criticism of prebisch singer thesis

Prebisch-Singer Thesis: Assumptions and Criticisms | Trade | Economics

In this article we will discuss about:- 1. Introduction to Prebisch-Singer Thesis 2. Assumptions in the Prebisch-Singer thesis 3. Criticisms.

Introduction to Prebisch-Singer Thesis:

There is empirical evidence related to the fact that the terms of trade have been continuously moving against the developing countries. On the basis of exports statistics concerning the United Kingdom between 1870 and 1940, Raul Prebisch demonstrated that the terms of trade had secular tendency to move against the primary products and in favour of the manufactured and capital goods.

This viewpoint has been strongly supported by H. W. Singer. The essence of Prebisch-Singer thesis is that the peripheral or LDC’s had to export large amounts of their primary products in order to import manufactured goods from the industrially advanced countries. The deterioration of terms of trade has been a major inhibitory factor in the growth of the LDC’s.

Prebisch and Singer maintain that there has been technical progress in the advanced countries, the fruit of which have not percolated to the LDC’s. In addition, the industrialised countries have maintained a monopoly control over the production of industrial goods. They could manipulate the prices of manufactured goods in their favour and against the interest of the LDC’s.

ADVERTISEMENTS:

Except the success of OPEC in raising the prices of crude oil since mid 1970’s, there has been a relative decline in the international prices of farm and plantation products, minerals and forest products. Consequently, the terms of trade have remained unfavourable to the developing countries.

Assumptions in the Prebisch-Singer thesis:

The main assumptions in the Prebisch-Singer thesis are as under:

(i) As income rises in the advanced countries, the pattern of demand shifts from primary products to the manufactured products due to Engel’s law.

(ii) There is slow rise in demand for products in the developed countries.

(iii) The export market for product of LDC’s is competitive.

(iv) The export market for products of developed countries is monopolistic.

(v) Wages and prices are low in LDC’s.

(vi) The appearance of substitutes for products of LDC’s reduces demand for them.

(vii) The benefit of increased productivity is not passed by the producers of manufactured products in advanced countries to the LDC’s through lower prices.

(viii) The economic growth in the LDC’s is indicated by income terms of trade.

Singer has pointed out that the recent increase in debt problem of the LDC’s has imparted another twist to the hypothesis of secular deterioration of terms of trade for them in two ways. Firstly, a high proportion of proceeds from exports are not available for imports.

Secondly, there is an increased pressure upon the LDC’s to raise exports in order to repay external debts on account of IMF-induced adjustment polices. These pressures make the debt- ridden LDC’s to compete with other poor countries to enlarge their export earnings. It results in decline in the prices of export products of these countries.

Criticisms of Prebisch-Singer Thesis :

The Prebisch-Singer Thesis has come to be criticized on several grounds:

(i) Not Firm Basis for Inference:

The inference of secular deterioration of terms of trade for the LDC’s rests upon the exports of primary vis-a-vis manufactured products. In this regards, it should be remembered that the LDC’s export wide variety of primary products. Sometimes they export also certain manufactured products.

They, at the same time, do not import only manufactured products but also a number of primary products. It is, therefore, not proper to draw a firm inference about terms of trade just on the basis of primary versus manufactured exports.

(ii) Faulty Statement of Gains and Losses of Primary Exporters:

Jagdish Bhagwati has pointed out that the index of terms of trade employed in this thesis understates the gains of exporters of primary products. At the same time, there is over­statement of losses of primary producers.

(iii) Faulty Index of TOT:

The Prebisch- Singer hypothesis rests upon the index, which is the inverse of the British commodity terms of trade. This index overlooks the qualitative changes in products, appearance of new varieties of products, services like transport etc. The generalisation based on British terms of trade for the period 1870 to 1930, according to Kindleberger, is not true for the other developed countries of Europe.

(iv) Neglect of Supply Conditions:

In the determination of terms of trade, the Prebisch-Singer thesis considers only demand conditions. The supply conditions, which are likely to change significantly over time, have been neglected. The relative prices, in fact, depend not only upon the demand conditions but also on the supply conditions.

(v) Little Effect of Monopoly Power:

One of the arguments in support of this thesis was that the higher degree of monopoly power existing in industry than in agriculture led to secular deterioration of terms of trade for the developing countries. In this connection, it was also agreed that the monopoly element prohibited the percolation of benefits of technical progress to the LDC’s. The empirical evidence has not supported such a line of argument.

(vi) Inapplicability of Engel’s Law:

The secular decline in the demand for primary products in developed countries was attributed to Engel’s Law. But this is not true because this law is applicable to food and not to the raw materials, which constitute sizeable proportion of exports from, the LDC’s.

(vii) Benefits from Foreign Investment:

The deterioration of the terms of trade for the LDC’s is sometimes linked not to non-transmission of productivity gains to them by advanced countries through lower prices of manufactured goods, yet the benefits from foreign investments have percolated to the LDC’s through the product innovations, product improvement and product diversification. These benefits can amply offset any adverse effects of foreign investment upon terms of trade and the process of growth.

(viii) Difficult to Assess Variation in Demand for Primary Products:

The secular deterioration in terms of trade of the LDC’s during 1870 to 1930 period was supposed to be on account of the declining world demand for primary products. During that period, there were tremendous changes in world population, production techniques, living standards and means of transport. Given those extensive developments, it is extremely difficult to assess precisely the changes in world demand for primary products and the impact of those changes upon the terms of trade.

(ix) Export Instability and Price Variations:

The Prebisch-Singer thesis suggested that export instability in the LDC’s was basically due to variations in prices of primary products relative to those of manufactured products. Mc Been, on the contrary, held that the export instability in those countries could be on account of quantity variations rather than the price variations.

(x) Development of Export Sector not at the Expense of Domestic Sector:

In this thesis, Singer contended that foreign investments in poor countries, no doubt, enlarged the export sector but it was at the expense of the growth of domestic sector. This contention is, however, not always true because the foreign investments have not always crowded out the domestic investment. If foreign investments have helped exclusively the growth of export sector, even that should be treated as acceptable because some growth is better than no growth. It is far­fetched to relate worsening of terms of trade to the non-growth of domestic sector.

(xi) Faulty Policy Prescription:

Prebisch prescribed the adoption of protectionist policies by LDC’s to offset the worsening terms of trade. Any gains from tariff or non-tariff restrictions upon imports from advanced countries can at best be only short-lived because they will provoke retaliatory actions from them causing still greater injury to the LDC’s.

In the present W.TO regime of dismantling of trade restrictions, Prebisch suggestion is practically not possible to implement. There should be rather greater recourse to export promotion, import substitution, favourable trade agreements and adoption of appropriate monetary and fiscal action for improving the terms of trade in the developing countries.

(xii) Lack of Empirical Support:

The studies made by Morgan, Ellsworth, Haberler, Kindelberger and Lipsey have not supported the secular deterioration of terms of trade hypothesis, Lipsey has observed, “Although there have been very large swings in U.S. terms of trade since 1879, no long term trend has emerged. The average level of U.S. terms of trade since World War II has been almost the same as before World War I.” This objection of lack of empirical support against the Prebisch-Singer hypothesis is actually not very sound. A number of more recent empirical studies have, in fact, gone in favour of this hypothesis.

Despite all the objections raised against the Prebisch-Singer thesis, the empirical evidence has accumulated in support of it. The studies made by UNCTAD for 1950-61 and 1960-73 periods showed that there was a relative decline in the terms of trade of LDC’s vis-a-vis the developed countries. A study attempted by Thirlwall and Bergevin for the period 1973-82 indicated that there was an annual decline of terms of trade of LDC’s for all the primary commodity exports at the rate of 0.36 percent.

On the basis of their study related to exports of manufactured products for LDC’s to the advanced countries during 1970-87 period, Singer and Sarkar found that the terms of trade of LDC’s declined by about 1 percent per annum. Even the World Development Report 1955 recognised that the world prices of primary products declined sharply during I980’s and the terms of trade of LDC’s deteriorated during 1980-93 period.

According to the 1997 Human Development Report of UNDP, the terms of trade for the least developed countries declined by a cumulative 50 percent over the past 25 years. According to South Commission, compared with 1980, the terms of trade of developing countries had deteriorated by 29 percent in 1988. The average real price of non-oil commodities had declined by 25 percent during 1980-88 period compared with the previous two decades. The terms of trade of non-oil developing countries had deteriorated during 1980-88 period by 8 percent compared with 1960’s and 13 percent compared with 1970’s.

Related Articles:

• Reasons for Secular Deterioration of Terms of Trade | Economics
• Single Factorial Terms of Trade (With Criticisms) | Economics
• Export Pessimism: Nurkse’s Version and Testing | International Economics
• Income Terms of Trade (With Criticisms) | Economics

Academia.edu no longer supports Internet Explorer.

To browse Academia.edu and the wider internet faster and more securely, please take a few seconds to  upgrade your browser .

Enter the email address you signed up with and we'll email you a reset link.

• We're Hiring!
• Help Center

The Origins and Interpretation of the Prebisch-Singer Thesis

2003, History of political economy

RELATED TOPICS

•   We're Hiring!
•   Help Center
• Find new research papers in:
• Health Sciences
• Earth Sciences
• Cognitive Science
• Mathematics
• Computer Science
• Academia ©2024

• History of Political Economy

The Origins and Interpretation of the Prebisch-Singer Thesis

• J. F. J. Toye , Richard Toye
• Duke University Press
• Volume 35, Number 3, Fall 2003
• pp. 437-467
• View Citation

Additional Information

• Rent from DeepDyve

Project MUSE Mission

Project MUSE promotes the creation and dissemination of essential humanities and social science resources through collaboration with libraries, publishers, and scholars worldwide. Forged from a partnership between a university press and a library, Project MUSE is a trusted part of the academic and scholarly community it serves.

2715 North Charles Street Baltimore, Maryland, USA 21218

+1 (410) 516-6989 [email protected]

©2024 Project MUSE. Produced by Johns Hopkins University Press in collaboration with The Sheridan Libraries.

Now and Always, The Trusted Content Your Research Requires

Built on the Johns Hopkins University Campus

This website uses cookies to ensure you get the best experience on our website. Without cookies your experience may not be seamless.

• University home
• Working here
• Alumni and supporters
• Our departments
• Visiting us

Collections of Former Colleges

The origins and interpretation of the prebisch-singer thesis.

Show Statistical Information

Food Aid, North-South Trade, and the Prebisch-Singer Thesis

Cite this chapter.

• Kunibert Raffer  

78 Accesses

Looking at the numerous contributions of Sir Hans Singer to development economics, two main strands of research can be discerned:

his seminal work on the empirical effects of trade on the South, named the Prebisch-Singer thesis after the two economists who rocked the boat of professional complacency exposing a disturbing contradiction between theoretical expectations and practical outcome. After explaining the mechanisms leading to an unequal international distribution of gains between countries (Singer 1950), Sir Hans has played a leading role in the debate on whether a falling trend in Southern net barter terms of trade can be proven by statistical methods, which has engaged economists and statisticians from the 1940s to this very day.

his contributions to the issue of food aid.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

• Available as PDF
• Read on any device
• Instant download
• Own it forever
• Compact, lightweight edition
• Dispatched in 3 to 5 business days
• Free shipping worldwide - see info
• Durable hardcover edition

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Unable to display preview.  Download preview PDF.

Holm, M. (1994) ‘Food Supply and Economic Sustainability in Urban Areas — A Lesson from Tanzania’, in M.A. Mohamed Salih (ed.), Inducing Food Insecurity, Perspectives on Food Policies in Eastern and Southern Africa (Uppsala: Nordiska Afrikainstitutet) pp. 104–119.

Google Scholar  

IBRD (1987) World Development Report 1987 (New York: Oxford University Press).

IMF (1987) IMF Survey , 13 July 1987.

OECD (1995) Development Co-operation, Efforts and Policies of the Members of the Development Assistance Committee, 1994 Report (Paris: OECD).

—— (1996) Development Co-operation, Efforts and Policies of the Members of the Development Assistance Committee, 1995 Report (Paris: OECD).

Prebisch, R. (1949) ‘El desarrollo económico de la América latina y algunos de sus principales problemas’, El Trimestre Económico , vol. 16, no. 3 (Jul.–Sep.) pp. 447ff. (English version published by UN-ECLA in 1950).

—— (1959) ‘Commercial Policies in the Underdeveloped Countries’ American Economic Review, Papers & Proceedings , vol. 49, pp. 251ff.

—— (1976) ‘A Critique of Peripheral Capitalism’, CEPAL Review , first half of 1976, pp. 9–77.

Raffer, K. (1995), ‘The Impact of the Uruguay Round on Developing Countries’, in F. Breuss (ed.) The World Economy after the Uruguay Round (Schriftenreihe des Forschungsinstituts für Europafragen, Bd. 12) (Vienna: Service Fachverlag) pp. 169–93; (reprinted in Asian Journal of Economics and Social Studies vol. 13, no. 3, pp. 187–204).

—— (forthcoming), Debt Management: Problems in Need of More Attention’, in D. Gupta and N. Choudhry (eds) Political Economy of Globalization (Studies in Globalization and Development, vol. 3) (Boston: Kluwer, forthcoming).

—— and H.W. Singer (1996) The Foreign Aid Business, Economic Assistance and Development Co-operation (Cheltenham: E. Elgar).

Sen, A. (1983) ‘Development: Which Way Now?’, Economic Journal , vol. 93, no. 372, pp. 745–62.

Article   Google Scholar  

Shaw, J. and E. Clay (1993) World Food Aid, Experiences of Donors and Recipients (Rome/London/Portsmouth: World Food Programme/Heinemann/ James Curry).

Singer, H.W. (1950) ‘The Distribution of Gains between Investing and Borrowing Countries’, American Economic Review, Papers & Proceedings , pp. 473–85.

—— (1984) ‘The Terms of Trade Controversy and the Evolution of Soft Financing: Early Years in the U.N.’, in G.M. Meier and D. Seers (eds) Pioneers in Development : (Oxford University Press (published for the World Bank) pp. 275–303.

—— (1986) ‘Raúl Prebisch and His Advocacy of Import Substitution’, Development & South-South Co-operation , vol. 2, no. 3 (special issue: Homage to R. Prebisch ) pp. 1–7.

—— (1989) ‘Lessons of Post-War Development Experience 1945–1988’, IDS-Discussion Paper , no. 260 (IDS, Sussex).

(1991a) ‘Terms of Trade — New Wine and New Bottles?’, IDS Sussex , 5 June 1991 (mimeo).

—— (1991b) ‘Food Aid: Development Tool or Development Obstacle?’, in H.W. Singer, N. Hatti and R. Tandon (eds) Aid and External Financing in the 1990s New World Order Series, vol. 9 (New Delhi: Indus) pp. 109–24.

—— (1994a) ‘Problems and Future of Food Aid in the Post-GATT-Era’, in Newsletter, Bruno Kreisky Dialogue Series , n. 10, pp. 42–75 (bilingual: German and English).

—— (1994b) ‘Two Views of Food Aid’, in R. Prendergast and F. Stewart (eds), Market Forces and Development (Basingstoke: Macmillan) pp. 207–11.

Chapter   Google Scholar  

—— and D.J. Shaw (1995) ‘A Future Food Aid Regime: Implications of the Final Act of the GATT Uruguay Round’, paper presented at the DSA-Conference, Dublin, 7–9 September 1995, forthcoming in H. O’Neill and J. Toye (eds) A World without Famine? (Basingstoke: Macmillan).

Singer, H., J. Wood and T. Jennings (1987) Food Aid, The Challenge and the Opportunity (Oxford: Clarendon).

Spraos, J. (1983) Inequalising Trade? A Study of Traditional North/South Specialisation in the Context of Terms of Trade Concepts (Oxford: Clarendon in co-operation with UNCTAD).

Streeten, P. (1994), Strategies for Human Development (Copenhagen: Handelshøskolens Forlag).

UNCTAD (1995) Analysis of the Modalities to Give Effect to the Decisions on Special Provisions for the Least Developed Countries as Contained in the Final Act of the Uruguay Round , 21 June 1995 (Geneva: UN (TD/B/WG.83).

UNDP (1994) Human Development Report 1994 (New York: Oxford University Press).

Download references

You can also search for this author in PubMed   Google Scholar

Editor information

Editors and affiliations.

Lancaster University, England

David Sapsford ( Professor of Economics ) ( Professor of Economics )

University of Innsbruck, Austria

John-ren Chen ( Professor of Economics ) ( Professor of Economics )

Copyright information

© 1998 Palgrave Macmillan, a division of Macmillan Publishers Limited

About this chapter

Raffer, K. (1998). Food Aid, North-South Trade, and the Prebisch-Singer Thesis. In: Sapsford, D., Chen, Jr. (eds) Development Economics and Policy. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-26769-9_12

Download citation

DOI : https://doi.org/10.1007/978-1-349-26769-9_12

Publisher Name : Palgrave Macmillan, London

Print ISBN : 978-1-349-26771-2

Online ISBN : 978-1-349-26769-9

eBook Packages : Palgrave Economics & Finance Collection Economics and Finance (R0)

Share this chapter

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

• Publish with us

Policies and ethics

• Find a journal
• Track your research

• Even more »

Account Options

• Try the new Google Books
• Advanced Book Search
• Barnes&Noble.com
• Books-A-Million
• Find in a library
• All sellers  »

Get Textbooks on Google Play

Rent and save from the world's largest eBookstore. Read, highlight, and take notes, across web, tablet, and phone.

Go to Google Play Now »

Bibliographic information