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Raúl Prebisch was a highly influential Argentinian economist and policymaker of the twentieth century. He is best known for proposing the idea that the world economic system consists of two connected elements—an industrialized center and an underdeveloped periphery—wherein the former dominates the latter. Contrary to the Ricardian claim that trade benefits all, Prebisch argued that trade between the center and periphery is unequal and detrimental for the periphery, and that became increasingly true as the world economy developed. His ideas were central to Latin American structuralist and dependency schools of thought. During the middle decades of the twentieth century, they led to the widespread adoption, in the periphery, of import substitution industrialization (ISI) policies that focused on “inward-directed” industrial development.
Prebisch’s ideas achieved a wide dissemination and receptivity when he headed the United Nations (UN) Economic Commission for Latin America (ECLA) between 1948 and 1963. One of his central theses was that, in the long run, primary producers in the periphery faced declining terms of trade for their exports vis-à-vis manufactured goods. This view received empirical support from a 1949 UN study, Relative Prices of Exports and Imports of Underdeveloped Countries, which examined the period between the late nineteenth century and end of World War II. Prebisch and the ECLA pointed out that during the upswing of a trade cycle, prices of primary goods rise faster than those of industrial goods, but that they fall much more steeply during the downswing, causing an overall decline in prices by the end of the cycle. In the industrialized center, the strength of organized workers and firms causes a relatively smaller decline in the prices of industrial goods during a downswing, while the vulnerability of farmers and unorganized workers leads to sharp declines in prices in the periphery.
Prebisch’s ideas were shaped by the experience of Argentina in its trade with industrialized nations such as Great Britain and the United States, both before and after the Great Depression. Another UN economist, Hans Singer, argued that income elasticity of demand for industrial goods (percentage increase in the demand for industrial goods associated with a percentage point increase in people’s incomes) is higher than that for primary goods, thereby causing a decline in the benefits from trade for the periphery over the long run. Together, these ideas came to be known as the Prebisch-Singer hypothesis.
Prebisch’s work has predictably attracted criticism from mainstream trade theorists. While the UN report that originally provided the empirical basis for Prebisch’s theory has been largely discredited, later studies have supported the Prebisch-Singer hypothesis. International Statistics Institute (ISI) policies have been blamed for certain longstanding problems, such as unsustainable debt levels in the periphery. Notwithstanding such critiques, ISI policies have also led to substantial increases in income and the development of an industrial base in a number of developing countries.
Prebisch’s insights remain important today for regions and countries in the periphery, notably Africa. Scholars continue to argue in favor of careful, “inward-directed” policies with concerted cooperation among countries in the periphery, and for the establishment of multilateral institutions that genuinely represent their interests. This vision informed the founding (in 1964) of the United Nations Conference on Trade and Development (UNCTAD), a multilateral organization that Prebisch headed for its first six years. If there was ever a need for such institutions to represent the interests of the periphery on the world stage, it is at the present critical juncture of global integration. Indeed, there is a strong and growing literature among critical development scholars on the negative effects of globalizing policies for developing countries. These scholars are arguing that existing multilateral organizations such as International Monetary Fund or World Trade Organization have not represented the interests of the periphery adequately.
- Bloch, Harry, and David Sapsfor 2000. Whither the Terms of Trade? An Elaboration of the Prebisch Singer Hypothesis. Cambridge Journal of Economics 24: 461–481.
- Love, Joseph 1980. Raul Prebisch and the Origins of the Doctrine of Unequal Exchange. Latin American Research Review 15 (3): 45–72.
- Ocampo, José Antonio. Terms of Trade and CenterPeriphery Relations. In Development from Within: Toward a Neostructuralist Approach for Latin America, ed. Osvaldo Sunkel. Boulder, CO: Lynne Rienner.
- Prebisch, Raúl. The Economic Development of Latin America and Its Principal Problems. New York: United Nations.
- Singer, H 1950. The Distribution of Gains between Investing and Borrowing Countries. American Economic Review 40 (2): 473–485.
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