The Park Place Economist


Sean Moran '05


This paper seeks to extend the research done by Bates to the years 1985-’95 and ‘96-2001. Bates found that increased terms-of-trade instability leads to decreased openness. He also found that terms-oftrade instability led to a change in trade regimeii. This paper searches to see if these results have continued through 1995 in order to secure more legitimacy as a leading theory among the risk literature of today. Over that time period, the Soviet Union and the Apartheid regime broke down. These countries have experienced major political and economic reforms due to these events, which should make these countries extremely vulnerable to risk. LDCs were forced in the early 90s to open their borders without question in order to receive aide from intercontinental organizations. It may no longer be the case that risk determines openness with these various global shocks during the late 80s and early 90s, so this paper analyzes whether Bates’s empirical research on terms-of-trade instability continues through these risky times.