Trends in Terms of Trade of LDCs

The controversial Prebisch thesis in international economics of development asserts that (i) less‐developed countries (LDCs) experience a long‐run deterioration in their terms of trade with developed countries (DCs), and (ii) these experiences are the cause of the ever‐widening gap in their per capita incomes with DCs. By surveying the controversy and discussing the connection between trends in terms of trade and international economic inequality, this paper attempts to disprove some widely held notions derived from misinterpretations and from broad generalisations with indirect inferences. We conclude that there is need for case studies; in order to evaluate and select appropriate policy options.