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e from the demand side. Prebisch (1972) concluded that Latin America’s underdevelopment was due to its emphasis on primary exports. The periphery was underdeveloped because it had to produce more and more food and raw materials for export in order to import a given amount of industrial imports. In effect, the periphery was working for the centre.

The Prebisch-Singer (1950) hypothesis is the theory that relative prices of primary products would decline over the long term, and therefore that developing countries that were led by the comparative advantage to specialise in them would find their prospects for development diminish. They argued that the declining terms of trade phenomenon resulted in a long-term transfer of income from developing to developed countries. The thesis was used to support policies to protect developing countries manufacturing industries in order to raise wages and prevent the overexpansion of the primary export sector. The theory suggests that countries that export commodities, such as most developing countries, would be able to import fewer and fewer manufactured goods for a given level of exports. Since Prebisch-Singer (1950) the commodity composition of exports has undergone a major change in the direction of manufactures in their non-fuel exports, with strong growth in the volume of manufactured exports, leading to Sarkar-Singer (1991).

Sarkar-Singer’s (1991) theory which studied the trend in the terms of trade of developing countries in their exchange of manufactured goods with the developed countries. The terms of trade being the ratio of a country’s average export price to its average import price. A country’s terms of trade are said to improve when this ratio increases and to worsen when it decreases, i.e. when import prices rise at a relatively faster rate than export prices. The Sarkar-Singer (1991) theory showed that the unit value of manufactured exports of the developing countries declined by around 1% per annum compared with developed countries. Although there was a rapid growth in the volume of manufactures exported by developing countries had an average increase of 10% in their income terms of trade. Based on the terms of trade trends over 1965-1985 for almost 30 developing countries, did not reveal a clear unambiguous result, since the results for about half the countries studied were not significant, while there were both positive and negative manufacturing terms of trade trends among the other countries. The un-weighted trend for all the countries was -0.65% per annum, which broadly confirms the results of Sarkar and Singer’s aggregate analysis. This meant that developed countries had comparative advantage in the production of manufactured goods, meaning that given the same resource input in both countries, developed and developing, enables them to produce either good X, which we assume is a manufactured good, or good Y, assume to be non-manufactured, given that the developed country is more efficient than the developing country, as it can produce both goods. However, it is not its absolute advantage, being able to produce both, but its comparative advantage that determines whether trade is beneficial or not. Comparative advantage arises because the marginal opportunity costs of one good in terms of the other of the other differ between countries, as shown in the Heckscher-Ohlin factor proportions theory. Both countries stand to increase their economic welfare if the