Terms of Trade and Trading Gain in Germany and Switzerland: A Country Comparison

Price-adjusted gross domestic product is seen as the comprehensive measure of the economic performance of an economy. Another key indicator can also be found in the economic statistics, namely real income generated domestically. The two indicators differ by the terms of trade effect. This article presents a component analysis of the trading gain in international trade. The trading gain of an economy can be broken down into a contribution of the terms of trade and a contribution of the real exchange rate. The results for Germany and Switzerland show that the change attributable to the contribution of the terms of trade to domestic real income for both Germany and Switzerland in the period 1996 to 2016 is on average significantly higher than the contribution of the real exchange rate due to the comparatively greater weight.