Empirical Analysis On The Main Influencing Factors Of Our Terms Of Trade

With the development of trade liberalization and economic globalization, foreign trade has become one of the most important factors in promoting every country's economic growth. The basic purpose of one country participating in international trade is to get trade benefits as many as possible. The indicator to weigh the benefits is the terms of trade, so the terms of trade is close to the benefits every country gets from trade.According to theory of comparative cost, developing countries can get trade benefits through exporting primary goods and importing industrial manufactured goods. Besides, according to the law of diminishing marginal revenue, the terms of trade of primary goods will take on an ascending trend relative to that of industrial manufactured goods. But at the beginning of 1950s, Prebisch-Singer Hypothesis, put forward by Prebisch and Singer, thought that because of technology progress and the low demand-price and revenue elasticity of primary goods, there was a long-run descending trend of primary goods' prices in developing countries relative to manufactured goods' prices in developed countries, which was disadvantageous to the export of developing country's primary goods and hindered the economic development of developing country. Although the hypothesis has some shortcomings, it gives us a convincing explanation to the disadvantageous place of developing countries in international division and international trade.Since the implement of our reform and opening policy, our foreign trade has been developing greatly, and the value of imports and exports has reached to 1422.12 billion dollars in 2005 from 20.64 billion dollars in 1981. Foreign trade has become a strong impetus to our economic growth. But because our country is a developing country, it is possible for the terms of trade to take on a long-run descending trend referred in Prebisch-Singer Hypothesis during the course of our quick economic growth. Besides, there are many arguments on whether there is a descending trend in our terms of trade and whether there is immiserizing growth; and there are many trade frictions, anti-dumping investigations and all kinds of technical barriers to trade, which make our export position tense. So this paper, focusing on the terms of trade, probes into the change of our country's terms of trade, and performs theoretical and empirical analyses of its influencing factors.This paper can be divided into the following parts. First, this paper reviews the relative references home and abroad to know about the research results on this subject, which become the basis of the following analysis. Second, this paper calculates the gross price index of our country's terms of trade and that of primary goods' and industrial manufactured goods' terms of trade from 1981 to 2005 using Laspeyres price index. The result shows that although the gross price index takes on different trends in different time, the general trend is deteriorating. The price indices of primary goods and industrial manufactured goods take on the similar trend, deteriorating. Third, this paper performs theoretical analysis of the main influencing factors to the terms of trade, and then performs cointegration test and causality test with the relative data, which shows the correlativity and the causality between the terms of trade and the influencing factors. At last, this paper brings forward relative policies of and suggestion on the basis of the above theoretical analysis and empirical test.