Pakistan's Terms of Trade, 1955-60

A. I. Aminul Islam


The importance of the terms of trade in economic development
arises from the fact that they affect a country's import capacity as
well as the balance of payments position. The position of most of the
underdeveloped countries with respect to their export proceeds and terms
of trade is precarious and vulnerable. Though the ratio of exports to
national income may not be higher in these countries than in the
advanced countries, most of these countries depend excessively on a few
export commodities for the bulk of their export earnings. Consequently,
export disturbances are a source of serious problems for these
countries. The traditional pattern of Pakistan's foreign trade is
similar to that cf many other underdeveloped countries. The
characteristic feature is a heavy dependence on a small number of export
items: Jute and cotton (raw, yarn and manufactures) account for about 80
per cent of Pakistan's total export earnings; while raw wool, tea, hides
and skins add another 5 per cent1. Though imports are more varied,
particular items like machinery and mill work, metals and ores, mineral
oils, etc., account for a major share of imĀ¬ports. Lately, with
increased home production cf consumer goods, a new trend has become
evident. Imports of consumer goods have been considerably reduced, and
greater emphasis is now being placed on the import of industrial
machinery. But the deficit in the balance of trade and the need to
service the foreign debt still limits Pakistan's capacity to import the
capital equipment necessary for its industrial development.

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