Are the labor market conditions causing the terms of trade to deteriorate? : A statistical evaluation of the Prebisch- Singer hypothesis.

Abstract: The study examines to what extent weak labor unions and an abundance of labor have a negative effect on less developed countries terms of trade, as hypothesized by Hans Singer (1950) and Rául Prebisch (1950). Using a sample from panel data for 74 less developed countries during the period 1980 – 2010 in OLS-regressions with fixed effects, I find some evidence that weak labor unions and abundance of labor is negatively correlated with the terms of trade, which could be interpreted in favor of the Prebisch-Singer hypothesis. The marginal effect of an abundance of labor also appears to have less negative impact on the terms of trade as labor unions grow stronger.