Abstract
We apply a principal component analysis (PCA) to study the Prebisch-Singer hypothesis as well as the development of the real prices of primary commodities. To justify the aggregation of primary commodities into a single commodity group a weak form of the composite-commodity theorem by Hicks (1946) is used. A structural analysis is applied to simulate the effects of a perfect stabilization of incomes of developed countries on the prices of primary commodities. The results indicate that a stabilization of Northern incomes would not have had a significant influence on the level and growth rates of primary commodity prices, although such a stabilization would have contributed to reduce the price volatility of primary commodities.
Published Version
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