Avoiding and escaping the 'commodity trap' in development

Mahdi Ghodsi and Robert Stehrer

Global Business and Economics Review, 2020, vol. 23, issue 2, 187-211

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. (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Working Paper: Avoiding and Escaping the ‘Commodity Trap’ in Development (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ids:gbusec:v:23:y:2020:i:2:p:187-211

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