earticle

영어

The purpose of this paper is to re-examine the theoretical relationship between the gains from international trade and the terms of trade under free trade system. Marshall defines at earlier stage the terms of trade as the rate of exchange between representative units of a country`s imports and exports. This implies that the terms of trade are a ratio among physical quantities of traded goods. Given free trade, however, the terms of trade change over time, the direction of movement depending on relative prices among traded goods. If the economic growth is unbiased both at home and abroad, the terms of trade will move against the faster-growing country. That is why a country`s growth may actually lower its real income. This has been called immiserizing growth. This paper is, therefore, to review the theoretical relationship between the gains from international trade and the external terms of trade, and the effects on a national economy of the terms of trade. It is divided into two sections. The first deals with the theoretical relationship, the second describes briefly the effects on balance of trade and overseas transfer of domestic products. But this paper is not to elucidate more fully than has been done hitherto. My attempt in this paper is only a step toward a analysis of trade policy and a model-building on the strategy of terms of trade in Korea.