skip to contents.

The Rise and Fall in the Price of Food, Fuel and Manufactured Goods: Interdependency between Prices and Technology Determining Comparative Advantages and Development Paths

Discussion Papers

No.300

June 2011

ABSTRACT

Green innovation, which enables us to extract energy from food crops, caused a food shortage in 2008. Countries suffering severe damage started to reconsider their agricultural policy with the aim of becoming more autonomous. The food price hike of the time looks like a reversal of the celebrated Singer‐Prebisch thesis proposed in the 1950s. This paper examines the consequences of this trend on the comparative advantages and development strategies of developing countries. For that purpose, first, trends and short‐run fluctuations in the prices of fuel and bio‐energy crops are investigated. It is shown that the price series of fuels and the crops are synchronized only after the fuel extracting technology came into effect. Second, the reversal of the Singer‐Prebisch thesis is underpinned by the generic form of an endogenous growth model developed by Rebelo (1991). It is shown that as an economy grows, appreciation of the non‐reproducible, such as mineral resources and raw labor, over the reproducible, such as capital goods, is the norm rather than an anomaly.
Third, the consequences of the food price hike and underlying capital accumulation on the development strategies of labor‐abundant and low‐income countries are explored. It is concluded that the impact of the food price hikes on the alteration of a development strategy is only incremental, without reinforcement from raw‐labor‐saving innovation. A case study of inventions by JUKI Corporation, a world‐leader in the sewing machine market exemplifies the fact that, of all the major inventions the company have made, raw‐labor‐saving inventions have not dominated, although JUKI’s machines are sold to one of the most raw‐labor‐intensive industries.

Keywords: Bio-energy, Singer-Prebisch thesis, directed technical change, development strategy
JEL classification: O13, O33, O40, Q32, Q42

PDF pdf (550.77 KB)


Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.