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Singer-Prebish Thesis

The Singer-Prebish Thesis describes an unequal relationship in the terms of trade between primary products and manufactured goods. The Singer-Prebish Thesis is important because it implies that it is the very structure of the market which is responsible for the existence of inequality in the world system. This provides an interesting twist on Wallerstein’s neo-Marxist interpretation of the international order which faults differences in power relations between ‘core’ and ‘periphery’ states as the chief cause for economic and political inequality. As a result, the Singer-Prebish Thesis enjoyed a high degree of popularity in the nineteen sixities and seventies with neo-marxist developmental Economists and provided a justification for Import Substitution Industrializing (ISI) policies and an expansion of the role of the commodity futures exchange as a tool for development.

The logic behind the Singer-Prebish Thesis is quite simple. Essentially the argument rests on the differences between price elasticities for primary products and manufactured goods. More specifically, the price elasticity of demand for primary products tends to be less elastic than the demand for manufactures. As a result, changes in supply lead to larger fluctuations in price and ultimately revenue for developing countries which produce mainly primary products. This translates into less stable income streams and a higher cost of capital due to uncertainty.

The following graph illustrates this point.

The Singer-Prebish Thesis has not stood the test of time. The success of the late late developers in East Asia and a general lack of strong empirical data over the past decades has attenuated the strength of the argument. That said Singer-Prebish provides an interesting example of neo-classical economics being yoked to the cart of neo-marxist developmental economics.

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