Current Issues in Economics and Finance
Coping with Terms-of-Trade Shocks in Developing Countries
November 2003 Volume 9, Number 11
JEL classification: F31, F41

Authors: Christian Broda and Cédric Tille

Sharp swings in a developing country's terms of trade—the price of its exports relative to the price of its imports—can seriously disrupt output growth. An analysis of the effects of a decline in export prices in seventy-five developing economies suggests that countries with a flexible exchange rate will experience a much milder contraction in output than their counterparts with fixed exchange rate regimes.

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