Since terms of trade deterioration hypothesis was proposed by Prebisch and Singer in 1950, comparative advantage was doubted. Due to the export structure of developing countries (DCs) is dominated by primary products, and the export structure of industrialised countries (ICs) dominated by manufactured products; they compared primary products export of DCs and manufactured products export of ICs, and indicated that the terms of trade trend to deteriorate over time. This hypothesis is supported by many studies, such as Grilli and Yang (1998) and Spraos (1980); therefore the widening gap like existed.
This hypothesis is confronted the traditional view, international trade and specialisation may not be better off. The Prebisch-Singer hypothesis also impacts on the trade policy of the majority of DCs to become inward looking. However, many studies appeal that the defected of Prebisch-Singer hypothesis, Sarkar and Singer analysis is the important appeal. Due to Singer (1958) views that the export structure of the DCs was dominated by primary products; export structure of the ICs by the manufactured products. Therefore, theearly studies use the terms of trade between primary products and manufactures as a proxy.
Sarkar (1986) express that the growth of manufactured sectors, however, Singer (1987) proposes that even the change in the commodity composition of exports, the disadvantages in DCs lead the deterioration be continuous. Sarkar and Singer (1991) focuses on this subject, examines the impact of the shift in the commodity composition of exports of DCs. They proposed that the changes in commodity composition of exports are the important factor, as the primary sectors of DCs have a lower rate than the manufacturing sector of the ICs.
Sarkar-Singer Hypothesis (1991)
In the analysis, the structure change has started since the 1950s, the manufactured exports of DCs rises rapidly even excess the rise of ICs. In context the shares of manufactures in total exports of DCs (Table 3 in Sarkar and Singer study), the manufactured exports shares of Hong Kong, Taiwan and Yugoslavia are excess 80%, the Prebisch-Singer obviously ignore these countries capacities. Moreover, the growth of the manufactured exports of the DCs about 24% and 22% per annum on average during 1965-1980 and 1970-1984, ICs’ manufactured exports expended about 17% and 13% per annum. In the context, the manufactured exports of DCs are undoubtedly important factors.
Sarkar and Singer measured the aggregate net barter and income terms of trade (NBTT) between manufactures of DCs and ICs (Table 1), which come from the United Nation, Monthly Bulletin of Statistics. The aggregate NBTT has a significant negative trend, implies that the manufactured exports of DCs declined by about 1% per annum compare with the manufactured exports of ICs. The result shows that the terms of trade deterioration hypothesis seems can apply in the...