Vanuatu GDP by Sector, Important Exports, Implications of Falling Commodity Prices and Deteriorating Terms of Trade

Composition of Vanuatu’s GDP by sector (% agriculture, industry, and services). (Source: CIA World Factbook)

Agriculture: 27.3% (2017 est.)

Industry: 11.8% (2017 est.)

Services: 60.8% (2017 est.)

Vanuatu's Important Exports (Source: Observatory of Economics Complexity)

Read Blink pp. 325-328.  Discuss the implications for your country of falling commodity prices and deteriorating TOT.
Implications for Vanuatu of falling commodity prices and deteriorating TOT.

A large portion of Vanuatu GDP and economy is made up of commodities (mostly animal products) and as commodity prices fall, the terms of trade (TOT) will deteriorate as the price for exports decreases. This deteriorating TOT will mean that a larger quantity of exports will be needed to balance out with the prices of imports. Vanuatu may have an inherent advantage in the animal products (fish) being sold due to the geographical location of the country. But the nation currently maintains a negative trade balance and already imports more than their amount of exports. This negative balance will likely continue and be made worse by falling commodity prices and the deteriorating TOT forces the country to either start producing more for less.