The nexus between commodity terms and national terms of trade of Sub-Sahara African countries: implication for intersectoral linkage

Abstract

This study investigates the relationship between national terms of trade (price of export relative to import) and commodity terms of trade (price of primary commodity relative to manufactured goods) using data on forty-eight (48) Sub-Sahara Africa (SSA) countries. Data sourced from the International Monetary Fund (IMF) database and World Bank (WB) Development Indicator (WDI) was estimated via panel autoregressive distributed lag (panel-ARDL). The result provides evidence of a stable positive long-run relationship between commodity terms of trade and terms of trade of individual Sub-Sahara Africa countries. This implies that a decline in the relative price of primary commodity will result in a fall in aggregate terms of trade in the long run. The study submitted that commodity terms of trade is a useful indicator of the movement in the aggregate terms of trade of countries in Sub-Sahara Africa and the validity of Prebisch-Singer hypothesis (PSH). We recommend a big-push investment in the production and export of primary commodity since the trend in the terms of trade of primary commodity reflects the trend in the terms of trade of manufactured goods.