As an improvement over the concept of net barter terms of trade, Professor Taussig excogitated a new concept called the Gross Barter Terms of Trade. He pointed out that instead of relating import and export prices, we should relate quantities of imports and exports.
Thus, the gross barter terms of trade is an index of relationship of the total physical quantity of imports to the total physical quantity of exports. Symbolically:
Where, T stands for gross barter terms of trade and Qm for the quantity of import and Qx for the quantity of export.
For comparing the changes between two periods, the ratio is:
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where the subscripts 1 and 0 denote the current year and base year respectively.
A rise in the current year’s gross barter terms of trade means a favourable change implying that more imports are obtained for a given volume of exports than in the base period.
It may be noted if the balance of trade is in equilibrium, the net and gross barter terms of trade are equal. When trade is not balanced, the net barter terms of trade differ from the gross barter. Similarly, if the balance of payments as a whole includes unilateral payments like tributes, immigrants’ remittances, etc., the gross barter will diverge from net barter.
Taussig’s concept of gross barter terms of trade is, however, criticised on the ground that it incorporates unilateral payments which are inappropriate as these payments remain unaffected whether, there is any trade or not, since they are caused by some other factors in international relations. Thus, it is wrong to include the loss or gain emerging from unilateral payments as gain from foreign trade.
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Further, the concept of gross barter reflects less price movements than changes in the balance of payments, and even capital movements. Therefore, many economists prefer to use the net barter terms of trade to the gross ones.