Question

True false or uncertain? and why?

According to the Prebisch-Singer hypothesis, developing countries face a long-run decline in their net barter terms-of-trade vis-à-vis industrialized countries.

Answer 1

ANSWER- THIS STATMENT IS TRUE.

Until the price spike of 2007/08, the conventional wisdom concerning agricultural
commodity prices was that they followed a secular decline of around 1 percent per year
in real terms or relative to the price of manufactures. The decline in relative prices was
seen as carrying over more generally into a downward trend in the net barter terms of
trade of developing countries dependent on commodity exports. This followed the
prediction of Prebisch and Singer from 1950 of a decline in the terms of trade for
commodities with income growth. One underlying cause was the working of Angel’s Law
that the demand for agricultural products rises less than the demand for manufactured
goods with economic growth and rising incomes. The resulting sluggish demand for
agricultural products and depressed prices, at least until 2007/08, led to a pessimistic
view of the economic prospects for the agricultural sector and for commodity exporting
developing countries.