LONG-RUN TRENDS IN THE RELATIVE PRICE OF PRIMARY COMMODITIES AND IN THE TERMS OF TRADE OF DEVELOPING-COUNTRIES

The long-run trend in the ratio of primary product prices to those of manufactured goods is examined in the context of an error correction m odel. The ratio was approximately stable from 1925 to 1980, after whic h there was a significant drop. However, the separate component series (metals, food, non-food 'soft' commodities) display marked dissimilar ities. This casts doubt on generalisations about the relative price of primary products as a group, and helps to explain disagreement amongs t previous authors. The relationship between relative prices and the t erms of trade of developing countries is examined and the policy impli cations discussed.