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Re-testing Prebisch–Singer hypothesis: new evidence using Fourier quantile unit root test

Mohsen Bahmani-Oskooee (), Tsangyao Chang (), Zahra (Mila) Elmi and Omid Ranjbar ()

Applied Economics, 2018, vol. 50, issue 4, 441-454

Abstract: The Prebisch–Singer hypothesis in economics asserts that over time the relative price of primary goods relative to manufactured goods should experience a downward trend. To test the hypothesis, we must first establish the unit root properties of the relative price term and then regress the stationary series on a trend term. We use the quantile unit root test which allows for both smooth unknown numbers and the form of breaks in the trend function through a Fourier function to show that the relative price of 23 out of 24 primary goods is stationary. However, the Prebisch–Singer hypothesis is supported only in half of the primary commodities.

Date: 2018
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