School of Economics

2005 Discussion Papers

School of Economics Discussion Paper 05/10
November 2005

Can Globalisation Stop the Decline in Commodities' Terms of Trade? The Prebisch-Singer Hypothesis Revisited
André Varella Mollick, João Ricardo Faria,
Pedro H. Albuquerque, Miguel León-Ledesma

School of Economics
University of Kent at Canterbury

Abstract

Several empirical studies report the existence of declining terms of trade between commodities and manufactures, supporting the Prebisch-Singer hypothesis. As globalization leads to greater integration of markets, we ask if in a fully integrated economy the terms of trade will display the same negative trend. Assuming that globalization would make the world economy behave as the US economy, this paper shows that the US internal real commodities' terms of trade over the 1947-1998 period experienced slowly declining but significant trends. We then test if common factors may be driving the US and international terms of trade in the long-run. The results suggest that both series, particularly those using crude materials in the numerator, share a positive long-run relationship. It follows that international integration plays no role in causing the decreasing trend of the terms of trade.

JEL Classification: E31; F15; F41

Keywords: Economic Integration, Globalisation, Prebisch-Singer

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