Causes of unfavorable TOT in a developing country:
The trends of developing countries after post world-war shows that the terms of trads of developing countries have been continuously moving against developing countries which mainly depends on export of primary products. The following causes are responsible for such unfavourable terms of trade.
Properties:
- High cost ratio: As compared advanced country developing countries have high cost ratio on account of the low productivity of forces of production.
- Backward technology: The productivity of factors remain low in developing countries due to the lock of modern technology. So, the cost of production and domestic price structure is relatively high.
- High population growth: High ratio of population growth is one of the main causes of unfavourable TOT in a developing country. There is a high internal demand for the goods produced in the country which causes low exportable surplus.
- Greater depending: Poor countries are generally dependent for their capital goods requirement and other needs on the advanced countries. They have no other alternative in view of the
- Trade policy: Although some of developing country have launched programmers of rapid industrialization, developed countries have been adopting protectionist policies specially against manufactured goods being exported from developing countries.
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