Question

Explain the Net Barter Terms of Trade and Gross Barter Terms of Trade.

Answer 1

1. Net Barter Terms of Trade:
This type was developed by Taussig in 1927. The ratio between the prices of exports and of imports is called the “net barter terms of trade’. It is named by Viner as the ‘commodity terms of trade’.
It is expressed as:
T_n = (P _x /P_m ) × 100
Where,
T_n = Net Barter Terms of Trade
P_x = Index number of export prices
P_m = Index number of import prices
This is used to measure the gain from international trade. If ‘Tn’ is greater than 100, then it is a favorable term of trade which will mean that for a rupee of export, more imports can be received by a country.

2. Gross Barter Terms of Trade:
This was developed by Taussig in 1927 as an improvement over the net terms of trade. It is an index of the relationship between the total physical quantity of imports and the total physical quantity of exports.
T = (Q_m/Q_x) × 100
Where,
Q_m = Index of import quantities
Q_x = Index of export quantities
If for a given quantity of export, more quantity of import can be consumed by a country, then one can say that terms of trade are favorable.