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Cambridge Journal of Economics Advance Access published online on January 19, 2008
Cambridge Journal of Economics, doi:10.1093/cje/bem054
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© The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Can globalisation stop the decline in commodities' terms of trade?

AndréVarella Mollick, JoãoRicardo Faria, Pedro H. Albuquerque and Miguel A. León-Ledesma*

* University of Texas-Pan American (UTPA), USA, Nottingham Trent University, UK, University of Minnesota Duluth, USA, University of Kent, UK, respectively

Address for correspondence: Miguel A. León-Ledesma, Department of Economics, Keynes College, University of Kent, Canterbury, Kent CT2 7NP, UK; email: m.a.leon-ledesma{at}kent.ac.uk

In this paper we address the following question: would a fully integrated world economy eliminate the widely reported decline in the terms of trade of primary commodities? We address the question by looking at the terms of trade within the US (a highly integrated economy). Our findings show two results. First, US internal real commodities' terms of trade over the 1947–1998 period experienced slowly declining but significant trends. Second, once we control for the effect of US prices on international terms of trade, we find a long-run relationship between the US and international relative prices. These findings support the view that the decline of commodities' terms of trade bears no relationship with the process of globalisation. This seems to indicate that, if world terms of trade behaved as the US terms of trade, neither increased integration nor protectionist measures would eliminate this trend.

Key Words: Economic integration • Globalisation • Prebisch–Singer

JEL classifications: E31, F15, F41

Manuscript received October 23, 2006; final version received July 13, 2007.


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