Incidence of the Terms of Trade on Peru’s Trade Balance: A Quantitative Analysis

Abstract

This study analyzes the impact of terms of trade (TOT) on Peru's trade balance from 2013 to 2023. It was developed using a quantitative, non-experimental approach with an explanatory scope, employing a linear regression model using the Ordinary Least Squares (OLS) method to identify how the TOT affected Peru's trade balance. The results reveal that the TOT have a positive and significant impact on Peru's trade balance; that is, when the terms of trade index increases by one unit, the trade balance increases by $43.91 million. Likewise, the findings show that copper and gold exports play a decisive role in Peru's economic development, which implies high sensitivity to international price fluctuations. In this context, the study highlights the importance of the Peruvian government continuing to implement policies to mitigate TOT shocks in order to strengthen the trade balance and reduce the economy's external vulnerability.