Effects of Terms of Trade and its Volatility on Economic Growth: A Cross Country Empirical Investigation

This study examines the effects of terms of trade and its volatility on economic growth for a sample of 94 developed and developing countries, using 5 year average annual data from 2004 to 2008. The cross country ordinary least square estimation results indicate significant positive effect of terms of trade on economic growth. Furthermore, volatility of terms of trade has significant positive effect on economic growth. To test the robustness of initial results, sensitivity analysis has been performed using different additional variables, sample size and various proxies of volatility variable. The initial results were found robust despite the inclusion of various variables in the basic model and use of various proxies for volatility of terms of trade.