AP MacroeconomicsInternational & Development Economics
Prebisch-Singer Hypothesis
The Prebisch-Singer hypothesis argues that the long-run terms of trade for primary-commodity exporters tend to deteriorate relative to manufactured-goods exporters.
Developing economies that export raw commodities and import manufactures find that, over time, a given amount of commodities buys fewer manufactured goods. Causes cited include low income elasticity of demand for commodities, technological substitution away from raw materials, and stronger pricing power among manufacturers and their unions. The policy implication Prebisch drew was import-substitution industrialization to reduce dependence on primary exports.