ECS3702
ASSIGNMENT 2 SEMESTER 2 2025
UNIQUE NO.
DUE DATE: 22 SEPTEMBER 2025
,International Trade
Question 1
1. Definition The Terms of Trade (TOT) measure the rate at which a country’s exports
exchange for its imports. It is the ratio of an export price index to an import price index.
TOT reflects how many units of imports a country can obtain per unit of exports, and
therefore serves as an indicator of international purchasing power (UNCTAD, 2025).
2. Measurement The TOT index is calculated as:
Export Price Index
TOT Index = × 100
Import Price Index
UNCTAD expresses TOT as an index with base year 2015 = 100. A TOT above 100
indicates that export prices are higher relative to import prices than in 2015, implying an
improvement; a TOT below 100 indicates a deterioration (World Bank, 2024; UNCTAD,
2025).
3. Interpretation of improvement/decline An improvement in TOT means that export
prices have risen relative to import prices. A country can purchase more imports for the
same quantity of exports, raising real income and potentially living standards. A decline
in TOT means import prices have risen relative to export prices; the country must export
more to afford the same imports, reducing external purchasing power. These changes
affect consumer welfare, government budgets, and growth prospects, depending on
each country’s reliance on imported necessities and the elasticity of demand for its
exports (Krugman et al., 2018).
4. Figure: Terms of Trade Index by Region (2005–2024)
Source: UNCTADstat, Terms of Trade Index (base year 2015 = 100).
5. Discussion of trends (≤ 1 page)
From 2005 to 2024, the five regions display distinct but interconnected trends in their
Terms of Trade (TOT) indices:
, Africa recorded strong gains in the mid-2000s, peaking at 124.0 in 2008, before
dropping to 103.0 in 2009 during the global financial crisis. Another high point
occurred in 2022 (119.5) reflecting commodity price surges, though the index
eased to 114.0 by 2024. Africa’s TOT is highly sensitive to global commodity
cycles.
Oceania (heavily dependent on mineral and agricultural exports) shows the most
pronounced swings. It peaked in 2011 at 129.4 and again in 2022 at 131.9, but
hit troughs in 2005 (89.5) and 2016 (87.0), reflecting its vulnerability to global
resource price volatility.
Americas show more stability but a gradual upward trend. After a modest rise to
99.5 in 2009, the index strengthened to 113.3 in 2007 and reached 113.3 in
2007, with another high at 109.8 in 2022, though easing to 106.7 in 2024. The
pattern reflects mixed exports (commodities and manufactures).
Asia started high at 108.3 in 2005, but shows a downward trend, dipping as low
as 92.4 in 2022 before recovering slightly to 94.3 in 2024. Asia’s TOT
deterioration reflects rising import costs for energy and raw materials compared
to stable or modestly priced manufactured exports.
Europe remains the most stable, fluctuating within a narrow band between 96.6
(2021) and 101.8 (2024). Its diversified export structure (machinery, chemicals,
services) cushions against commodity price swings.
Oceania and Africa record higher volatility and the highest peaks, while Asia’s TOT
has declined significantly since 2005, and Europe remains stable with indices close
to 100.
6. Factors explaining regional differences
1. Export composition: Africa and Oceania rely heavily on commodities (oil,
minerals, agriculture), which face volatile world prices. Europe’s manufactured
exports provide stability.
2. Import structure: Asia imports large amounts of energy and raw materials,
raising import prices relative to manufactured exports.
ASSIGNMENT 2 SEMESTER 2 2025
UNIQUE NO.
DUE DATE: 22 SEPTEMBER 2025
,International Trade
Question 1
1. Definition The Terms of Trade (TOT) measure the rate at which a country’s exports
exchange for its imports. It is the ratio of an export price index to an import price index.
TOT reflects how many units of imports a country can obtain per unit of exports, and
therefore serves as an indicator of international purchasing power (UNCTAD, 2025).
2. Measurement The TOT index is calculated as:
Export Price Index
TOT Index = × 100
Import Price Index
UNCTAD expresses TOT as an index with base year 2015 = 100. A TOT above 100
indicates that export prices are higher relative to import prices than in 2015, implying an
improvement; a TOT below 100 indicates a deterioration (World Bank, 2024; UNCTAD,
2025).
3. Interpretation of improvement/decline An improvement in TOT means that export
prices have risen relative to import prices. A country can purchase more imports for the
same quantity of exports, raising real income and potentially living standards. A decline
in TOT means import prices have risen relative to export prices; the country must export
more to afford the same imports, reducing external purchasing power. These changes
affect consumer welfare, government budgets, and growth prospects, depending on
each country’s reliance on imported necessities and the elasticity of demand for its
exports (Krugman et al., 2018).
4. Figure: Terms of Trade Index by Region (2005–2024)
Source: UNCTADstat, Terms of Trade Index (base year 2015 = 100).
5. Discussion of trends (≤ 1 page)
From 2005 to 2024, the five regions display distinct but interconnected trends in their
Terms of Trade (TOT) indices:
, Africa recorded strong gains in the mid-2000s, peaking at 124.0 in 2008, before
dropping to 103.0 in 2009 during the global financial crisis. Another high point
occurred in 2022 (119.5) reflecting commodity price surges, though the index
eased to 114.0 by 2024. Africa’s TOT is highly sensitive to global commodity
cycles.
Oceania (heavily dependent on mineral and agricultural exports) shows the most
pronounced swings. It peaked in 2011 at 129.4 and again in 2022 at 131.9, but
hit troughs in 2005 (89.5) and 2016 (87.0), reflecting its vulnerability to global
resource price volatility.
Americas show more stability but a gradual upward trend. After a modest rise to
99.5 in 2009, the index strengthened to 113.3 in 2007 and reached 113.3 in
2007, with another high at 109.8 in 2022, though easing to 106.7 in 2024. The
pattern reflects mixed exports (commodities and manufactures).
Asia started high at 108.3 in 2005, but shows a downward trend, dipping as low
as 92.4 in 2022 before recovering slightly to 94.3 in 2024. Asia’s TOT
deterioration reflects rising import costs for energy and raw materials compared
to stable or modestly priced manufactured exports.
Europe remains the most stable, fluctuating within a narrow band between 96.6
(2021) and 101.8 (2024). Its diversified export structure (machinery, chemicals,
services) cushions against commodity price swings.
Oceania and Africa record higher volatility and the highest peaks, while Asia’s TOT
has declined significantly since 2005, and Europe remains stable with indices close
to 100.
6. Factors explaining regional differences
1. Export composition: Africa and Oceania rely heavily on commodities (oil,
minerals, agriculture), which face volatile world prices. Europe’s manufactured
exports provide stability.
2. Import structure: Asia imports large amounts of energy and raw materials,
raising import prices relative to manufactured exports.
