The Development of the terms of trade in the process of liberalisation in Turkey

The concept of "terms of trade" which has a significant place in the International Economic theory is especially used for analyzing developing countries' foreign economic relations. The main reason for "terms of trade" gaining too much attetion is due to its being used as an indicator for gains obtained from foreign trade. Classical and Neo-Classical economists generally accepted this concept as a measure of gains obtained from foreign trade. Theoritical discussions about "terms of trade" have been continuing since 1800s. Classical economists stated that the terms of trade of the agricultural goods and row materials which are referred to as as primary goods will improve with respect to manufactures in the long term and based their statement on the law of diminishing returns. The studies of the post-World War II period state opposite of the Classical economists' ideas since they found that terms of trade of the primary goods deterioration in the long run. These studies led to the hypothesis called "deterioration terms of trade" and its theory has been developed by R.Prebisch and H.W.Singer. Since Classical economists state that every country involving in trade will be advantageous, they suggest liberal policies while such name as R.Prebisch, H.W.Singer and G.Myrdal called the "structural view" economists suggests policies depending on inward oriented. Turkey, in the post- 1980 period, has mode a significant structural change for liberalizing her economy. When the changes in the terms of trade and factors effecting these changes in Turkey in the liberalization process are examined, it can be realized that Turkeys terms of trade has a negative trend. It is found that in the liberalization process, while the wholesale price index and nominal exchange rates are the Granger effects of terms of trade, the variables of liberalization, growth, balance of trade and the share of industrial exports to total exports were not found to be Granger effect of terms of trade. But when the industrial exports trend and terms of trade trend are compared, some findings for Singer and Prebisch's hypothesis being relevant for Turkey are found.