The terms of trade have dominated development thinking since the early 1950s when Singer and Prebisch produced analyses of price trends, which suggested that there was a secular trend towards a fall in the commodities–manufactures terms of trade (Prebisch 1950; Singer 1950).
The Singer–Prebisch hypothesis was more complex than is often acknowledged, for it not only took into account the income and price elasticities of demand for different products, but also the role played by labour markets in price determination (Kaplinsky 2005a). It resulted in a widespread commitment to industrialisation, premised on the expectation that the relative price of manufactures would continue to rise, and that of commodities
to fall.
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