Terms of Trade and Industrialization: Case of Economies with Manufacturing Exports

The paper explores the macroeconomic effect of industrialization on terms of trade and economic growth for economies with prevailing manufacturing exports. We tested such hypothesis as influence of terms of trade adjustment annual growth on manufacturing value added annual growth in economies with manufacturing exports and vice versa; influence of terms of trade adjustment annual growth and manufacturing value added annual growth on GDP per capita growth in economies with manufacturing exports. In the research we used annual data of GDP per capita (annual %), manufacturing, value added (annual %) and terms of trade adjustment (annual %) in 2008-2018 for 51 countries with manufacturing exports. For this purpose, we estimated vector autoregression model for panel data. Analysis of impulse response functions shows that the positive shock in manufacturing value added growth leads to slight increase in terms of trade adjustment growth in the second year and further stabilization in the seventh period. In turn, shock in terms of trade adjustment growth provokes smaller upsurge in manufacturing value added growth than in previous case. At the same time, shock in manufacturing value added growth results in gross national product per capita growth increase and its further stabilization in three years term. In addition, gross national product per capita growth reacts to shock in terms of trade adjustment growth by slight rising.