developmen t thinking” because they placed “more emphasis on factoral terms of trade rather than barter terms of trade.” 160 The Prebisch-Singer hypothesis, sixty-five years after its formulation, remains influential because it suggests that, should current economic structures and the structure of international trade continue to exist, the gains from trade between countries specialising in primary commodities and those that specialise in producing manufactured goods will continue to be distributed unequally. Furthermore, inequality of per capita income will have a linear relationship with the trade between these two types of countries, with increasing inequality of per capita income occurring whenever international trade between developed and underdeveloped countries takes place. This hypothesis can be justified on the basis of manufactured goods (in comparison to primary commodities) having a greater income elasticity of demand, which is the measure that shows the responsiveness of quantity demanded in relation to changes in income. Moreover, primary products tend to suffer from having a low price elasticity of demand: a decline in the price of a commodity will actually reduce revenue, rather than increase it. Both the income elasticity of demand of manufactured goods, and the price elasticity of demand of primary commodities, exacerbates the inequality in gains from trade between developed and underdeveloped countries. In the long term, there are two negative effects on the terms of trade for underdeveloped countries that prove structurally damaging. The first occurs because primary commodity markets and manufacturing markets are comprised of fundamentally different institutional features. For example, both cost-plus pricing and the unionisation of labour are institutional features of industrialised economies that have been historically important for long term economic development. 161 The second negative effect impacting the terms of trade is
160 Dosman, The Life and Times of Raúl Prebisch 1901-1986, page 521. 161 John Toye and Richard Toye, “The origins and interpretation of the Prebisch- Singer thesis,” History of Political Economy, 35 (3) 2003, page 437.
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