Whither the terms of trade? An elaboration of the Prebisch-Singer hypothesis

Movements in the prices of primary products and manufactured goods are anal ysed using a model that introduces differences in wage and price determinat ion between primary production and manufacturing. Wages and prices in prima ry production are treated as competitively determined, while prices and wag es in manufacturing are determined by mark-up pricing and union-employer ba rgaining, respectively. The objective is to capture the influence of struct ural differences between manufacturing and primary production on the terms of trade between industrialised and developing worlds as discussed in the s eminal contributions to the development literature by Rad Prebisch and Hans Singer. The model is estimated using price and wage data from the post-Wor ld War II period. Support is found for the Prebisch-Singer hypothesis; howe ver, our estimates suggest that, during periods of particularly rapid manuf acturing growth, there have been intervals of net improvement in the terms of trade of primary producers.