Singer–Prebisch thesis

The thesis of the secular deterioration of terms of trade or Prebisch -Singer thesis by Raúl Prebisch and Hans Wolfgang Singer is based on the Prebisch in 1949 ( Spanish) and 1950 ( English) published journal The Economic Development of Latin America and its Principal problem, as well as Singers Postwar Price relation Between Industrialized Countries and Underdeveloped. After the thesis the integration of primary goods exporters (mostly developing countries) in the international division of labor - disadvantageous for them, as this there is a tendency to secular deterioration of terms of trade - that is, in the world economic system.

This is due to

• The low income elasticity of demand for primary goods (eg food, raw materials ): If the income does not increase equally, the demand for coffee, for example.
• The high income elasticity of demand for industrial goods: increases the income, then the demand rises faster than for industrial goods.

It follows that a surplus income predominantly migrates into the countries in which capital goods are produced.

In addition, the export earnings from primary commodities exporters are exposed to strong fluctuations, as many of them specialize only on a few export products (or limited ) have and it comes in the sequence, for example, in periods of drought to high losses of export earnings. This effect of low export diversification is enhanced by the large international competition among the primary goods providers. If, in a country due to drought in a price increase of the export good, then there is no demand on the world market, since it can be easily substituted by nearly identical goods other supplier countries. This corresponds to a high price elasticity of demand for primary goods. The price elasticity of demand for industrial goods, however, is low, since there is sufficient diversification to take as almost " only " supplier of a product and an increase in price no major sales losses in need.

In addition, productivity progress in developing countries lead because of the great competition to lower prices, ie to lower export revenues. In industrialized countries, however, productivity increases tend to lead to rising wages.

This, according to the thesis leads to the overall deterioration of the international terms of trade for developing countries.

Reception

The Prebisch -Singer thesis has been used in many countries as a justification for import substitution industrialization (ISI ) and a structuralist economic policy. In neo-Marxist circles it was a great success since it was regarded as confirmation of the dependency theory. Although she came for a time forgotten, recent investigations, including their empirical validity in the 20th century confirmed by José Antonio Ocampo. However, the effect was not continuous but characterized by strong fluctuations. Recent research on the Prebisch -Singer thesis assume that a similar effect as in primary goods also in industrial goods produced with low added value, which today dominate the exports of most developing countries.

1998 Singer stated, the thesis was already part of the mainstream development theory, since the recommendations of the international economic institutions (eg the IMF ) to the developing countries, for example, warn about to bet on rising commodity prices, emanating from the same assumptions.