The long-run decline in the relative price of primary products is a strong reason for developing countries to avoid exporting primary products.

Question

Quizplus · Accepted Answer

The long-run decline in the relative price of primary products, often referred to as the Prebisch-Singer hypothesis, suggests that the terms of trade tend to move against primary products over time. However, this does not necessarily mean developing countries should avoid exporting them. Exporting primary products can still be a vital source of income, employment, and foreign exchange for many developing countries. The key is to diversify their economies and improve the value added to these exports over time.

The Long-Run Decline in the Relative Price of Primary Products