Prebisch–Singer Hypothesis

Origins and core claim

Raúl Prebisch (1950), in a report for the UN Economic Commission for Latin America, and Hans Singer (1950), in an American Economic Review article, reached nearly the same conclusion at almost the same time. Long-run British trade data showed that since the late nineteenth century primary commodity prices had fallen relative to manufactured goods, so countries exporting raw materials and importing manufactures had to export ever more to obtain the same volume of imports. This challenged the traditional view that trade spreads its gains evenly across nations, and Kindleberger (1943) had made a similar observation earlier.

Theoretical explanations

Several mechanisms are offered. First, by Engel's law, demand for primary goods such as food rises less with income than demand for manufactures. Second, in manufacturing countries strong firms and unions keep the gains from productivity growth as wages and profits, whereas in competitive commodity markets productivity gains are passed on as lower prices to importing countries. Third, synthetic substitutes and material-saving technologies hold down demand for commodities. Lewis's (1954) model of unlimited labor supply added a reason why developing-country export prices stay low. Together with core–periphery structuralism, the hypothesis provided the theoretical basis for import-substituting industrialization in Latin America from the 1950s to the 1970s.

The empirical debate

Criticism of the early data and methods followed. Spraos (1980) argued that the trend weakens once transport costs and quality changes are considered, while Sapsford (1985) offered additional evidence supporting a decline. Grilli and Yang (1988) built new price indices for commodities and manufactures from 1900 and found an average decline of about 0.5 to 0.6 percent a year; their index became the standard dataset for later work. Cuddington and Urzúa (1989) argued that the fall may reflect a one-time structural break in the 1920s rather than a steady trend, and Kellard and Wohar (2006) showed that results differ by commodity. Harvey et al. (2010) used four centuries of data from 1650 to confirm long-run declines for a number of commodities, and Arezki et al. (2014) broadly supported the hypothesis using panel tests that allow for multiple breaks. Ocampo and Parra-Lancourt (2010) and Erten and Ocampo (2013) interpreted the data as decades-long supercycles layered on a long-run downward trend. Alongside Dutch disease and Heckscher–Ohlin theory, the debate frames how resource-dependent economies develop.

FAQ

What is the Prebisch–Singer hypothesis in simple terms?

Raw material prices tend to rise less than, or fall relative to, manufactured goods over the long run, so countries that sell commodities and buy manufactures gradually lose out.

Is the hypothesis supported by evidence?

Long-run data show relative declines for many commodities, but researchers still debate whether the decline is a steady trend, a one-time break or part of supercycles, and how it varies by commodity.

Sources reviewed: 2026-10-26

References

1. Prebisch, R. (1950). The Economic Development of Latin America and Its Principal Problems. New York: United Nations (ECLA).
2. Singer, H. W. (1950). The distribution of gains between investing and borrowing countries. American Economic Review, 40(2), 473–485.
3. Kindleberger, C. P. (1943). Planning for foreign investment. American Economic Review, 33(1), 347–354.
4. Lewis, W. A. (1954). Economic development with unlimited supplies of labour. Manchester School, 22(2), 139–191.
5. Spraos, J. (1980). The statistical debate on the net barter terms of trade between primary commodities and manufactures. Economic Journal, 90(357), 107–128.
6. Sapsford, D. (1985). The statistical debate on the net barter terms of trade between primary commodities and manufactures: A comment and some additional evidence. Economic Journal, 95(379), 781–788.
7. Grilli, E. R., & Yang, M. C. (1988). Primary commodity prices, manufactured goods prices, and the terms of trade of developing countries: What the long run shows. World Bank Economic Review, 2(1), 1–47.
8. Cuddington, J. T., & Urzúa, C. M. (1989). Trends and cycles in the net barter terms of trade: A new approach. Economic Journal, 99(396), 426–442.
9. Kellard, N., & Wohar, M. E. (2006). On the prevalence of trends in primary commodity prices. Journal of Development Economics, 79(1), 146–167.
10. Harvey, D. I., Kellard, N. M., Madsen, J. B., & Wohar, M. E. (2010). The Prebisch-Singer hypothesis: Four centuries of evidence. Review of Economics and Statistics, 92(2), 367–377.
11. Arezki, R., Hadri, K., Loungani, P., & Rao, Y. (2014). Testing the Prebisch–Singer hypothesis since 1650: Evidence from panel techniques that allow for multiple breaks. Journal of International Money and Finance, 42, 208–223.
12. Erten, B., & Ocampo, J. A. (2013). Super cycles of commodity prices since the mid-nineteenth century. World Development, 44, 14–30.
13. Ocampo, J. A., & Parra-Lancourt, M. (2010). The terms of trade for commodities since the mid-19th century. Revista de Historia Económica, 28(1), 11–43.