Testing for trends in the terms of trade between primary commodities and manufactured goods

This paper joins the statistical debate on the terms of trade between primary commodities and manufactured goods by contributing to the methodological discussion and presenting new evidence using data series covering almost the whole of the 20th century. Using statistical tests that take into account breaks in the series, it is found that over the 20th century the relative prices of primary commodities dropped to nearly one-third of their level at the beginning of the century in two “installments”, when random shocks led to structural breaks, and not in a gradual way as implied by either a deterministic or stochastic trend. Possible reasons for the structural breaks and their policy implications are discussed.