A robust estimation of the terms of trade between the United Kingdom and British India, 1858¬タモ1947 ¬リニ

a r t i c l e i n f o Keywords: Trends Terms of trade Integrated process Structural break Price indices This paper conducts a robust estimation of terms of trade between United Kingdom and British India over the period 1858 to 1947. The trend estimate of the terms of trade is measured using a novel econometric method due to Perron and Yabu (2009a) that is robust to the presence or absence of a unit root in the data. A further novel econometric procedure due to Perron and Yabu (2009b) for detecting a structural break is carried out allowing one to be completely agnostic to the underlying order of integration of the data. Taking into account transportation costs during this period, we conclude that there is no clear evidence whether the terms of trade improved for the United Kingdom with British India during the period considered. The issue of trends in empirical studies of the terms of trade has dominated the trade and development literature for many years. The most popular concept of terms of trade and widely used in the literature is that of the net barter terms of trade (NBTT) defined as the ratio of the price of exports to the price of imports. For example, if a country's price of exports has declined in relation to the price of imports, then the terms of trade for the country are said to have deteriorated. It has been argued that this phenomenon of deteriorating terms of trade has been reflected in the case of developing countries. In other words, developing countries (traditionally exporting primary commodities) are losing out to developed countries (exporting mainly capital intensive goods) as the NBTT for developing countries is believed to have deteriorated over time. This view put forward by Prebisch (1950) and Singer (1950), popularly known as the Prebisch–Singer Hypothesis, sparked a debate among development economists as to whether developing countries should specialise in the production and export of primary commodities. It has been well documented in various studies that many developing countries depend heavily on just one or a few commodities for a large part of their national income. From the mid-eighteenth century to the mid-nineteenth century, India's exports included both manufactured goods and primary commodities. However, over the period analysed in this study, the exports from India started to be dominated by primary commodities and imports started to comprise of manufactured …