LONG-RUN TRENDS IN THE RELATIVE PRICE OF PRIMARY COMMODITIES AND IN THE TERMS OF TRADE OF DEVELOPING-COUNTRIES

The long-run trend in the ratio of primary product prices to those of manufactured goods is examined in the context of an error correction model. The ratio was approximately stable from 1925 to 1980, after which there was a significant drop. However, the separate component series (metals, food, non-food 'soft' commodities) display marked dissimilarities. This casts doubt on generalisations about the relative price of primary products as a group, and helps to explain disagreement amongst previous authors. The relationship between relative prices and the terms of trade of developing countries is examined and the policy implications discussed.