A General Test of the Prebisch-Singer Hypothesis

This paper examines jointly the Prebisch-Singer hypothesis of a long-term decline in the relative price of primary commodities and the appropriate framework in which it is tested. A general model is estimated which nests the univariate and bivariate time-series models used in the past literature. The results suggest that the econometric models estimated in the majority of previous studies strongly support the Prebisch-Singer hypothesis and reject recent findings--that the terms of trade are characterized by infrequent negative shocks--in favor of a long-term negative trend. Copyright 1999 by Blackwell Publishing Ltd