The Commodity Terms of Trade: an empirical analysis of the Prebisch- Singer Hypothesis

Abstract

During the 20th century international trade has sharply increased thanks to the integration of Developing Countries which resulted in an improvement of interconnectivity between countries’ economies, a reduction of trade barriers and new growth opportunities either for Advanced Economies and Developing Countries. In order to assess the redistribution of gains from this expansion in international trade, it has been utilized the concept of Terms of Trade and its relationship with countries' development. The Prebisch- Singer Hypothesis considers the long- term declining trend in commodity prices as the principal factor accountable for the deterioration of Developing Countries’ Terms of Trade. Reference literature regarding the Prebisch Singer Hypothesis has provided mixed results in support of it, highlighting the problem in defining an univocal econometric model to verify the hypothesis. The analysis aims at finding empirical evidences of the PS hypothesis by developing a Trend Stationary model, integrated by recent data over the period 2000- 2020; with further assessing the differences in Developing Countries’ commodity terms of trade against the ones of the Advanced Economies.