Revisiting the Prebisch-Singer hypothesis of a secular decline in the terms of trade of primary commodities (1900–2016). A dynamic regime approach

We revisit the Prebisch–Singer hypothesis of a secular decline in the terms of trade of primary commodities (TTPC) by adopting an approach that differs from previous research. We implement two approaches of time series – the mixing distribution methodology and the Markov regime-switching models – that have not yet been mobilised for the analysis of TTPC in the long-term. These two approaches allow the identification of a succession of three different dynamic regimes in the TTPC over the 1900–2016 period. The third regime (1986–2005) is characterised by the lowest level of terms of trade of the whole period, and the return to the second regime after 2005 is associated with a level of price significantly higher (57,5% higher). Such an upward shift in primary commodities’ prices is unprecedented at the scale of the 20th century and could be an opportunity for developing countries specialised in primary exportations.