Question on WTO

I am moving to a new blog software.

I have posted my first blog entry, which is a readers question about the WTO

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Perma Link | By: T Pettinger | Monday, October 29, 2007
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What is the Terms of Trade

Readers Question: What is the terms of trade?


The Terms of Trade measures the relative price of exports compared to the price of imports.

Terms of Trade = 100 * Average export prices / Average Import prices


Basically, the terms of trade refers to how many exports will need to be sold in order to be able to purchase imports.

  • If the price of exports increases, there will be an improvement in the terms of trade.
  • If the price of exports falls, there will be a decline in the terms of trade.

If a country like Cuba, relies on the export of sugar, their terms of trade will depend a lot on the price of sugar. If there is a fall in the price of sugar, Cuba will experience a deterioration in the terms of trade.

Fall in the exchange Rate.

If there is a fall in the exchange rate, there will be a deterioration in the terms of trade because the price of exports falls.
For example, the devaluation of the dollar has worsened the US terms of Trade.


What is the Importance of the Terms of Trade?

To some extent we can use the terms of trade to measure the strength and well being of an economy. A prolonged fall in the terms of trade will reduce living standards. The US, will find that it can increasingly purchase less imports from abroad. But, at the same time it is also quite limited. For example, a devaluation doesn’t necessarily harm a country. A devaluation does make exports more competitive and can increase economic growth.

There is much more to the strength of an economy than the terms of trade. For example:
  • Volumes of trade
  • productivity
  • capital flows
  • economic growth

See also: Measuring international competitiveness

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Perma Link | By: T Pettinger | Friday, October 26, 2007
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Essay on Free Trade

I would like to using economics argument to write about free trade. My standpoint is Free trade is not fair and is not helpful for development in developing countries.

From your point of view, I should apply economic theory, application to real world, economic data and evaluation of data/theory. Therefore, my essay should write the development in developing countries and the standard of living in developing countries, e.g. are these countries getting better because free trade? Economic data about GDP, average wages in people, export and import in developing countries. These data to explain or to prove that is free trade works. It is right? In additional, I would like to ask should I using Keynesian Economic or Money Theory in my essays, or have another ecomoic theory is more stiuable to explain Free Trade.

  • For Free Trade it is not necessary to use Keynesian Theory.
  • If you can add data, your essay will be stronger. It depends on the level you are writing for. At A Level it would not be necessary to look into indepth statistics analysis.
  • These essays and notes offer a short explanation of the key arguments

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Perma Link | By: T Pettinger | Wednesday, September 12, 2007
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