Title: Avoiding and escaping the 'commodity trap' in development

Authors: Mahdi Ghodsi; Robert Stehrer

Addresses: The Vienna Institute for International Economic Studies (WIIW), Rahlgasse 3, 1060 Vienna, Austria ' The Vienna Institute for International Economic Studies (WIIW), Rahlgasse 3, 1060 Vienna, Austria

Abstract: Based on the 'Prebisch-Singer' hypothesis, a strand of literature has emerged that focuses on the phenomenon of commoditisation and 'commodity trap' in development. Following Kaplinsky (2006), we revisit the hypothesis on a country's terms of trade in manufacturing trade. Offering high quality products and targeting 'niche' markets in high-income countries are beneficial strategies for developing countries to improve their terms of trade and escaping a potential 'commodity trap'. Barriers to entry via standards in the importing countries might even support such strategies. In this study, we firstly propose a proxy to capture commoditisation. Then, applying a gravity model on global bilateral intra-industry trade flows controlling for multilateral resistances over the period 1998-2014, it is shown that compliance with quality non-tariff measures (NTMs) reduces the negative impact of commoditisation on industry-level terms of trade.

Keywords: terms of trade; product quality; commodity trap; commoditisation; non-tariff measure; NTM; sanitary and phytosanitary measures; SPS; technical barriers to trade; TBT.

DOI: 10.1504/GBER.2020.108928

Global Business and Economics Review, 2020 Vol.23 No.2, pp.187 - 211

Received: 30 Jul 2018
Accepted: 25 Jan 2019
Published online: 10 Aug 2020 *

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