Is Export Expansion of Manufactured Goods an Escape Route from Terms of Trade Deterioration of Developing Countries?

Abstract

In the recent past, the developing countries, in particular the Newly Industrialising Countries (NICs), Association of Southeast Asian Nations (ASEAN), China and India, have become a major player in the global market of manufactured goods. It had been argued that this changing composition in the export baskets of these developing countries in favour of the manufactured goods had helped the developing countries to escape from the problems of ‘deteriorating’ terms of trade and doubts the validity of the Prebisch–Singer hypothesis in the present world economic order. This study empirically finds a secular negative trend in the movement of the manufacture-manufacture terms of trade of the developing countries vis-à-vis the developed countries spanning over the period between 1975 and 2005. It also identifies the probable factors responsible for this negative trend in the terms of trade index and whether this diversification of exports towards more of manufactured goods helps the developing countries to escape from the problem of Prebisch–Singer hypothesis.

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