net barter terms of trade and presented the income terms of trade.

  l = Px.Qx/Pm

2. Related to the interchange between productive resources:

• Single and Double Factoral Terms of Trade: The single factoral terms of trade is the adjusted net barter terms of trade for changes in the efficiency or productivity of a country‘s factor in its export industries.

  S = N × Zx

  Where Zx is the export productivity index.

  The double factoral terms of trade is the net barter terms of trade corrected for changes in the productivity in producing imports as well as exports.

  D = N × Zx/Zm

  Where Zm is an import productivity index.

3. Trade in terms of utility analysis:

• Real Cost Terms of Trade: The concept of real cost terms of trade, attempts to measure the gain from international trade in utility terms.

  R = N × Fx × Rx

  Where Fx = index of productivity efficiency in the industries of export and Rx = index of the amount of disutility incurred per unit.

• Utility Terms of Trade: It is an improvement of the real cost terms of trade.  

  U = N × Fx × Rx × Um

  Where Um = index of relative utility of imports.