Question

Explain the types of Terms of Trade given by Viner.

Answer 1

1. The Single Factorial Terms of Trade:
Viner has devised another concept called “the single factorial terms of trade” as an improvement upon the commodity terms of trade. It represents the ratio of the export–price index to the import–price index adjusted for changes in the productivity of a country’s factors in the production of exports. Symbolically, it can be stated as
T_f = (P_x / P_m ) F_x
Where T_f stands for single factorial terms of trade index. F_x stands for productivity in exports (which is measured as the index of cost in terms of quantity of factors of production used per unit of export).

2. Double Factorial Terms of Trade:
Viner constructed another index called “Double factorial terms of Trade”. It is expressed as
T_ff = (P_x / P_m )(F_x / F_m)
which takes into account the productivity in the country’s exports, as well as the productivity of foreign factors.
Here, F_m represents the import index (which is measured as the index of cost in terms of quantity of factors of production employed per unit of imports).