Terms of Trade and Economic Development

The present essay tries to elucidate various connections between the terms of trade and economic development. It utilizes existing statistical and other factual material, but it does not present any new empirical facts nor does it contain new computations. The paper is, to a large extent, critical and polemical. That is to say, it tries to disprove certain widely held notions, historical generalizations, as well as policy conclusions which have been derived from such generalizations. No originality is claimed for these critical analyses, but no apologies are offered either. It is hoped that a systematic stocktaking of existing facts and arguments may clear the air and lead to useful results. In the first section, I discuss some general propositions of international trade theory concerning the terms of trade in their relation to economic welfare. In the succeeding sections, some applications of these propositions to the problems of economic development are made.