Higher terms of trade (the prices of the goods and services exported relative to the prices of goods and services that imported) can make a country wealthier. South Africa’s terms of trade have increased meaningfully since 2000, and this reflected increases in a variety of commodities South Africa exports (particularly for platinum group metals, iron ore and coal), not just gold. Alternative sources of estimates of South Africa’s terms of trade paint a similar picture.
Usually, such a strong increase in terms of trade would have a big positive impact on national income, increasing fiscal revenues and supporting economic growth. But as I showed in these previous posts, South Africa’s export volumes have failed to increase to take advantage of this income windfall over recent decades.
