Manufactured Exports and Terms of Trade: The East Asian Evidence and Implications for Africa

Abstract

The structure of African exports remains largely it was in colonial times - heavily concentrated on few primary products. Africa’s heavy dependence on primary commodities source of export earnings has meant that the continent remains vulnerable to market vagaries and weather conditions. On the one hand, the Prebisch- Singer hypothesis recommends diversification away from primary commodities and towards manufactured exports as an escape route from the observed deterioration in the terms of trade. But such a proposition has come under attack in recent years. Under such a context, with a view to drawing lessons for Africa, this study conducts an econometric analysis of the long-run relationship between disaggregated shares of manufactures in total exports using data for six East Asian countries that experienced notable changes in the structure of their exports. The overall conclusion of the study is that, indeed, turning away from primary exports and towards manufactured exports has resulted in improvements in the terms of trade of the group of countries studied. Given country specific political economy contexts and initial conditions, the general implication for African countries is to attempt diversification away from primary production with a strategic objective of continuously upgrading their technological and skill capabilities.