Whither the Terms of Trade? An Elaboration of the Prebisch-Singer Hypothesis

Posted: 14 Aug 2000

See all articles by David Sapsford

David Sapsford

University of Liverpool Management School (ULMS) - Economics Division

Harry Bloch

Curtin University of Technology - Curtin Business School - School of Economics and Finance

Abstract

Movements in the prices of primary products and manufactured goods are analysed using a model that introduces differences in wage and price determination between primary production and manufacturing. Wages and prices in primary production are treated as competitively determined, while prices and wages in manufacturing are determined by mark-up pricing and union-employer bargaining, respectively. The objective is to capture the influence of structural differences between manufacturing and primary production on the terms of trade between industrialised and developing worlds as discussed in the seminal contributions to the development literature by Raul Prebisch and Hans Singer. The model is estimated using price and wage data from the post-World War II period. Support is found for the Prebisch-Singer hypothesis; however, our estimates suggest that, during periods of particularly rapid manufacturing growth, there have been intervals of net improvement in the terms of trade of primary producers.

Keywords: Terms Of Trade, Commodity Prices, Prebisch-Singer Hypothesis

JEL Classification: F10

Suggested Citation

Sapsford, David and Bloch, Harry, Whither the Terms of Trade? An Elaboration of the Prebisch-Singer Hypothesis. Available at SSRN: https://ssrn.com/abstract=236936

David Sapsford (Contact Author)

University of Liverpool Management School (ULMS) - Economics Division ( email )

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Liverpool L69 7ZA
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Harry Bloch

Curtin University of Technology - Curtin Business School - School of Economics and Finance ( email )

Curtin University
GPO Box U 1987
Perth, 6845
Australia
+61 8 9266 2035 (Phone)
+61 8 9266 3026 (Fax)

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