Dependancy Theory

1
TABLE OF CONTENTS

CHAPTER I: INTRODUCTION................................................................................................2
1.1 DeIinition oI Dependency Theory..................................................................................4
CHAPTER II: HISTORY OF DEPENDENCY THEORY........................................................5
2.1 1950`s..............................................................................................................................6
2.2 1960-1970........................................................................................................................8
2.3 1980 onwards...................................................................................................................9
CHAPTER III: ELEMENTAL FRAMEWORK OF DEPENDENCY THEORY......................10
3.1 Capitalism........................................................................................................................10
3.2 Power................................................................................................................................11
CHAPTER IV: MAIN HYPOTHESIS OF DEPENDENCY THEORY.....................................12
4.1 Main propositions oI Dependency Theory.......................................................................13
CHAPTER V: IMPLICATIONS OF DEPENDENCY THEORY................................................15
5.1 Conclusion.........................................................................................................................15
BIBLIOGRAPHY............................................................................................................................17
BOOKS REFERRED.......................................................................................................................17
ARTICLES REFERRED..................................................................................................................17
JOURNALS REFERRED................................................................................................................17
WEBSITES REFERRED..................................................................................................................17

Chapter I: INTRODUCTION

The Dependency Theory has been developed in 1949 in two papers published in 1949- by
Hans Singer and Raul Prebisch, who was the Director oI the United Nations Economic
Commission Ior Latin America.
1
In this theory, it was observed that the terms oI trade Ior
underdeveloped countries relative to the developed countries had deteriorated over time: the
underdeveloped countries were able to purchase Iewer and Iewer manuIactured goods Irom
the developed countries in exchange Ior a given quantity oI their raw materials exports.
Prebisch Iound the Iact that economic growth in the advanced industrialized countries did not
necessarily lead to growth in the poorer countries, since his studies suggested that economic
activity in the richer countries oIten led to serious economic problems in the poorer countries.
Such a possibility was not predicted by neoclassical theory, which had assumed that
economic growth was beneIicial to all even iI the beneIits were not always equally shared.
His initial explanation Ior the phenomenon was very straightIorward: poor countries exported
primary commodities to the rich countries who then manuIactured products out oI those
commodities and sold them back to the poorer countries. The "Value Added" by
manuIacturing a usable product always cost more than the primary products used to create
those products. ThereIore, poorer countries would never be earning enough Irom their export
earnings to pay Ior their imports.
Poor nations are at a disadvantage in their market interactions with wealthy nations. There are
several aspects to this. One is that a high proportion oI the developing nations' economic
activity consists oI exports and imports Irom the developed nationsin many cases with only
one or a Iew developed nations. By contrast, only a small proportion oI the economic activity
oI the developed nations consists oI trade with the developing nations; a developed nation's
trade consists mostly oI internal trade and trade with other developed nations. This
asymmetry puts a poor nation in a weak bargaining position vis a vis a developed nation.
There are also historical aspects: the poor nations are almost all Iormer colonies oI the
developed nations; their economies were built to serve the developed nations in a twoIold

1
Raul Prebisch: http://en.wikipedia.org/wiki/RaC3BAlPrebisch

capacity: as sources oI cheap raw materials and as highly populous markets Ior the absorption
oI the developed nations' manuIactured output.
2

The solution was similarly straightIorward: poorer countries should embark on programs oI
import substitution so that they need not purchase the manuIactured products Irom the richer
countries. The poorer countries would still sell their primary products on the world market,
but their Ioreign exchange reserves would not be used to purchase their manuIactures Irom
abroad.
3

2
Dependency Theory at:
http://www.utwente.nl/cw/theorieenoverzicht/Theory20clusters/Mass20Media/Dependency20Theory.doc/
3
Dependency Theory at: http://en.wikipedia.org/wiki/Dependencytheory

1.1 Definition of Dependency Theory

Many liberal reIormers namely Prebisch, Andre Gunder Frank, and the world systems
theorists Wallerstein debated over that it is a mistake to think there is only one uniIied theory
oI dependency.
'Dependency can be deIined as an explanation oI the economic development oI a state in
terms oI the external inIluences--political, economic, and cultural--on national development
policies.
4

'Dependency is an historical condition which shapes a certain structure oI the world
economy such that it Iavours some countries to the detriment oI others and limits the
development possibilities oI the subordinate economics...a situation in which the economy oI
a certain group oI countries is conditioned by the development and expansion oI another
economy, to which their own is subjected.
5

The basic requisites oI dependency theory are; Iirstly, the poor nations provide natural
resources, cheap labour, a destination Ior obsolete technology, and markets Ior developed
nations, without which the latter could not have the standard oI living they enjoy. Secondly,
Wealthy nations actively perpetuate a state oI dependence by various means. Thirdly,
Wealthy nations actively counter attempts by dependent nations to resist their inIluences by
means oI economic sanctions. Dependency theory states that the poverty oI the countries in
the periphery is not because they are not integrated into the world system, or not 'Iully'
integrated as is oIten argued by Iree market economists, but because oI 4 they are
integrated into the system.
In short, dependency theory attempts to explain the present underdeveloped state oI many
nations in the world by examining the patterns oI interactions among nations and by arguing
that inequality among nations is an intrinsic part oI those interactions.

4
Osvaldo Sunkel, ati43al Devel452e3t P4licy a3/ Exter3al De5e3/e3ce i3 Lati3 A2erica The Journal oI
Development Studies, Vol. 6, pg 23, October, 1969)
5
Theotonio Dos Santos, Te Structure 41 De5e3/e3ce, 1971)

Chapter II: HISTORY OF DEPENDENCY THEORY

Dependency theory posits that the cause oI the low levels oI development in less
economically developed countries is caused by their reliance and dependence on more
economically developed countries- i.e. the less economically developed countries are
undeveloped because they rely on the more economically developed countries. Some
proponents oI dependency theory assert that less economically developed countries will
remain less developed because the surplus that they produce will be siphoned oII by more
economically developed countries- under the guise oI multinational corporations. There is, as
such, no proIit leIt Ior reinvestment and development.
6

6
Dependency Theory at: http://marriottschool.net/emp/WPW/Class20620-
20The20Dependency20Perspective.pdI

.1 1950`s

Dependency theory originates with two papers published in 1949 one by Hans Singer, one
by Raul Prebisch in which the authors observe that the terms oI trade Ior underdeveloped
countries relative to the developed countries had deteriorated over time: the underdeveloped
countries were able to purchase Iewer and Iewer manuIactured goods Irom the developed
countries in exchange Ior a given quantity oI their raw materials exports. This idea is known
as the Singer-Prebisch thesis. Prebisch, an Argentine economist at the United Nations
Commission Ior Latin America UNCLA), went on to conclude that the underdeveloped
nations must employ some degree oI protectionism in trade iI they were to enter a selI-
sustaining development path. He argued that Import-substitution industrialisation ISI), not
a trade-and-export orientation, was the best strategy Ior underdeveloped countries.
7
The
theory was developed Irom a Marxian perspective by Paul A. Baran in 1957 with the
publication oI his Te P4litical Ec4342y 41 Gr4t.
8

Baran placed surplus extraction and capital accumulation at the centre oI his analysis.
9

Development depends on a population's producing more than it needs Ior bare subsistence a
surplus). Further, some oI that surplus must be used Ior capital accumulation - the purchase
oI new means oI production - iI development is to occur; spending the surplus on things like
luxury consumption does not produce development. Baran noted two predominant kinds oI
economic activity in poor countries. In the older oI the two, plantation agriculture, which
originated in colonial times, most oI the surplus goes to the landowners, who use it to emulate
the consumption patterns oI wealthy people in the developed world; much oI it thus goes to
purchase Ioreign produced luxury itemsautomobiles, clothes, etc. -- and little is
accumulated Ior investing in development. The more recent kind oI economic activity in the
periphery is industrybut oI a particular kind. It is usually carried out by Ioreigners,
although oIten in conjunction with local interests. It is oIten under special tariII protection or
other government concessions. The surplus Irom this production mostly goes to two places:
part oI it is sent back to the Ioreign shareholders as proIit; the other part is spent on
conspicuous consumption in a similar Iashion to that oI the plantation aristocracy. Again,

7
Short Prebisch biography
8
aul A 8aran 1be lolltlcol cooomy of Ctowtb %19%
9
Vernengo, Tec34l4y, Fi3a3ce a3/ De5e3/e3cy 2004)

little is used Ior development. Baran thought that political revolution was necessary to break
this pattern.
10

10
Paul A. Baran, Te P4litical Ec4342y 41 U3/er/evel452e3t Manchester School, 1952)
8

. 1960-1970

The theory was popular in the 1960s and 1970s as a criticism oI modernization theory the
"stages" hypothesis mentioned above), which was Ialling increasingly out oI Iavour because
oI continued widespread poverty in much oI the world.
11

Many dependency theorists advocate social revolution as an eIIective means to the reduction
oI economic disparities in the world system. In the 1960s, members oI the Latin American
Structuralist school argued that there is more latitude in the system than the Marxists
believed. They argued that it allows Ior partial development or "dependent development"
development, but still under the control oI outside decision makers. They cited the partly
successIul attempts at industrialisation in Latin America around that time Argentina, Brazil,
Mexico) as evidence Ior this hypothesis. They were led to the position that dependency is not
a relation between commodity exporters and industrialised countries, but between countries
with diIIerent degrees oI industrialisation. In their approach there is a distinction made
between the economic and political spheres: economically, one may be developed or
underdeveloped; but even iI economically developed, one may be politically autonomous or
dependent.
12

11
12
Dependency Theory at: http://www.jstor.org/pss/2633311
9

.3 1980`s onwards

More recently, Guillermo O'Donnell has argued that constraints placed on development by
neoliberalism were liIted by "the military coups in Latin America that came to promote
development in authoritarian guise".
13

The third-world debt crisis oI the 1980s and continued stagnation in AIrica and Latin
America in the 1990s caused some doubt as to the Ieasibility or desirability oI "dependent
development".
Vernengo in 2004 has suggested that the si3e qua 343 oI the dependency relationship is not
the diIIerence in technological sophistication, as traditional dependency theorists believe, but
rather the diIIerence in Iinancial strength between core and peripheral countries particularly
the inability oI peripheral countries to borrow in their own currency. He believes that the
hegemonic position oI the United States is very strong because oI the importance oI its
Iinancial markets and because it controls the international reserve currency the US dollar.
He believes that the end oI the Bretton Woods international Iinancial agreements in the early
1970s considerably strengthened the United States' position because it removed some
constraints on their Iinancial actions.
14

13
G.O'Donnel, Fi3a3ce a3/ De5e3/e3cy 10 1982)
14
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Chapter III: ELEMENTAL FRAMEWORK OF DEPENDENCY THEORY

3.1 Capitalism

Capitalism is an economic system in which the means oI production are privately owned and
operated Ior proIit, usually in competitive markets. Income in a capitalist system takes at least
two Iorms, proIit on the one hand and wages on the other.
Most dependency theorists regard international capitalism as the motive Iorce behind
dependency relationships. One oI the earliest dependency theorists, Andre Frank has stated-
'Historical research demonstrates that contemporary underdevelopment is in large part the
historical product oI past and continuing economic and other relations between the satellite
underdeveloped and the now developed metropolitan countries. Furthermore, these relations
are an essential part oI the capitalist system on a world scale as a whole.
15

According to this view, the capitalist system has enIorced a rigid international division oI
labour which is responsible Ior the underdevelopment oI many areas oI the world. The
dependent states supply cheap minerals, agricultural commodities, and cheap labour, and also
serve as the repositories oI surplus capital, obsolescent technologies, and manuIactured
goods. These Iunctions orient the economies oI the dependent states toward the outside:
money, goods, and services do Ilow into dependent states, but the allocation oI these
resources are determined by the economic interests oI the dominant states, and not by the
economic interests oI the dependent state. This division oI labour is ultimately the
explanation Ior poverty and there is little question but that capitalism regards the division oI
labour as a necessary condition Ior the eIIicient allocation oI resources. The most explicit
maniIestation oI this characteristic is in the doctrine oI comparative advantage.
16

15
Andre Gunder Frank, Te Devel452e3t 41 U3/er/evel452e3t, 31972)
16
11

3. Power

Some theorists believe that the dependency theory to a large extent relies upon the
assumption that economic and political power are heavily concentrated and centralized in the
industrialized countries, an assumption shared with Marxist theories oI imperialism. II this
assumption is valid, then any distinction between economic and political power is spurious:
governments will take whatever steps are necessary to protect private economic interests,
such as those held by multinational corporations. The Marxist theory oI imperialism explains
dominant state expansion while the dependency theory explains underdevelopment. Stated
another way, Marxist theories explain the reasons why imperialism occurs, while dependency
theories explain the consequences oI imperialism. The diIIerence is signiIicant. In many
respects, imperialism is, Ior a Marxist, part oI the process by which the world is transIormed
and is thereIore a process which accelerates the communist revolution.
Karl Marx approved oI British colonialism in India-
'England has to IulIil a double mission in India: one destructive, the other regenerating--the
annihilation oI old Asiatic society, and the laying oI the material Ioundations oI Western
society in Asia.
17

There are some dependency theorists who do not identiIy capitalism as the motor Iorce
behind a dependent relationship. The relationship is maintained by a system oI power Iirst
and it does not seem as iI power is only supported by capitalism. For example, the
relationship between the Iormer dependent states in the socialist bloc closely paralleled the
relationships between poor states and the advanced capitalist states. The possibility that
dependency is more closely linked to disparities oI power rather than to the particular
characteristics oI a given economic system is intriguing and consistent with the more
traditional analyses oI international relations, such as realism.
18

17
Karl Marx, Te Future Results 41 te Britis Rule i3 I3/ia New York Daily Tribune, No. 3840, August 8,
1853)
18
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Chapter IV: MAIN HYPOTHESIS OF DEPENDENCY THEORY

There are a number oI propositions, all oI which are contestable, which Iorm the core oI
dependency theory. Dependency theory diIIers Irom most Western approaches to studying
political development. One diIIerence is that this approach originated in the Third World
primarily Latin America), rather than among Western academics.
Third World dependency thinkers were concerned with explaining the unequal and unjust
situations in which they and their nations Iound themselves. Third World countries were poor
while "developed" countries were rich. Third World countries had bad health conditions,
while other countries had good health conditions. Third World countries had little military
power, while other countries had tremendous military resources. Third World countries Iaced
starvation, while citizens oI other countries had to worry about losing weight.
Third World economies were monoproductive and agriculturally based, while economies in
developed countries were diversiIied and industrialized. By almost any conventional
socioeconomic measure, Third World countries were at the bottom oI the scale. They had less
education, less wealth, poorer health, less military power, and were dominated politically and
economically by the First World.
Dependency theorists asked why such inequalities existed. Their central concern was to
understand the causes oI inequality. They Ielt that such inequalities were unjust, and sought
to explain inequalities in order to change them and achieve their goal oI increased equality
among nations and peoples. Dependency theory has always been quite controversial: it
incorporates some Marxist concepts; it addresses the sensitive issue oI inequality, blaming
inequality on the developed nations; and it originates in the Third World. Some aspects oI
liberation theology and world systems theory are related to dependency theory.
19

19
Dependency Theory at: http://www.studygroup-bd.org/dependency-theory.html
1

.1 Main Propositions of Dependency Theory

1. Underdevelopment is a condition Iundamentally diIIerent Irom undevelopment. The
latter term simply reIers to a condition in which resources are not being used. For
example, the European colonists viewed the North American continent as an
undeveloped area: the land was not actively cultivated on a scale consistent with its
potential. Underdevelopment reIers to a situation in which resources are being
actively used, but used in a way which beneIits dominant states and not the poorer
states in which the resources are Iound.

Underdevelopment takes place when resources are not used to their Iull socio-
economic potential, with the result that local or regional development is slower in
most cases than it should be. Furthermore, it results Irom the complex interplay oI
internal and external Iactors that allow less developed countries only a lop-sided
development progression. Underdeveloped nations are characterized by a wide
disparity between their rich and poor populations, and an unhealthy balance oI trade.

2. The distinction between underdevelopment and undevelopment places the poorer
countries oI the world is a proIoundly diIIerent historical context. These countries are
not "behind" or "catching up" to the richer countries oI the world. They are not poor
because they lagged behind the scientiIic transIormations or the Enlightenment values
oI the European states. They are poor because they were coercively integrated into the
European economic system only as producers oI raw materials or to serve as
repositories oI cheap labour, and were denied the opportunity to market their
resources in any way that competed with dominant states.

3. Dependency theory suggests that alternative uses oI resources are preIerable to the
resource usage patterns imposed by dominant states. There is no clear deIinition oI
1

what these preIerred patterns might be, but some criteria are invoked. For example,
one oI the dominant state practices most oIten criticized by dependency theorists is
export agriculture. The criticism is that many poor economies experience rather high
rates oI malnutrition even though they produce great amounts oI Iood Ior export.
Many dependency theorists would argue that those agricultural lands should be used
Ior domestic Iood production in order to reduce the rates oI malnutrition.

4. The preceding proposition can be ampliIied: dependency theorists rely upon a belieI
that there exists a clear "national" economic interest which can and should be
articulated Ior each country. In this respect, dependency theory actually shares a
similar theoretical concern with realism. What distinguishes the dependency
perspective is that its proponents believe that this national interest can only be
satisIied by addressing the needs oI the poor within a society, rather than through the
satisIaction oI corporate or governmental needs. Trying to determine what is "best"
Ior the poor is a diIIicult analytical problem over the long run. Dependency theorists
have not yet articulated an operational deIinition oI the national economic interest.

5. The diversion oI resources over time and one must remember that dependent
relationships have persisted since the European expansion beginning in the IiIteenth
century) is maintained not only by the power oI dominant states, but also through the
power oI elites in the dependent states. Dependency theorists argue that these elites
maintain a dependent relationship because their own private interests coincide with
the interests oI the dominant states. These elites are typically trained in the dominant
states and share similar values and culture with the elites in dominant states. Thus, in
a very real sense, a dependency relationship is a "voluntary" relationship. One need
not argue that the elites in a dependent state are consciously betraying the interests oI
their poor; the elites sincerely believe that the key to economic development lies in
Iollowing the prescriptions oI liberal economic doctrine.
20

20
1

Chapter V: IMPLICATIONS OF DEPENDENCY THEORY

5.1 Conclusion

II one accepts the analysis oI dependency theory, then the questions oI how poor economies
develop become quite diIIerent Irom the traditional questions concerning comparative
advantage, capital accumulation, and import/export strategies. Some oI the most important
new issues include:

1. The success oI the advanced industrial economies does not serve as a model Ior the
currently developing economies. When economic development became a Iocused area
oI study, the analytical strategy and ideological preIerence) was quite clear: all
nations need to emulate the patterns used by the rich countries. Indeed, in the 1950s
and 1960s there was a paradigmatic consensus that growth strategies were universally
applicable, a consensus best articulated by Walt Rostow.

'Dependency theory suggests that the success oI the richer countries was a highly
contingent and speciIic episode in global economic history, one dominated by the
highly exploitative colonial relationships oI the European powers. A repeat oI those
relationships is not now highly likely Ior the poor countries oI the world.
21

2. Dependency theory repudiates the central distributive mechanism oI the neoclassical
model, what is usually called "trickle-down" economics. The neoclassical model oI
economic growth pays relatively little attention to the question oI distribution oI
wealth. Its primary concern is on eIIicient production and assumes that the market
will allocate the rewards oI eIIicient production in a rational and unbiased manner.
This assumption may be valid Ior a well-integrated, economically Iluid economy

1
Walt Rostow, Te Staes 41 Ec4342ic Gr4t
1

where people can quickly adjust to economic changes and where consumption
patterns are not distorted by noneconomic Iorces such as racial, ethnic, or gender bias.
These conditions are not pervasive in the developing economies, and dependency
theorists argue that economic activity is not easily disseminated in poor economies.
For these structural reasons, dependency theorists argue that the market alone is not a
suIIicient distributive mechanism.
22

3. Since the market only rewards productivity, dependency theorists discount aggregate
measures oI economic growth such as the GDP or trade indices. Dependency theorists
do not deny that economic activity occurs within a dependent state. They do make a
very important distinction, however, between economic growth and economic
development. For example, there is a greater concern within the dependency
Iramework Ior whether the economic activity is actually beneIitting the nation as a
whole. ThereIore, Iar greater attention is paid to indices such as liIe expectancy,
literacy, inIant mortality, education, and the like. Dependency theorists clearly
emphasize social indicators Iar more than economic indicators.
23

4. Dependent states, thereIore, should attempt to pursue policies oI selI-reliance.
Contrary to the neo-classical models endorsed by the International Monetary Fund
and the World Bank, greater integration into the global economy is not necessarily a
good choice Ior poor countries. OIten this policy perspective is viewed as an
endorsement oI a policy oI autarky, and there have been some experiments with such
a policy such as China's Great Leap Forward or Tanzania's policy oI Ufa2aa. The
Iailures oI these policies are clear, and the Iailures suggest that autarky is not a good
choice. Rather a policy oI selI-reliance should be interpreted as endorsing a policy oI
controlled interactions with the world economy: poor countries should only endorse
interactions on terms that promise to improve the social and economic welIare oI the
larger citizenry.
24

22
Dependency Theory at: http://www.newinIluencer.com/mediapedia/dependency-theory/
23
24
1

BIBLIOGRAPHY

Books Referred
1. Short Prebisch biography
Websites Referred
1. http://www.newinIluencer.com/mediapedia/dependency-theory/
. http://en.wikipedia.org/wiki/Dependencytheory
3. http://en.wikipedia.org/wiki/PaulA.Baran
. http://en.wikipedia.org/wiki/RaC3BAlPrebisch
5. http://www.columbia.edu/~lnp3/mydocs/economics/dependencytheory.htm
1ournals Referred
1. The Journal oI Development Studies
Articles Referred
1. Karl Marx, "The Future Results oI the British Rule in India," e Y4rk Daily Tribu3e

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