Theoretical Analysis on the Determinate Factors of Terms of Trade

As an important indicator measuring gains from trade, a country's terms of trade (TOT) and its variation have significant welfare implications. Literature review finds that most studies on TOT are of empirical nature while theoretical analysis especially systematic ones on TOT's determinate factors are not commonly found. Different scholars have made efforts to expand neoclassical models of TOT from different perspectives, but the choices of neoclassical premises given up have been made according to their specific academic interests while other premises are held constant. Expanded theoretical models thus derived are in no sense of general equilibrium nature. Started with the illustration of neoclassical model, the paper gives up neoclassical premises systematically and takes three steps to further theoretical analysis and expand TOT models accordingly.