The Terms of Trade Debate: A Critical Review

Abstract

The notion of a secular decline in the terms of trade of primary producing countries is a persistent theme in the public discussion of the problems of developing areas, and has been advanced most forcefully in the writtings of Raúl Prebisch. Acceptance of such views is implicit in most critiques of the international economic order. However, upon reviewing the literature and available evidence, it is argued that such views are untenable, based as they are upon a faulty interpretation of the welfare implications of movements in the commodity or net barter terms of trade, an uncritical appraisal of the statistical biases involved in terms of trade estimates, and an overly selective survey of actual historical price trends.