You are on page 1of 11

The Prebisch-Singer Hypothesis: A Reappraisal Independent of Stationarity Hypotheses Author(s): Pier Giorgio Ardeni and Brian Wright Reviewed

work(s): Source: The Economic Journal, Vol. 102, No. 413 (Jul., 1992), pp. 803-812 Published by: Blackwell Publishing for the Royal Economic Society Stable URL: http://www.jstor.org/stable/2234578 . Accessed: 20/01/2012 20:53
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Blackwell Publishing and Royal Economic Society are collaborating with JSTOR to digitize, preserve and extend access to The Economic Journal.

http://www.jstor.org

Journal,102 (July The Economic in Printed GreatBritain

I992),

803-812

HYPOTHESIS: A THE PREBISCH-SINGER OF STATIONARITY INDEPENDENT REAPPRAISAL HYPOTHESES*


ArdeniandBrian Wright Pier Giorgio A primary commodity export price rise poses a quandary for planners of longlived investments: Is this the time to expand primary production to take advantage of the price rise, or should the surplus generated be directed to expansion of other sectors? The answer, of course, depends on one's view of the time series behaviour of the relative price of primary commodities. Raul Prebisch (I950) and Hans Singer (I950) believed that the long-term trend of primary commodity prices was negative. The latter, in an interesting discussion of the above quandary (pp. 482-3), viewed rises in primary commodity prices as purely temporary sources of surplus that offered short lived opportunities to increase industrial investment. These opportunities were missed by private investors, who instead increased primary sector investment in such circumstances, because 'all private activity tends to be governed by the price relations of the day' (p. 482). Such behaviour would, of course, be perfectly rational if price followed a random walk or, more generally, a martingale process, that is, a process stationary in the first differences. Till quite recently, the possibility of nonstationarity was ignored in the statistical debate on the trend in the net-barrier terms of trade between primary commodities and manufactures. This debate acquired renewed urgency in the i980S, as historic lows in the real prices of many primary commodities raised questions about the wisdom of further encouragement by institutions such as the World Bank of long-term primary sector projects in less developed countries. The standard empirical approach has been to model real primary commodity prices, measured as the net barter terms of trade for manufactures, as stationary around a deterministic trend. Spraos (i 980) found a negative trend in pre-war data, but not in the post-war period. Sapsford (I985), by introducing a dummy variable for a structural break in I950 and correcting for serial correlation, detected a negative trend on post-war data. Thirlwall and Bergevin (I985) found either constant or deteriorating trends in disaggregated commodity price indices on the post-war period. Grilli and Yang (I988), who constructed new price indices, found significant downward trends in the net barter terms of trade. Thus, most of the recent evidence has offered some support for the views of Prebisch and Singer. All of the above studies, however, are potentially subject to 'spurious regression' problems due to the incorrect treatment of the statistical properties of the series, as noted by Cuddington and Urzua (i987, 1989). If, in a
* Giannini Foundation paper no. ioi6 (for identification purposes only). Initial work on this paper was supported by the Commodity Economics Division of the World Bank.

[ 803 ]

804

THE

ECONOMIC

JOURNAL

[JULY

regressionof a variable against a time trend and a constant, the disturbance is


nonstationary, the OLS estimator does not have finite moments and is not consistent (Plosser and Schwert, I978), and tests of a time trend are biased towards finding one when none is present (Nelson and Kang, I984). Cuddington and Urzua (I987, I989), analysing the Grilli and Yang series under a Box and Jenkins (I976) framework, rejected the deterministic trend model in favour of a stochastic trend. Following the Dickey and Fuller (I979) testing approach, they could not reject the hypothesis of nonstationarity in the price series against the hypothesis of stationarity around a time trend. Moreover, using the Beveridge and Nelson (i 98 I) decomposition method, they found no deterioration in the net barter terms of trade from I 900 to I 983, apart from a one-time drop after I920. Powell (i99i), maintaining the hypothesis of nonstationarity, finds in favour of what might be called a stepwise version of the Prebisch-Singer hypothesis, with permanent drops in I92I, I938 and I975. Cuddington and Urzuia and Powell rightly direct attention to the issue of stationarity, and the plausible possibility that technical change causes random, permanent shifts in the terms of trade. But their own conclusions are subject to methodological questions. In the first place, the simple analysis of the correlogram of the series, as the Box and Jenkins identification approach suggests, does not unambiguously support their choice of specification. In the second place, Dickey-Fuller unit-root tests have low power against close alternatives. Thirdly, the use of dummy variables to account for a shift in the mean is methodologically questionable, as the shift point is intuitively inferred from a visual inspection of the data series itself. Fourth, if the shift in I92I iS assumed to be valid, Perron (I990) shows that the Cuddington-Urzuia hypothesis of a unit root in the I900-83 sample is rejected. Thus, all existing work on the time series behaviour of the terms of trade rests crucially on a prior assumption regarding the stationarity of the underlying data generating process or its first differences, but the empirical evidence for any such assumption appears quite weak. While the hypothesis of stationarity in the levels of the series has been given insufficient attention, the hypothesis of stationarity in the first differences does not appear to be sufficiently supported by the data. In this paper we re-examine the issue of deterioration in the terms of trade using a statistical approach which does not rest on any such preliminary hypothesis, the structural time series approach as introduced by Harvey and others (see Harvey (I989)). Essentially this approach estimates a local approximation to a linear trend. The trend, the cycle and the residual (irregular) components are explicitly modeled as unobserved components that are independent and statistically uncorrelated.1 By directly estimating these 'structural' components, we avoid the difficulty of inferring them indirectly through the Box and Jenkins approach, under which a parsimonious model is identified from the class of ARIMA models using the correlogram and the sample partial autocorrelation
1 In the Beveridge and Nelson decomposition method the trend and the cyclical components are perfectly correlated.

I992]

THE

PREBISCH-SINGER

HYPOTHESIS

805

function of the series. Moreover, a structural time series model can be


interpreted as a restricted ARIMA model (which is thus the reduced form of the model) and directly compared to it.

I. THE NET BARTER

TERMS

OF TRADE:

A STATISTICAL

CHARACTERISATION

Like other recent studies, we use the Grilli and Yang primary commodity price index, updated by the Commodity Economic Division of the World Bank. Deflation by the United Nations Manufacturing Unit Value (UNMUV) yields the net barter terms of trade series which in logarithmic form we denote as LPV. The potential bias due to quality changes in this series is well recognised, although its direction is not completely obvious, as emphasised by Spraos In Fig. i, the graph of LPV (the solid line) shows a decline over the (I980).
0 7-

0.5

1 C0-

C SA

1900 1908 1916 1924 1932 1940 1948 1956 1964 1972 1980 1988 Years Fig. I. LPV and its estimated trend. , LPV; --, trend.

whole of the available sample period I90O-88, with several pronounced peaks and troughs, raising the possibility that the series is not mean stationary. Moreover, the correlogram of LPV (not shown) decays rather slowly, indicating that first differencing may be needed in order to achieve stationarity. However, as the correlogram of the first differences of LPV is neither positive at lag I nor zero at all higher lags, the process generating LPV cannot be a simple ARIMA (o, I, I). (See Ardeni and Wright (I990)). The correlograms offer mixed evidence of the appropriate statistical description of the series and do not give uniform support to the nonstationarity hypothesis. The issue of stationarity is a critical one, whether or not a linear time trend
29 ECS102

8o6

THE

ECONOMIC

JOURNAL

[JULY

is present. Let Ytbe the observed variable LPV. In a regressionof Ytagainst a linear time trend and a constant: + yt= t,t

?Vft

(I)

if the residual Vt1 is a stationary ARMA process, then Yt is trend stationary, whereas if ft has a unit root, then Al\t is a stationary ARMA process, and Yt is difference stationary and can be written as: AYt= J+ ?ft (2) Both processes can be written as linear functions of a time trend, the only difference being that in the latter case the error process is nonstationary. In the model: (3) Yt= A'+ aYt-,+ Py+ kft that one can test thejoint hypothesis there is no time trend (fi = o) and that there is a unit root (a = i), as suggested by Nelson and Plosser (I982). Standard Dickey-Fuller tests performedon LPV indicate rejection of the null hypothesis at the 5 %0level, while augmented Dickey-Fuller tests do not reject.2 Given the low power of these unit-root tests, the evidence of nonstationarity is, once more, rather weak. This makes the application of procedures that are based on the assumption of nonstationarity, such as that of Beveridge and Nelson, rather suspect; to avoid this problem, we have chosen a method that is independent of stationarity hypotheses.
II. THE STRUCTURAL TIME SERIES APPROACH

The structural time series approach is based on the idea of estimating a model containing unobserved trend, cycle, and irregular components as 'stylised facts' about the underlying data generating process. Following Harvey (I989), the 'trend plus cycle model' can be written as:
YtK=/?ft?+ t t= I,..., T (4)

where At is a trend component, V'tis a cycle component, and Et is an irregular component. We assume that V't is a stationary process, Et is a white noise disturbance with variance o 2, and all the components are mutually uncorrelated. The linear trend can be written as:
At_ =-+3t_l + it t= I,5...,

(5)

A =A-1+?6t

t= I,...,

(6)

where qt and 6t are independent white noise processeswith variances o-2and o' respectively. The cyclical component can be modeled as
[*t

[ -sinA cosAP[ cosA

+ csnAlfVt1i?[wt *

o0 A

o< p

I,

(7)

2 See Ardeni and Wright (I990) here

for a fuller technical discussion of these tests and of the results reported

I992]

THE

PREBISCH-SINGER

HYPOTHESIS

807

where ?o and ?t* are uncorrelated white noise processes with variances -2 and 0.2 respectively (2fr* appears by construction). Here A can be thought of as the frequency of the cycle and p as the damping factor of the amplitude. Although this formulation appears rather peculiar, it allows a great variety of processes. The cycle can be rewritten as
(I-2p

cosAL +p2L2)>r=

(I-p

cosAL) w?+

(p sin AL)(o*

(8)

which is an ARMA(2, I) (L is the lag operator). If o2 = o, it reduces to an AR(2) with complex roots, whereas if either A = o or A = oT, then the cycle is AR(I). We assume that 0.2 = 0.2 The trend plus cycle model (4), (5), (6), and (8) can be cast in state space form. The parameters A, p, o-, o2,o22, and 0.2 are estimated by maximising the likelihood of the observed sample with respect to these parameters through the Kalman Filter.3 A comparison of different non-tested models can be made on the basis either of the maximised likelihood function (L) or of the prediction error variance (PEV), which is the steady-state variance of the one-step-ahead prediction error.4 Given the estimates of the unknown parameters, the Kalman Filter gives the minimum mean squared estimates of the state vector at time T, i.e. the level, the slope and the cyclical components. Thus, the estimate of /AT will be the final estimate of the long-run growth rate of Yt, while the estimate of It. will be the final estinmate of its level. Estimates of the unobserved components for the whole sample can then be obtained by a Kalman Smoothing algorithm (Harvey, I989). As noted above, this model is a local approximation to a linear trend. Both the level and the slope are allowed to change slowly over time according to random walk processes, while the disturbances in the cyclical component make the cycle stochastic (albeit stationary), so that its pattern too varies over time. Equations (4), (5), (6), and (8) also imply an ARIMA representation for Yt:
=

Yt 2 6t_t1 +ltJ

(i -pcos (iI-l

AL+psin AL) 'o


L-02L2)

+t

(9) (9)

where A = (i - L) is the first difference operator.5 Equation (8) shows that a structural time series model can be thought of as an unobserved component ARIMA(2, 2, 4) model with at most two unit roots. Thus, if 0-2 = o, i.e. the slope is constant, and o-' > o, then Yt is stationary in the first differences, whereas if 0 = 02 = o, then Ytis difference stationary as in equation (2), but in this 06= case, all the variance of the process is attributed to the (stochastic) trend level. Conversely, if o-2 = o-2 = 0.2 = o, then Ytis trend stationary as in equation (i), and all the variance is attributed to the irregular component. Here, the trend
3 The time domain maximum likelihood procedure is based on the state space representation (see Harvey The analysis was implemented using the STAMP statistical package from the Department of Statistics, London School of Economics. The R4D a standardised measure of goodness of fit, relative to a random walk, for which it is zero; it is is related to ohP. 5 The first element (in brackets) on the right-hand side of (g) is the trend component, whereas the second component is the cycle. If the minimum MSE estimates of the two components are to have finite variances the two polynomials A2 and (i - 01 L-02L 2) should not have any root in common, which implies that changes in the cyclical component occur independently from changes in the trend component.
(I989)). 29-2

8o8

THE

ECONOMIC

JOURNAL

[JULY

is linear and deterministic and has a non-zero constant drift. If o'>o, Ytis still trend-stationary but with richer dynamics (it is an ARMA (2, 2)) and all the variance is attributed to the cyclical and the residual components. The most general model has stochastic trend, stochastic slope and a stationary ARMA cycle. Among the restricted versions of the basic structural model are the deterministic trend model with constant slope and the stochastic
trend model with
AR(I)

cycle. In the former the restrictions are c

cr = o,

while in the latter A = o or A = oT.


III. THE RESULTS

We have estimated several different specifications over the period I900-88 for the LPV series. While the log likelihood (L) does not appear to be very sensitive to specification, both the PEV and the R2 are. In all cases in which it is estimated, the slope is found to be deterministic (o-2 = o), while the trend and the cycle components seem to capture all the variance of the series (0.2 iS approximately zero). Among the various specifications,we choose the two with the best performance (lowest PEV), which are the stochastic trend model with cycle (which we denote as model (a)) and the deterministic trend model AR(I) (b)). Both models satisfying diagnostic tests for serial correlation and
heteroscedasticity (the Qand H tests). As the estimates of
c-2

and o 2 are zero

for model (a) (in model (b) they are zero by construction), whereas the cycle in model (b) is close to an AR(I) process, the two estimated models are close to identical (see Table i, part A). They show no unit root. Table I Period: Igo9-i988 (89 Obs) SeriesLPV TimeSeriesModelsSample Structural
Period of cycle Model
Oy2 Or2
Oy2 Oy2

(27/A)

C2

R2

Slope

(A) No dummy
(a)
0

I02'200

076
075

I46.47

0-IO3

0o20 0o20

-o-oo6o*

(b)
(ai) (bi)
(a2)

I IO000 o
0-03I

64.0
I 900-I 92 I

I46-48
I49-I6

0oI04

-o-oo6o -o-oio6t
-0-004

(B) Dummy
85-I66 76967
940I

0 0

0 7I

0-095

0?27

0o76
o079
0-79

I7-0
1921 I

I48.43
152-12

o-o83
o-o86 o-o86

037

(C) Dummy
o o

o5

o
0

0-34
0o34

(b2)

93 54I

II3-9

I52-I3

-o-oo6 -o-oo6i

I*

Notes: * Slope estimated to be constant throughout sample. t Final value of estimated slope.

The trend growth rate is estimated as -o 6 00 per year (with RMSE I 7 0%) for both models. Fig. I shows the estimated trend (dashed line). As one case can see, our estimates support the Prebisch-Singerhypothesis of a persistentdecline in the net barter terms of trade as measured by real primary commodity prices.6
6

All other model specifications give at least as steep final slopes for the trend.

1992]

THE

PREBISCH-SINGER

HYPOTHESIS

809

However, the cycles are much longer then envisaged by Prebisch and Singer, and therefore more important for investment allocation. Our conclusions regarding trend are in line with those of Grilli and Yang (I988) for the extended sample Igoo-88, although we did not constrain the trend to be
deterministic a priori.
ARMA residuals adopted

Our model proves superior to the difference-stationary specification with by Cuddington and Urzuta (I987, I989), as the fit of the stochastic trend model is much worse than those of our preferredmodels (a) and (b) (see Ardeni and Wright (I990)). This affirms the conclusion that the imposition of a unit root is outperformed by a deterministic trend model in which most of the variance is attributed to the cycle component. The deterministic trend model appears to be also highly reliable and robust over different sample sizes, indicating substantial stability of the model overall.7By re-estimating model (b) over various sample periods ending earlier (I967, I973, I980, I982, I983, I985, and I986), we find similar or steeper slopes of the trend and little difference in fit between models, or relative to the full sample. Even for subsamples I900-38 or I92i-88 or I922-88, the fit of model (b) remains satisfactory (while the fit of model (a) deteriorates somewhat), which leads us to conclude that the deterministic trend model (b) is a preferable specification.8 Though the results discussed so far tend to confirm the deterioration hypothesis, an open issue is that of structural breaks. The Cuddington and Urzuiaresults are, in fact, conditioned on the existence of a structural break in I 92 I. Furthermore Powell (i 99 i), while claiming to find other breaks in I 938 and I 975, calls the I92I shift 'by far the most significant' (p. 5) .9 We have thus
constructed
DUMMY20,

defined as

I Up

to

I920

and o thereafter, and

DUM2I

defined as i for I92I and o otherwise. DUM2I has no effects on the results, including the trend, for both models. DUMMY2o reduces the trend slope to -0 I4 %0 per year for model (b), but increases the final magnitude of the slope of the stochastic trend in model (a) to - Io6 00. However, if a structural break truly occurred in I 92 I, chances are it affected the slope as well as the level of the trend. Why then not exclude the earlier data altogether? When this is done, the slopes from models (a) and (b) are both still negative for the I 922-88 sample, but closer together at -03 % and -o6 00 (as
7 One problem with the Grilli-Yang series is that some of the constituent prices appear to have been interpolated in the period around World War Two. We estimated our models treating affected years as missing observations in a manner suggested in Harvey (1 989) and obtained resultsessentially similar to those reported. 8 Conditional forecasts (from the updated sample) and unconditional forecasts (using observations through the end of each sub-sample period) were made to I988 for both model (a) and (b) for the samples mentioned above. Both models passed the tests for structural stability (a Chow-like test and the CUSUM test (Harvey and Durbin, I986)), and the slope of the trend at I988 was always around -o-6%, except for I900-38 when it was about twice as steep for the unconditional forecasts and for the conditional forecast of model (a). 9 Powell attributes the sharp drops that occur after price peaks to induced technical change. Such phenomena are however typical of the behaviour of prices of storable commodities, as described in Wright and Williams (I982), Deaton and Laroque (I992), and Williams and Wright (I99I). Recognition of storability is a promising avenue for further analysis of commodity prices; the work of Deaton and Laroque is an impressive pioneering effort. Here we follow the literature on the terms of trade in ignoring the implications of storage.

8io

THE

ECONOMIC

JOURNAL

[JULY

for the full sample), respectively. We conclude that even if a structural break occurred in I92 I, there is still a negative trend in the net barter terms of trade, though its steepness might be reduced. But we see no strong independent evidence for the existence of such breaks in those years, other than the inspection of the sample itself. One could argue on the same basis for one-time

shifts in other years, such as I 930, I 938 (Powell) I 950 (Sapsford), I 973 (the oil
shock) or I978 (Powell)."? The conclusion is that our estimates of the trend should cover the entire sample period i900-88, without dummies for breaks.11 'Thus far we have re-examined the claims of Prebisch and Singer using modern techniques and much more data. If Prebisch and Singer had been able to apply- our models to their data, what would have they found? For I900-38, model (b) has a much better fit relative to model (a) (PEV is o-oi i9 versus 00 I58, while the R4iS 027 versus 0o03).12 They would have concluded that the trend is deterministic, with a negative slope of-I - 23 %0, twice our best estimate of - o 6 0 per year. They would also have found a cycle of period i 05 years, much shorter than revealed in the longer sample, and somewhat more consistent with their lack of attention to current price as a signal for resource allocation. The inferences of deterioration drawn by Prebisch and Singer appear to have been valid, (subject to caveats they recognised, e.g. Prebisch, p. 8, regarding quality adjustment), and to have persisted to this day, though the overall decline has turnred out to be about half as severe as our sample up to that time could have indicated. The most recent (late I940s) data that they observed prior to their I950 works now appear to have been close to the secular trend, and not, as they believed, well above trend due to the lingering effects of wartime excess demand.
IV. CONCLUSIONS

The inference of secular deterioration in the net barter terms of trade made by Prebisch and Singer in the I 950S appears to have been correct at that time, and valid for the whole century through I988, though the slope is perhaps halved when estimated from the longer sample. We find a linear deterministic trend
10 A referee conjectures that disaggregation would indicate that a drop in the series in the I920S might be traced to a fall in metal prices associated with scale economies in open-cast mining, made possible by development of the internal combustion engine. This is not the case; the deflated metals subaggregate does not exhibit the fall in the I920S seen in the aggregate series as much as the other deflated agricultural commodity subaggregates do. Slade (I985) discusses the case of copper in detail. Her table II p. I84 shows

its largestannualpricefallsaroundthistimeoccurred betweenI907 and I908 and betweenI9I6 and I9I7.


Another hypothesis is that recent heavy debt-service obligations of less developed exportershave forced them to increase supply, depressing price. Gilbert (I989) subscribesto this view, but his results are significant only for agricultural foods, in which developed nations have the major share of trade, and not for primary metals, where the hypothesis would be more plausible. No doubt intuitive ex-post rationales for falls in other subaggregates will occur to the reader. " Recall, once again, that our estimate of about a -o-6 % annual trend decline for model (b) over the sample is replicated for other samples ending in I967 or thereafter, and is within o I % of final estimates of the stochastic trend slope for model (a), with or without dummies, and for I922-88 and samples ending in I967, I980, and I982. 12 The data they used extended from I876 to I938, with one post-war observation I946-7 that Prebisch clearly discounts as above trend due to the lingering effects of war time expansion (Prebisch (1950, p. 9)). Singer (1950, pp. 480-2)) also clearly does not consider the post-war data to be 'on trend'. We exclude the years prior to I900 due to lack of data in our series.

I992]

THE

PREBISCH-SINGER

HYPOTHESIS

8I I

that is not an artifact of the cyclical commodity price decline of the I98os, nor of any 'structural shift' at the start of the I920S. We do not find a unit root in the series. Importantly, our results, unlike other previous studies that found secular decline, are not ill-conditioned on any inappropriate treatment of the statistical properties of the series. Nor are they, like every previous study, conditioned on a weakly supported prior hypothesis about stationarity of the series or its first differences. Thus, the linear negative trend we find cannot be explained away as a spurious regression phenomenon. But though Singer was correct in viewing expectations consistent with a random walk model as misguided, his view of price rises as purely temporary phenomena that should be ignored by investment planners is not supported, since there is a strong and persistent cycle in price. In sum, there is a moderate long-term downward trend in the terms of trade, but recent experience is important for the medium-term outlook. Interestingly, there is no hint of the finite nature of many primary resources in the aggregate series. We have not sorted out the relative contributions of quality changes, technical progress, and resource depletion to the trend, but their net effect on the terms of trade appears to be stationary and negative in the aggregate. University of Urbino, Italy University of California at Berkeley Date of receiptof final typescript: OctoberI99I
REFERENCES

Ardeni, P. G. and Wright, B. (I990). The Long-term Behavior Commodity of Prices.Washington, D.C.: The World Bank, International Economics Department. WPS 358 (March). Beveridge, S. and Nelson, C. R. (I98I). 'A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the "business cycle".'Journalof Monetary Economics, 7, pp. I5I-74. vol. Box, G. E. P. and Jenkins, G. M. (I 976). TimeSeriesAnalysis,Forecasting Control. and San Francisco: Holden Day. and in Prices.Washington D.C.: Cuddington, J. T. and Urziua,C. M. (i 987). Trends Cycles Primary Commodity The World Bank (mimeo). and (i 989). 'Trends and cycles in the net barter terms of trade: a new approach.' ECONOMICJOURNAL, vol. 99, pp. 426-42. 'On the behavior of commodity prices.' Reviewof Economic Deaton, A. and Laroque, G. (I992). Studies, vol. 59, pp. I-24. Dickey, D. A. and Fuller, W. A. (979). 'Distribution of the estimators for autoregressivetime series with a unit root.' Journalof theAmerican Statistical vol. Associat,ion, 76, pp. 427-3I. Gilbert, Christopher L. (I989). 'The impact of exchange rates and developing country debt on commodity prices.' ECONOMIC JOURNAL, vol. 99, pp. 773-84. Grilli, E. R. and Yang, M. C. (1988). 'Primary commodity prices, manufacturedgoods prices, and the terms of trade of developing countries: what the long run shows.' The WorldBank Economic Review,vol. 2,
pp. I-47.

Harvey, A. C. (I989). Forecasting, Structural TimeSeriesModelsand theKalmanFilter. Cambrige: Cambridge University Press. and Durbin, J. (I986). 'The effects of seat belt legislation on British road casualties: a case study in time seriesmodelling.' Journalof theRoyalStatistical structural Society,SeriesA, vol. I49, pp. I87-227. Nelson, C. R. and Kang, H. (I984). 'Pitfalls in the use of time as an explanatory variable in regression.' Journalof Business Economic and Statistics,vol. 2, pp. 73-82. and Plosser, C. I. (I982). 'Trends and random walks in macroeconomic time series: some evidence and Journalof Monetary vol. IO, pp. I39-62. implication.' Economics,

8I2

THE

ECONOMIC

JOURNAL

[JULY

I992]

Nerlove, M., Grether, D. M. and Carvalho, J. L. (I979). Analysis of EconomicTime Series. New York: Academic Press. Perron, P. (I900). 'Testing for a unit root in a time series with a changing mean.' Journalof Business& Economic Statistics,vol. 8, no. 2, pp. I53-62. Plosser, C. I. and Schwert, G. W. (1978). 'Money, income and sunspots: measuring economic relationships and the effects of differencing.' Journalof Monetary vol. Economics, 4, pp. 637-60. Powell, A. (I99I). Commodity Developing and Country Terms Trade: WhatDoes theLongRunShow?London: of University of London. Prebisch, R. (I 950). TheEconomic Development LatinAmerica its Principal of and Problems. Lake Success: United Nations. Sapsford, D. (I985). 'The statistical debate on the net barter terms of trade between primary commodities and manufactures: a comment and some additional evidence.' ECONOMICJOURNAL, vol. 95, pp. 78 I-8. Singer, H. (I 950). 'The distributions of gains between investing and borrowing countries.' American Economic
Review, vol. 40, PP. 473-85.

Slade, Margaret E. (I985). 'Noninformative trends in natural-resource commodity prices: u-shaped price paths exonerated.' Journalof Environmental and vol. Economics Management, I2, pp. I8 I-92. Spraos,J. (i 980). 'The statistical debate on the net barter terms of trade between primary commodities and manufactures.' ECONOMIC JOURNAL, vol. 90, pp. I07-28. Thirlwall, A. P. and Bergevin,J. (i985). 'Trends, cycles, and asymmetries in the terms of trade of primary vol. commodities from developed and less developed countries.' WorldDevelopment, I3, pp. 805-I7. and Williams, J. C. and Wright, B. D. (i 99I). Storage Commodity Markets.Cambridge: Cambridge University Press. Wright, B. D. and Williams, J. C. (i982). 'The economic role of commodity storage.' ECONOMIC JOURNAL, vol. 92, pp. 596-627.