Avoiding and escaping the 'commodity trap' in development
by Mahdi Ghodsi; Robert Stehrer
Global Business and Economics Review (GBER), Vol. 23, No. 2, 2020

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.

Online publication date: Mon, 10-Aug-2020

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