Terms of Trade

Question 1

Countries with a favourable ToT

Answer 1

Saudi Arabia (oil)
Qatar
Russia

🌍 Example: Australia (2024–2025)
Why: Australia benefits from high global commodity prices, especially iron ore and lithium exports to China.

Effect:

Export prices ↑ due to strong demand.

Import prices stable or falling with a stronger AUD.

Impact:

Improved national income.

Stronger exchange rate.

Potential worsening of export competitiveness in the long run

Question 2

Countries with an unfavourable ToT

Answer 2

India
Sub Saharan African Countries reliant on commodity prices (Kenya, Tanzania)

🌍 Example: Ghana (2024–2025)
Why: Ghana is heavily reliant on cocoa and gold exports, but:

Cocoa prices fell due to supply chain surpluses.

Import costs (especially fuel and machinery) rose due to currency depreciation and global oil price fluctuations.

Effect:

Weakened cedi.

Reduced ability to finance imports.

Worsening current account balance.