Graham Wake is hardly looking at me but one glance is enough. "I could pay about £75 to £100 if you had a pixie cut," he says briskly. "If you went for a short bob I'd give you £40." It's not often you get paid for a haircut, but Wake's business, Bloomsbury Wigs, now relies solely on hair sourced from the heads of women in the UK. Each week 30-40 envelopes stuffed with ponytails arrive at his office. Every day, one or two women visit to have their hair valued, cut off, and restyled. Some are bored with long hair, others need the money, and a few are raising money for charity.

Wake says he prefers paying a fair price to women in the UK to buying hair from agents, and that 90% of the coils piled into the transparent plastic boxes that surround him are used to create wigs for people who have lost their hair. The rest are for hair extensions, which is what my locks could become. "If your hair was any curlier, we couldn't take it," he says. "It would just matt after a while, but as it is I could use it."

It feels faintly embarrassing to be discussing the monetary value of something as personal as my hair. But perhaps I shouldn't have been surprised at myself; women's hair has always been a contentious issue. From orthodox Jews, Muslims, and nuns covering it for modesty, to a badge of femininity and beauty in fairytales such as Rapunzel, hair has always exerted a powerful metaphorical pull. Even in today's more secular world it acts as a lightning rod for our attitudes to women: something US gymnast Gabby Douglas discovered when her gold medal win at the Olympics was overshadowed by a row over whether her messy ponytail reflected badly on the black community. Miley Cyrus's decision to cut her hair short in the summer was taken as a sign that another teen pop star's life was spiralling out of control, much like Britney Spears in 2007.

Today, hair is more than just a symbol: it is big business. From India to Peru, the human hair trade has spread across the globe, and it has the UK in its grasp. Last year HM Revenue and Customs recorded more than £38m worth of hair (human, with some mixed human and animal) entering the country, making the UK the third biggest importer of human hair in the world.

Despite the recession the UK extension industry is booming, with hair extension companies claiming it is worth between £45m and £60m (according to London based industry research firm IBISWorld, revenue from hair and beauty salons will be £3.64bn in 2012-13). Great Lengths Hair Extensions, who supply more than 1,000 salons in the UK, report a staggering 70% growth in the past five years. And according to Dawn Riley from Balmain Hair, which sells extensions to thousands of salons and hundreds of wholesalers, this is only the beginning. "It's still an emerging market. We are now seeing the growth that colour [hair dye] saw 30 years ago."

Women at work in a hair processing factory in India. Photograph: Dieter Telemans/Panos

In the upmarket central London salon Inanch, a full head of Great Lengths extensions costs around £900, and lasts up to six months. And while profits from cuts, colouring and blow drys have remained static, in 2012 the salon's hair extension business has grown 60% year on year. Owner Inanch Emir has well-known clients including Cher Lloyd, Mischa Barton and Saturdays singer Rochelle Wiseman, and when I visit one weekday afternoon her small salon is buzzing. "I do about two or three hair extensions a day," she says. "I used to do that a month."

A stylist is finishing off a head of dramatic, tumbling curls for Bianca Gascoigne, a glamour model and reality TV contestant. With her thick, false lashes emphasising her wide-set eyes, the cascade of hair makes her look like a Disney drawing. Laughing, she agrees she likes to look like "a princess": "Hair extensions make you feel glamorous," she says, explaining she first started wearing clip-in fake hair as a teenager, keen to copy celebrities such as Christina Aguilera. Now, she says, everyone she knows has them.

I watch as a woman in her 40s with long, streaked, blond hair has some extensions that have fallen out refitted. Thin strands of hair topped by a "polymer" – a covered metal ring – are wrapped around tiny clumps of her hair in neat rows, a centimetre or so from her scalp. It's fiddly work, and it's fascinating to watch the stylist gently heat the bond so it stays put. Doesn't it weigh her hair down? No, she insists, "you can't feel them, you don't even know it's there." And anyway, she says, "You fall in love with it. You look great without even trying."

Emir says the UK's passion for extensions began with Victoria Beckham. "For a long time it was only celebrities who knew about hair extensions, but when Posh went from short to long, everyone realised – and that was it."

Among hairdressers specialising in Afro-Caribbean hair, however, extensions have been popular for three decades or more, according to independent hairdresser Amanda Biddulph. Black British women may not visit salons as regularly as their US counterparts, whose styling habits were investigated in Chris Rock's 2009 documentary, Good Hair, but in the last decade, demand for extra hair has really taken off. Once, extensions were the preserve of women in their late 20s to mid-30s, says Biddulph, but now she regularly sees 14-year-olds with 18-inch extensions, and has refused to put extensions into the hair of girls as young as 12. "At the moment it's Kim Kardashian for the Afro community," she tells me. "They are wearing middle partings and their hair really long."

Not even the fact that incorrect removal and overuse of extensions and weaves are linked to traction alopecia – a form of hair loss Naomi Campbell is suspected of having after pictures emerged showing bald patches in her hair – puts people off.

Gascoigne says she thinks the reality stars from TV show The Only Way is Essex, have also had a huge impact. "I think it's the girls from The Only Way is Essex that are driving it, because everyone wants that glamorous lifestyle."

Some women in the public eye may prefer to keep the "help" they get with their hair secret (Gascoigne says, perhaps naively, that people can't tell if she wears them). And after a L'Oreal advert starring Cheryl Cole drew complaints because she was wearing extensions, Emir says some of her famous clients have made her sign confidentiality agreements. Several of the experts I speak to tell me emphatically that they believe the Duchess of Cambridge has had extensions – but even if she had, it's unlikely she would discuss it. Reality show participants, however, have no such qualms, says Riley. "It takes away the embarrassment for younger women. They wear it as a badge of pride – I can afford extensions, so I have extensions."

In Liverpool, at hair suppliers Rapunzel City of Hair, teenagers in school uniform are a common sight, says owner Emma Canty. They buy clip-in synthetic hair extensions, which can sell for as little as £10 a packet. Fake hair accessories such as plaited hair bands, meanwhile, are also sold in highstreet shops such as Topshop. Theresa Yee, beauty editor at trend forecasting company WGSN, says these quick fixes are "driving the popularity of this trend into a wider market" allowing customers to "try out multiple 'temporary' looks which they can achieve at home".

Big hair … a model makes the most of her Balmain hair extensions. Photograph: Gilbert Duivesteijn

Synthetic hair may still be popular, but it cannot be heat-styled, curled or straightened. So for more permanent extensions salons rely on human hair. With it comes an array of jargon. There is Remi hair (all strands face the same way and often come from just one person's head); virgin hair (unprocessed); double drawn (all the same length). The hair can be attached with a weave – when strips of extra hair, called a weft, are sewn into thin plaits of the customer's own hair – or attached to the customer's own hair using micro rings, or even glue. But while such terms may trip off the tongue of dedicated customers, few seem interested in the human beings it came from. "If I'm honest, I don't think people care where it is from," admits Riley. "I would like to say we are all ethically minded, but if clients want something and they can pay for it, they will have it." Gascoigne agrees: "I never ask where the hair comes from, I just love it so much. When you have big, bouncy hair you feel a million dollars."

Yet behind the bounce, the profit, and the rows of neatly packaged hair, is what hair historian Caroline Cox calls the "dark side" of the industry. With the exception of a handful of businesses such as Bloomsbury Wigs, most hair comes from countries where long, natural hair remains a badge of beauty - but where the women are poor enough to consider selling a treasured asset.

Cox points out that such exploitation has underpinned the industry since false fronts and hair pieces became popular in the UK in Edwardian times. "It's taking advantage of those who are disadvantaged," she says. "Working-class women's hair is used to bedeck the head of those who are more privileged. It's been going on for hundreds of years."

Much of the hair on sale comes from small agents who tour villages in India, China, and eastern Europe, offering poverty-stricken women small payments to part with their hair. As one importer, based in Ukraine, told the New York Times recently: "They are not doing it for fun. Usually only people who have temporary financial difficulties in depressed regions sell their hair." More worryingly, back in 2006, the Observer reported that in India some husbands were forcing their wives into selling their hair, slum children were being tricked into having their heads shaved in exchange for toys, and in one case a gang stole a woman's hair, holding her down and cutting it off. When Victoria Beckham said in 2003 that her "extensions come from Russian prisoners, so I've got Russian cell block H on my head", she may have been joking, but it was not long until the Moscow Centre for Prison Reform admitted it was possible: warders were forcibly shaving and selling the hair of prisoners. Thanks to such horror stories, reputable companies try to ensure the hair they sell is "ethical". Balmain Hair, Riley explains, has been sourcing hair from China for almost 50 years, and pays women the equivalent of a man's six-month salary (although she cannot give me an exact figure). However, not all companies pay donors. In temples in south India devotees travel for hundreds of miles and queue for hours to have their hair tonsured, or ritually shaved. Some have prayed for a child, others for a sick relative or a good harvest, and when their prayers are answered they offer up their hair. According to one report, most are rural women whose hair has often never been dyed, blow-dried, or even cut and is worth around £200. The hair is then sorted and sold, often by online auction. Last year Tirumala temple, apparently made 2,000m rupees (more than £22m), from auctioning hair. Great Lengths, who sell "temple hair", point out the hair is donated willingly, and they have a representative based in India who buys it straight from the temple, and ensures the money is funnelled directly back into the local community to fund "medical aid, educational systems and other crucial infrastructure projects".

But while the women who grew the hair may not be well paid, the price for the customers is rising. Biddulph says the cost of buying hair "has gone through the roof" – packets that used to cost £10.99 to £20.99 are now priced at £50 or £60. Yet, says Biddulph, even in a recession about half of her clients' extra hair is something they "can't be without – they factor it in to their monthly expenses." Other stylists I speak to agree and link it to the higher grooming standards and emphasis on physical perfection that have recently crept in. Kim Hunjan, who runs Belle Hair Extensions in North London, says: "A lot of clients talk about botox and plastic surgery, and they see this as similar."

In a recent report on the hair industry, IBISWorld noted trips to salons are seen as essential, rather than an optional extra: "Many salon customers have come to view their spending on hair colouring and styling services as non-discretionary expenditure causing demand for the industry to remain more resilient than in previous years."

In fact, asking how women can afford the cost might be missing the point. According to Cox extensions, like long fake nails, are status symbols. "If you have long nails, there is a suggestion you have a lot of leisure time. If hair costs a lot to do, and to keep up, there is the same suggestion. It's almost as though you are living the life of a The Only Way is Essex girl or glamour model."

The fact that it does not necessarily look like your own hair also reflects the influence of the sex industry on our ideas of what a woman should look like, says Cox. "The fashion for such a long time has been about the glorification of artificiality. Fake tans, fake teeth, fake boobs and fake nails – and you need fake hair to go with all that. The whole idea of beauty is [now] predicated on artificiality and getting rid of humanness – waxing every hair from your body but putting fake hair on your head."

Recently there has been a move towards a more demure aesthetic, she says, but one that continues to emphasise wealth. "In the recent series of The Only Way is Essex, almost half of it was set in hairdressing salons, and they were all having their hair styled in up-dos." This exposes roots and allows extensions to be clearly seen. "It's a way of showing them off," says Cox. "Today we want to show off that our extensions cost £800."

Extensions also reflect a retrogressive attitude towards women's place in society, she says. "When women try and change their role their hair becomes short and chic like in the 60s and 20s, but when gender roles become more traditional, fake hair comes in."

However, economic woes, and the recent rise in grassroots feminism could spell the end of extensions. "It's beginning to look old fashioned, especially as the recession continues," Cox explains. "I think we are at the height of it; in the fashion cycle we are moving towards a more natural look." Biddulph has already noticed a rise in salons catering exclusively to women who don't relax, straighten or extend their Afro hair. "More people are making a statement with natural hair and more salons are opening up. It's about a 70–30, but I think it will be 50–50 soon."

Yet a natural look does not necessarily mean the end of extensions in the mainstream. Instead they are becoming more discreet – used to add volume rather than length. This trend reflects the fact that older women are turning to extensions: "Young people often have coloured extensions, middle-aged women do it for the 'wow' effect, while older women often want thicker hair," says Emir. Riley agrees: "Women's hair starts thinning at 35 but they want the beautiful hair they had at 20, and they do it by hair addition."

Whatever sparked our love affair with extensions, it has deepened into something more permanent. On a rainy Thursday I watch as one of Kim's stylists works on bride-to-be Jessica Munday, who is having her hair lengthened in time for her wedding. It's a time-consuming, repetitive and expensive process but Jessica doesn't care. "People want longer hair instantly. If I like it I'll definitely have it done again."