Trade in primary commodities:

Primary Commodity market  issues have always been a centre of economic debate for  economists. The  arguments given have  been  around  (1)  the secularly declining  terms of  trade of primary commodities  that have widened the gap between developed and developing countries.  (2) they are considered as contributing factor to the creation of  structural conditions  of  unequal exchange between  a dominating industrial center and  a dominated agrarian periphery. (3)  they are often considered as source of  instability.

The issue of the trends in terms of trade between primary commodities and manufactures has dominated  the trade and development literature for many years. Since  the time ofAdam Smith  it has been claimed  that the  tenns of  trade of primary commodities would be improving over time. It was not until  the early 1950s when  this argument was challenged radically by  Prebisch  and Singer who argued that  the terms  of  trade of developing countries  are bound to deteriorate progressively and  inexorably as long as the present  international economic order prevails.

In this Unit, we examine  the behaviour of the terms of trade (TT) of primary products and various theories, which seek to explain the TT. Many different versions have been  developed around  the Central concept of  the  TT.  The different versions reflect different interests that analysts have as they examine the results of North-South  interaction. But  the  fundamental  reason  to  be concerned about the TT is because it affects welfare.