Primary Product Dependency

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Presentation transcript:

Primary Product Dependency

Price fluctuations Long term planning is difficult Natural disasters Protectionism by developed countries Prebisch-Singer hypothesis Dutch Disease

Angola: 97% oil Ghana: 39% gold, 26% oil, 17% cocoa Kenya: 19% tea, 12% horticulture Nigeria: 90% oil Senegal: 11% fish, 11% phosphate Tanzania: 37% gold Uganda: 18% coffee Zambia: 84% copper

Prebisch-Singer hypothesis The theory: YED for commodities is lower than YED for finished goods.

Different YEDs

Therefore, as incomes rise the demand for manufactured goods rises more quickly than the demand for commodities.

This worsens the terms of trade of developing countries. D’y’all rememba terms o’ trade?

Terms of Trade The ratio of export prices to import prices.

Evaluating Prebisch Singer There is some truth in it and there is a danger in relying on one commodity, especially if your primary commodity is food.

However….. Some developing economies sell commodities which are clearly luxury goods.

Many primary products (even ones that are not obviously luxury goods) have experienced a boom in demand and price – BRIC demand.

Even if you do rely on an income inelastic commodity (bananas, rice) rising global population will result in greater demand anyway, irrespective of the good’s YED.