Trivia V: Which has it been the longest and deepest contemporary fall in terms or trade ever recorded?

When analyzing the terms-of-trade time series of Mexico, we can easily identify several falls since 1980. However, the longest and deepest contraction ever recorded in modern times is, by far and undoubtedly, the one experienced (and lived) in the 80s, what we have called as The Boom and Doom of Oil.


This sharp decline in terms of trade that lasted about 70 months and was the trigger of multiple social and economic shocks in the 80s[1] must be a reminder for all of us that relying extensively on oil as an economic development lever is a risky business especially if oil is mixed in politics and the economy is facing a weak institutional framework[2].

We might end up in a vicious circle of declining terms of trade, reduced social and economic welfare, higher poverty, and weak and fragile institutions, along with the curse of natural resources and social unrest. Therefore, in order to break up that circle we must work out every part of this equation.

[1] For example, severe fall in GDP per capita for several years, increased in the poverty indicators and social unrest, higher wealth inequality indices, just to mention some.

[2] One of the several explanations of what is called the Curse of Natural Resources Theory.

Author: Félix González Sáenz


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