Journal Article

Can globalisation stop the decline in commodities' terms of trade?

André Varella Mollick, João Ricardo Faria, Pedro H. Albuquerque and Miguel A. León-Ledesma

in Cambridge Journal of Economics

Published on behalf of Cambridge Political Economy Society

Volume 32, issue 5, pages 683-701
Published in print September 2008 | ISSN: 0309-166X
Published online January 2008 | e-ISSN: 1464-3545 | DOI: https://dx.doi.org/10.1093/cje/bem054
Can globalisation stop the decline in commodities' terms of trade?

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In this paper we address the following question: would a fully integrated world economy eliminate the widely reported decline in the terms of trade of primary commodities? We address the question by looking at the terms of trade within the US (a highly integrated economy). Our findings show two results. First, US internal real commodities' terms of trade over the 1947–1998 period experienced slowly declining but significant trends. Second, once we control for the effect of US prices on international terms of trade, we find a long-run relationship between the US and international relative prices. These findings support the view that the decline of commodities' terms of trade bears no relationship with the process of globalisation. This seems to indicate that, if world terms of trade behaved as the US terms of trade, neither increased integration nor protectionist measures would eliminate this trend.

Keywords: Economic integration; Globalisation; Prebisch–Singer; E31; F15; F41

Journal Article.  7564 words.  Illustrated.

Subjects: International Trade ; Prices, Business Fluctuations, and Cycles ; Macroeconomic Aspects of International Trade and Finance

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