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Terms of trade volatility, exports, and GDP

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  • Thorsten Janus

    (University of Wyoming)

Abstract

This paper relates terms of trade volatility to exports and output in a two-sector model where entrepreneurs can produce non-tradable goods or pay a fixed cost in order to export. In order to compensate exporters for the fixed entry cost, the expected return to exporting must exceed the expected return to non-tradable production. As a result, exporters are more risk-exposed and trade volatility decreases entry into the export sector. However, terms of trade insurance and hedging strategies can increase exports, GDP, and welfare.

Suggested Citation

  • Thorsten Janus, 2020. "Terms of trade volatility, exports, and GDP," Economic Change and Restructuring, Springer, vol. 53(1), pages 25-38, February.
    • Handle: RePEc:kap:ecopln:v:53:y:2020:i:1:d:10.1007_s10644-019-09247-7
    DOI: 10.1007/s10644-019-09247-7
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    Cited by:

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    2. Idris Abdullahi Abdulqadir, 2022. "The nonlinearity of exchange rate pass‐through on currency invoice: A quantile, generalized method of moments and threshold effect‐test from sub‐Sahara African economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1473-1494, January.

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    More about this item

    Keywords

    Terms of trade volatility; Exports; Small open economies; Hedging;
    All these keywords.

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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