Debt Pressures, Adjustment Policies and Deterioration of Terms of Trade for Developing Countries (with Special Reference to Latin America)

The Prebisch-Singer (P-S) hypothesis suggested that, contrary to classical teaching, the terms of trade of primary products in international trade — and hence the terms of trade of countries more dependent on export of primary products than their trade partners — would tend to deteriorate rather than improve. From the beginning this hypothesis had two elements, initially not clearly distinguished. The first element related to the characteristics of primary commodities (inelastic demand, liability to substitution, and so on), whereas the second element related to the characteristics of primary producing countries (surplus labour leading to high supply elasticity, weak labour organization leading to low wages, and so forth) compared with their industrialized trade partners (strong trade unions, technology leadership leading to monopoly rents, etc.).