Hypothesis of secular deterioration of terms of trade

The document summarizes the Prebisch-Singer thesis, which argues that terms of trade tend to deteriorate against primary commodities and in favor of manufactured goods over time. It presents the key assumptions of the thesis, including that income elasticity of demand is greater for manufactured goods than primary products. As a result, as incomes rise in developed countries, demand shifts away from primary commodities exported by developing countries towards manufactured goods produced in developed nations. This leads to a long-term decline in terms of trade for developing country exports.