What Are Trade Qualifications?

Terms of trade (TOT) refers to the ratio of how many units of foreign imports can be exchanged for each unit of goods exported by a country within a certain period of time, or the exchange rate. It can reflect the economic benefits of a country's foreign trade in the macro. Terms of trade are usually expressed as the ratio of the export price index to the import price index during the period. ^[1]

Terms of trade

Terms of trade (TOT) refers to the ratio of how many units of foreign imports can be exchanged for each unit of goods exported by a country within a certain period of time, or the exchange rate. It can reflect the economic benefits of a country's foreign trade in the macro. Terms of trade are usually expressed as the ratio of the export price index to the import price index during the period. ^[1]

Terms of Trade are used to measure the profitability and export profitability of a country's exports relative to imports over a period of time.

Terms of Commodity Trade (NBTT)

Commodity price terms of trade, also known as net terms of trade, are exchange rates for a country s exports and imports. The calculation formula is:

Terms of Trade Index = Export Price Index /

Suppose a country

There are many factors that affect the terms of trade. Here we analyze only a few of the major and intuitive factors that affect the terms of trade.

Demand for import and export goods

Changes in the demand for imported and exported goods affect the terms of trade by affecting the prices of imported and exported goods. For a certain commodity, there may be many factors affecting its demand, but what we analyze here is mainly the demand for a country's total import and export commodities. According to the principles of macroeconomics, the main factor that determines a country's import demand is the level of economic development of that country, and the main factor that determines the demand for a country's export goods is the level of foreign economic development. traditional

At the same time as economic growth and GDP increase, the terms of trade will definitely deteriorate.

Terms of trade evolution

The real start of China's foreign trade system reform was in 1988. Although China had carried out economic system reform before, it has not liberalized in the field of foreign trade. China's export trade has always been to meet the needs of the country's export earning foreign exchange. It is priced by cost and market demand and supply, so the terms of trade calculated in this case have lost its original economic meaning. The regression equation is: M = c (1) + c (2) GDP + c (3) PRO Based on the data from 1990-2000, the regression result obtained by using the least square method to regression on the model is: M = -0.01017282-0.006137 GDP + 1.142956PR0 The industrial structure has a positive effect on the terms of trade. When the industrial structure index rises by one unit, the terms of trade improves by 1.143 units. This effect is significant when the significance level is 0.0001; at the same time, when the actual GDP index changes (Increase) by one unit, the terms of trade will decrease (deteriorate) by 0.0061 units. It is worth noting that this effect is statistically insignificant when the significance level is 0.1. In the regression model in this paper, the effect of regression is better; R2 is also very high, and the corrected R2 is close to 0.9, which indicates that although theoretically the factors affecting the terms of trade may be

Terms of trade chart

There are many, but the two explanatory variables considered by the model already account for most of the changes in terms of trade. In the evolution of China's terms of trade, most of the changes in terms of trade can be explained by changes in China's industrial structure. The change or growth of GDP has a negative impact on the terms of trade, but this impact is small and has no Certainty. This is consistent with the conclusions drawn from China as an economic power according to Western economic theory. Because western economic theory believes that for large countries, there is an inverse relationship between economic growth and terms of trade. From the results of regression, it can be found that China's terms of trade and economic growth show a negative relationship in statistics, but this This relationship is not significant due to various reasons, which proves to some extent that China has become an economic power. Judging from the regression results, GDP does not have a good ability to explain the terms of trade, and there is no necessary relationship between GDP and terms of trade. The variable that has a better ability to explain changes in China's terms of trade is the industrial structure. This is consistent with Pei Bi and Singh's theory that a major reason why developing countries' terms of trade tends to deteriorate is the asymmetry of product price changes. Compared with secondary products, the prices of primary products are often in a stalemate during the rising phase of the economic cycle, while the prices of primary products may plummet during the decline of the economic cycle. In other words, the price of primary products tends to show asymmetric growth that does not rise or slightly rises when it rises, and falls sharply when it falls. China is a developing country and a large developing country. The reason why China can avoid the deterioration of the terms of trade is because China has realized the optimization and upgrading of its industrial structure while economic growth.

Terms of trade variable definition

X, the number of exported goods. M, the number of imported goods. M is import demand elasticity, E x is export demand elasticity, SM is import supply elasticity, and Sx is export supply elasticity (elasticities are absolute values).

Px is the export price in local currency, PM is the import price in local currency, PX * is the export price in foreign currency, and PM * is the import price in foreign currency.

e is the exchange rate of the direct quotation method, and Q is the terms of trade. It is the local currency price that determines the demand for imported goods and the supply of exported goods for foreign currencies, so there are:

When the local currency devalues, there are de> 0, and because the elasticity is absolute, the sign of (11) depends on the sign of (EXEM-SXSM). Therefore, the change in terms of trade when the local currency devalues depends on the elasticity of the supply and demand of imports and exports. When the local currency depreciates, the basic conclusion is:

When SxSm> ExEm, that is, the product of supply elasticity is greater than the product of demand elasticity, the terms of trade deteriorate;

When SxSm <ExEm, that is, the product of supply elasticity is less than the product of demand elasticity, the terms of trade improve;

When SxSm = ExEm, that is, the product of supply elasticity is equal to the product of demand elasticity, the terms of trade remain unchanged.