Terms-of-trade effects in catching-up countries: the case of the Czech Republic
Author(s): Marek Mora (Directorate General for Economic and Financial Affairs)
Terms-of-trade effects in catching-up countries: the case of the Czech Republic(263 kB)
Over the last decade the Czech Republic has had the lowest GDP growth of all the ten recently acceded Member States. However, its foreign balance has improved over the same period, as have the terms of trade. Although changing terms of trade can have a significant welfare effect, this often escapes the attention of economists, who concentrate on real GDP growth as a main macroeconomic indicator. As the case of the Czech Republic shows, developments in the terms of trade should be taken into account when assessing a country's catching-up performance. With positive terms of trade wages can increase faster than labour productivity without affecting the relative share of the gross operating surplus in the economy.
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(Country Focus 04. March 2006.
Brussels. 6pp. Tab. Free.)