Is Export Expansion of Manufactured Goods an Escape Route from Terms of Trade Deterioration of Developing Countries?

In the recent past, the developing countries, in particular the newly industrialized countries (NICs), Association of Southeast Asian Nations (ASEAN), China and India have become major players in the global market of manufactured goods. It had been argued that this changing composition in the export baskets of these developing countries in favour of the manufactured goods had helped the developing countries to escape from the problems of ‘deteriorating’ terms of trade, and led to doubts about the validity of the Prebisch-Singer hypothesis in the present world economic order. This study empirically finds a secular negative trend in the movement of the manufacture-manufacture terms of trade of the developing countries vis-a-vis the developed counties, spanning the period between 1975 and 2005. It also identifies the probable factors responsible for this negative trend in the terms of trade index and addresses whether this diversification of exports towards more manufactured goods helps the developing countries to escape from the problem of the Prebisch-Singer hypothesis.