Despite the voluminous literature on North-South macroeconomic interactions and the key role of terms of trade variations in growth transmission from one region to another, a significant research gap persists for two reasons. First, there has been very little empirical work on testing of the relationships between growth patterns and terms of trade movements. Second, the empirical studies dedicated to testing the Prebisch-Singer Thesis (PST) focused on testing the long-run tendency for the terms of trade of primary commodities to deteriorate and neglected the joint nature of the predictions arising out of a complete formulation of PST. This dissertation seeks to properly specify the PST, provide a generalization of it to the case of imbalanced trade, and extend it to a three-region framework through a structuralist North-South model. Multiple paths of growth divergence/convergence and terms of trade deterioration/improvement emerge depending on the structural changes influencing the income-elasticity differentials. I carry out two sets of empirical analyses. First, I use aggregate data on North-South terms of trade indices to test the presence and significance of a downward trend. Second, I use panel data analysis and rolling regressions to show the evolution of income-elasticity differentials. The results suggest that the growth rates of developing countries during the 1980s declined in both absolute and relative terms partly as a result of the downward trend in terms of trade and partly as a result of income elasticity differentials reflecting the productive and technological asymmetries between the developed and developing economies. However, these structural asymmetries have not remained constant: the results show that they changed both over time and over cross-sections of different groups of countries. In general the countries that diversified towards manufactured exports had better chances of eliminating the elasticity differentials, and thus attaining relatively higher rates of growth. The cross-country study is complemented by a comparative case study of Turkey and Malaysia. The results show that industrial and trade policies, if carefully designed and effectively implemented, can counter potential costs of external market dynamics while taking advantage of the opportunities for advancing dynamic comparative advantages.

In this thesis, the terms of trade changes in Turkey since 1970 are analyzed. In the 1970s, Turkey faced strong terms of trade declines mainly due to two oil price shocks. Rapid diversification of Turkish exports into manufactures was instrumental in avoiding further declines in its terms of trade in the 1980s. However, the slow pace of the diversification into more skill- and technology-intensive manufactures in Turkey combined with the fallacy of composition problem in low-tech, labourintensive manufactures may pose a real danger to the prices of its exports. To the extent that in the long-term, the changes in terms of trade of a country are determined by the level of technology embodied in its exports, the concentration of Turkish exports in low-tech, labour-intensive manufactures may highlight the need for upgrading exports and establishing backward- and forward-linkages between industries to escape from the trap of terms of trade deterioration in the long-term.