The Deterministic and speculative component of the terms of trade of primary commodities: an "Eclectic" real option value approach

This paper analyzes the evolution of the barter terms of trade (BTT) of primary commodities using the longest time series available (1900-2007), with the objective to test the hypothesis that BTTs are affected by a secular tendency to decline. The paper reviews the literature on the subject and explores some new dimensions of the problem, such as, in particular, the influence of the size distribution of BTTs over time and the presence of a speculative component depending on the call option value of commodity stocks. The results appear to confirm the absence of any significant tendency for a secular decline.