Prebisch–Singer hypothesis

The Prebisch–Singer hypothesis (also called the Prebisch–Singer thesis) is a suggestion, that the price of primary commodities goes down, compared to the price of manufactured goods.

The hypothesis argues that the price of primary commodities declines relative to the price of manufactured goods over the long term, which causes the terms of trade of primary-product-based economies to deteriorate. As of 2013, recent statistical studies have given support for the idea.

A common explanation for this supposed phenomenon is that manufactured goods have a greater income elasticity of demand than primary products, especially food. Therefore, as incomes rise, the demand for manufactured goods increases more rapidly than demand for primary products. In addition, primary products have a low price elasticity of demand, so a decline in their prices tends to reduce revenue rather than increase it. This theory implies that the very structure of the global market is responsible for the persistent inequality within the world system.This theory implies that the very structure of the global market is responsible for the persistent inequality within the world system..