Template-type: ReDIF-Paper 1.0
Author-Name: Ziesemer, Thomas
Author-Email: ziesemer@merit.unu.edu
Author-Workplace-Name: UNU-MERIT, and Scholl of Business and Economics,
	 Maastricht University
Title: Country terms of trade: Trends, unit roots, over-differencing, endogeneity, time 
	 dummies, and heterogeneity 
Abstract: Abstract. The debate about the Prebisch-Singer thesis has focused on 
	 primary commodities with some extensions to manufactures. As we think 
	 that the link between the terms of trade and long-run development, 
	 growth and convergence is the ability of exports to enhance investment 
	 through importing capital goods we analyse trends in country 
	 terms-of-trade for goods and services rather than those for commodities. 
	 Open economy growth models may be observationally equivalent to closed 
	 economy growth models under special conditions where they generate 
	 constant though endogenous terms of trade. We therefore consider trends 
	 in terms of trade for country groups according to the World Bank income 
	 classification. We find that all groups but the poorest have common unit 
	 roots, but none has individual unit roots. As low-income countries have 
	 no unit roots, over-differencing is inefficient and biases significance 
	 levels in first differences against the fall in the terms of trade. For 
	 the low-income countries the terms of trade of goods and services are 
	 falling at a rate that is significantly negative without and with 
	 endogeneity treatment by system GMM. A comprehensive analysis of the 
	 effects of time dummies supports the result of falling terms of trade 
	 for low-income countries. When all coefficients are country-specific 50% 
	 of all low-income countries have falling terms of trade in a 
	 simultaneous equation estimation using the SUR method.   
Classification-JEL: F43, O19
Keywords: country terms of trade, Prebisch-Singer thesis, long-run development,
	 World Bank income classification
Series: UNU-MERIT Working Papers
Creation-Date: 2011
Number: 065
File-URL: http://www.merit.unu.edu/publications/wppdf/2011/wp2011-065.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2011065