Commerce & marketsen
Terms of trade index
The ratio of the export price index to the import price index, measuring the evolution of a country's purchasing power from its exports.
Definition and calculation
The terms of trade index (or net barter terms of trade) measures the ratio between a country's export prices and import prices. It is calculated as: (Export price index / Import price index) × 100.
Interpretation
- An index above 100 (or rising) indicates an improvement in terms of trade: the country can purchase more imports with the same quantity of exports
- An index below 100 (or falling) indicates a deterioration: the country must export more to finance the same volume of imports
Influencing factors
Terms of trade are influenced by:
- Commodity prices (oil, metals, agricultural products)
- The exchange rate of the national currency
- The country's productive structure (sectoral specialisation)
- Trade policies (customs duties, subsidies)
Relevance for international trade
Terms of trade are a crucial indicator for countries dependent on commodity exports (the Prebisch-Singer thesis on the tendency for developing countries' terms of trade to deteriorate). Operators can use this indicator to assess the evolution of price competitiveness in their export markets. Data is published by the IMF, the World Bank, and national statistical institutes.