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Can Globalisation Stop the Decline in Commodities' Terms of Trade? The Prebisch-Singer Hypothesis Revisited"

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Author Info
Andre Varella Mollick
Joao Ricardo Faria
Pedro H. Albuquerque
Miguel A. Leon-Ledesma ()

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Abstract

Several empirical studies report the existence of declining terms of trade between commodities and manufactures, supporting the Prebisch-Singer hypothesis. As globalisation leads to greater integration of markets, we ask if in a fully integrated economy the terms of trade will display the same negative trend. Assuming that globalisation would make the world economy behave as the US economy, this paper shows that the US internal real commodities' terms of trade over the 1947-1998 period experienced slowly declining but significant trends. We then test if common factors may be driving the US and international terms of trade in the long-run. The results suggest that both series, particularly those using crude materials in the numerator, share a positive long-run relationship. It follows that international integration plays no role in causing the decreasing trend of the terms of trade.

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Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 0510.

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Date of creation: Nov 2005
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Handle: RePEc:ukc:ukcedp:0510

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Related research
Keywords: Economic Integration; Globalisation; Prebisch-Singer;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F15 - International Economics - - Trade - - - Economic Integration
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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