Title: Terms of Trade (TOT): Types, Formula, Prebisch-Singer Hypothesis with AP Economy Example 2026

Slug: terms-of-trade-types-formula-prebisch-singer

Labels: International Economics, APPSC Assistant Professor, Terms of Trade, AP Economy

Meta Description: What is Terms of Trade? Learn Net Barter, Gross Barter, Income TOT formulas, Prebisch-Singer deterioration hypothesis, and AP export-import example for APPSC Assistant Professor exam.

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Introduction

Terms of Trade (TOT) is one of the most important concepts in International Economics and a frequently asked topic in APPSC Assistant Professor, Degree Lecturer, and UGC NET Economics exams.

In simple words, Terms of Trade shows how many imports a country can buy with its exports. If TOT improves, a country benefits from international trade.

What is Terms of Trade?

According to Jacob Viner, Terms of Trade refers to the rate at which one country's goods exchange with another country's goods.

Types of Terms of Trade (Important for AP Asst Prof)

1. Net Barter Terms of Trade (NBTT)

This is the most common type. It is the ratio of export price to import price.

Formula: NBTT = (Px / Pm) x 100

Where Px = Export Price Index, Pm = Import Price Index

Example: If India's export price index is 140 and import price index is 120, then NBTT = (140/120) x 100 = 116.6. It means TOT improved by 16.6%.

2. Gross Barter Terms of Trade (GBTT)

Given by F.W. Taussig. It is the ratio of quantity of imports to quantity of exports.

Formula: GBTT = (Qm / Qx) x 100

3. Income Terms of Trade (ITT)

Given by G.S. Dorrance. It shows the purchasing power of exports.

Formula: ITT = (Px _ Qx) / Pm

It is the most relevant for developing countries like India.

4. Single and Double Factoral TOT

Given by Jacob Viner. Single factoral considers productivity in export sector, double factoral considers productivity in both export and import sectors.

Prebisch-Singer Hypothesis: Secular Deterioration of TOT

This is the most asked hypothesis in AP Assistant Professor exams.

Economists Raul Prebisch (1950) and Hans Singer (1950) argued that Terms of Trade of developing countries (primary product exporters) deteriorate in the long run compared to developed countries (manufactured goods exporters).

Reasons given:

Low income elasticity of demand for primary products

Technological inventions reduce need for raw materials

Monopoly power of trade unions in developed countries keeps manufactured prices high

Developing countries have weak bargaining power

Criticism: This hypothesis was criticized because some primary products (oil, petroleum) prices increased sharply after 1970s.

AP Economy Example 2026 (Make your blog unique)

Andhra Pradesh exports marine products, rice, spices, and granite, and imports gold, petroleum, machinery.

Suppose in 2025-26:

AP Export Price Index (Marine + Rice) = 135

AP Import Price Index (Petroleum + Gold) = 150

NBTT = (135/150)_100 = 90

It means AP's Terms of Trade deteriorated by 10%. AP needs to export more to buy same amount of imports. This is why AP government promotes value-added exports like processed shrimp instead of raw shrimp.

This live example will help APPSC students to connect theory with AP Economy (Point 6 of your syllabus).

Determinants of Terms of Trade

Reciprocal demand (Mill)

Elasticity of demand and supply

Devaluation/Exchange rate

Economic growth - Bhagwati's Immiserizing Growth says if growth is export-biased, it can worsen TOT

Tariffs and quotas

Difference Between Terms of Trade and Balance of Trade

Students often confuse. Terms of Trade is a ratio of prices, while Balance of Trade is value of exports minus imports. Favourable TOT does not always mean favourable BOT.

Previous Year Question for Practice

Q. Net Barter Terms of Trade is calculated as?

A) (Px/Pm)_100 B) (Qx/Qm)_100 C) (Px_Qx/Pm)_100 D) None

Ans: A - This question was asked in AP Degree Lecturer 2019.

Q. Who gave Immiserizing Growth concept related to TOT?

Ans: Jagdish Bhagwati (1958)

Conclusion

Terms of Trade is not just a formula but a tool to measure gains from trade. For AP, improving TOT requires moving from primary exports to manufactured and technology exports as per AP Industrial Policy 2023-27.

If you are preparing for AP Assistant Professor Economics, master all 4 types of TOT and Prebisch-Singer hypothesis with Indian and AP examples.

What to do next?

Add this post in Blogger → Add 1 image we created earlier (Demand Supply or TOT formula) → Add FAQ schema:

Q1 What is Net Barter TOT formula?

Ans (Px/Pm)*100

Q2 What is Prebisch-Singer hypothesis?

Ans TOT of developing countries deteriorates.