ABSTRACT
It will be recalled that the ‘terms of trade’ expresses the relationship existing between the prices of exports and imports, either of one country or group of countries, or of one product or group of products. 1 Hence an improvements in the terms of trade of a country, i.e. a relative rise in its export prices compared to its import prices, increases its money receipts and vice versa. Though from the point of view of Third World countries a worsening of the terms of trade usually has an adverse effect, it should be noted that such a change could reflect a favourable economic situation, since lower export prices could be due to a rapid growth in productivity. In such a situation the lower export prices need not necessarily reduce the total remuneration accruing to local factors of production.
