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Singer-Prebisch Thesis

According to the Singer-Prebisch Thesis, advanced by economists Raul Prebisch and Hans Singer, the terms of trade between primary products and manufactured goods tends to deteriorate over time. This suggests that countries that export commodities (such as most developing countries) would be able to import less and less for a given level of exports. Singer and Prebisch suggested that for this reason, developing economies should not focus on producing primary products but should instead promote the development of manufacturing industry.

Singer and Prebisch examined data over a long period of time suggesting that the terms of trade did move in this manner. One reason this might be the case is that if the income elasticity of demand for manufactured goods is greater than that for primary products, then as incomes rise the demand for manufactured goods would increase more than the demand for primary products.

Some regard the Singer-Prebisch Thesis as important because it implies that it is the very structure of the market which is responsible for the existence of inequality in the world system. This provides an interesting twist on Wallerstein's neo-Marxist interpretation of the international order which faults differences in power relations between 'core' and 'periphery' states as the chief cause for economic and political inequality. As a result, the Singer-Prebisch Thesis enjoyed a high degree of popularity in the 1960s and 1970s with neo-marxist developmental Economists and provided a justification for Import Substitution Industrializing (ISI) policies and an expansion of the role of the commodity futures exchange as a tool for development.

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