The paper presented in this seminar examines the determinants of Taiwan’s terms of trade over the last three decades. The Prebisch-Singer hypothesis and Kaplinsky and Santos-Paulino (2005) suggest that a manufacturing-based economy, which primarily exports high-tech goods, should have an increasing trend in its terms of trade. However, as a major exporter of information and communication technology (ICT) goods, Taiwan has experienced a downward terms of trade in the last few decades.

Taiwan’s exports and imports are both dominated by ICT goods, but the price of ICT products dominates the trends in export prices while the price of commodity goods dominates the movement of the import price. These determinants result in a descending trend in Taiwan’s terms of trade. A shift-share analysis shows that the fluctuations in Taiwan’s terms of trade mainly arise from changes in the prices and shares of commodity and ICT goods.

This study also investigates the influence of China on Taiwan’s terms of trade. China’s strong demand for commodity goods increases commodity prices, while China’s improvements in technological capacity enable China to compete with Japan, Korea, and Taiwan over ICT intermediate goods. This competition results in falling prices for ICT products. These trends in commodity prices and ICT goods consequently lead to the trend deterioration in Taiwan’s terms of trade.

Kai-Yun Tsai is a PhD candidate in Economics at CAMA in the Crawford School of Public Policy. Her current research focuses on international transmission of economic disturbance through the trade linkage and the competition over ICT goods in East Asia’s supply chains.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.