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Do terms-of-trade effects matter for trade agreements

Do terms-of-trade effects matter for trade agreements 2025

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The document investigates the impact of terms-of-trade effects on trade agreements among WTO countries, specifically analyzing whether MFN tariffs established during the Uruguay Round align with the terms-of-trade hypothesis. The authors develop a model of multilateral trade negotiations that predicts a negative relationship between importer tariffs and exporter concentration, measured by the Herfindahl-Hirschman index. Empirical analysis using data from over 30 WTO countries supports this hypothesis, indicating that internalization of terms-of-trade effects through WTO negotiations has reduced average tariffs by approximately 20% compared to non-cooperative levels. The findings suggest that trade agreements are designed to mitigate terms-of-trade motives, highlighting the importance of participation in negotiations.

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Is higher or lower terms of trade better?

Fluctuating Terms of Trade An increase in the TOT can thus be beneficial because the country needs fewer exports to buy a given number of imports. It might also have a positive impact on domestic cost-push inflation when the TOT increases because the increase is indicative of falling import prices to export prices.

What are favorable terms of trade?

If the prices of a countrys exports rise relative to the prices of its imports, one says that its terms of trade have moved in a favourable direction, because, in effect, it now receives more imports for each unit of goods exported.

Why are terms of trade important?

Terms of trade is important for providing key information regarding a country. First, terms of trade provide information on just how competitive a country is. Second, terms of trade provide information about just what capacity of commodities a country can purchase on average.

Is a higher balance of trade good?

A numerically positive balance of trade, also known as a trade surplus, occurs when a country exports more goods than it imports. This means that the country is earning more from its exports than it is spending on its imports, and it is generally seen as a sign of economic strength.

Is higher terms of trade better?

A country can purchase more imported goods for every unit of export that it sells when its TOT improves. An increase in the TOT can thus be beneficial because the country needs fewer exports to buy a given number of imports.

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Do terms of trade and its volatility matter?

Furthermore, volatility of terms of trade has significant positive effect on economic growth. To test the robustness of initial results, sensitivity analysis has been performed using different additional variables, sample size and various proxies of volatility variable.

What are the benefits of increasing terms of trade?

So potentially, a rise in the terms of trade creates a benefit in terms of how many goods need to be exported to buy a given amount of imports. It can also have a beneficial effect on domestic cost-push inflation as an improvement indicates falling import prices relative to export prices.

Do terms-of-trade effects matter for trade agreements 2025

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Is higher or lower terms of trade better?

What are favorable terms of trade?

Why are terms of trade important?

Is a higher balance of trade good?

Is higher terms of trade better?

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Do terms of trade and its volatility matter?

What are the benefits of increasing terms of trade?

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