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1. Early Dependency Theory
2. Dependent Development
III. Critical Evaluation and Empirical Evidence
A. Critical Evaluation
B. Empirical Evidence
IV. Policy Implications
V. Future Directions
The economic and political instability faced by former colonies and other developing countries in the post–World War II era sparked a great amount of concern and much debate within policy circles and scholarly research. Within political science, the resultant research became known as political development and encompassed the fields of comparative politics, international relations, and international political economy. One of the main concerns of this literature is the unequal and inequitable economic and political development that exists between developing and developed countries. In response, two main schools of thought emerged, modernization and dependency (of which world-systems is a part), each taking a very different approach to explaining the origins and effects of this observed lack of development. Before describing dependency theory, however, it is first necessary to put this work in context by describing modernization theory, which emerged first and to which dependency was a direct response. Since modernization theory is discussed in detail elsewhere in this handbook, only a brief introduction is provided below.
The primary assumption of modernization theory is that there is one path to development, which consists of adopting the modern values, behaviors, technology, and institutions of developed countries. The focus of the modernization approach is thus to apply the so-called Western (western Europe and the United States) development experience to the rest of the world. For development to occur, a country must replace traditional norms and structures such as rural society, rigid social structures, passive citizen participation, undifferentiated political structures, traditional and elitist sources of authority, subsistence agriculture, and primary economic activity with modern structures and values including geographic mobility, urbanization, flexible social structures, active citizen participation, complex political structures, merit-based authority structures, formalized judicial system, rule of law, and economic diversification. The success with which this diffusion of modern values and institutions occurs determines the eventual political and economic development achieved. Once traditional values and institutions are replaced with modern versions, there is no turning back since such changes cannot be undone.
Modernization theory thus describes a linear and irreversible process that creates conditions conducive to economic growth and political development. It is also an internally driven process that gives no consideration to external or international influences that may adversely affect a country’s ability to develop effective political and economic structures. If a country fails to adopt modern ways, modernization theory concludes this is due to inferior or so-called wrong values. Since culture and values are viewed as deeply rooted and difficult to change, a country with the wrong values is unlikely to benefit from any guidance and assistance provided by developed countries, and thus their policymakers may conclude that aid and investment will not contribute to modernization and redirect their money to countries with the so-called right values.
The assumption that both a single linear path to development and the failure to develop are due solely to internal factors was viewed by many scholars, especially those from developing countries, as being an incomplete, value laden, and offensive approach to development. In response, scholars, economists, and policymakers from Latin America, known as dependentistas, took exception to modernization theory’s Eurocentric approach and internal focus and developed dependency theory, an externally oriented argument, to explain the lack of political and economic development in developing countries.
Dependency and world-systems theory are often presented as unified approaches to development since both are primarily concerned with the ways in which external factors, particularly the international capitalist economic system, have affected and continue to affect developing countries. They did, however, emerge separately, with the former originally focusing on the political economy of Latin American underdevelopment and the latter building on dependency by placing it within a larger global historical context. Dependency-based work began to appear shortly after World War II but reached its peak in the late 1960s and 1970s when modernization had established itself as the dominant approach to development and as increasing concern arose in academic and policy circles regarding the fate of former colonies. World-systems emerged in the 1970s as a historical-sociological approach seeking to place dependency in historical perspective by focusing on what are termed long cycles in history and the effects of the most recent cycle on developing countries.
Both approaches are also often identified with Marxism since they argue that imperialism, exploitation, and the international capitalist economic system are to blame for underdevelopment. Imperialism and exploitation are key concepts for dependency and world-systems, but instead of applying them internally to a domestic class-based system as with Marxism, they are applied externally to the international economic system, which emulates a class system at a global level. Another parallel is the argument that to escape exploitation, revolution must occur. In Marxism, the proletariat must overthrow the bourgeoisie, whereas in dependency the countries of the periphery (developing countries) must revolt against economic domination by the core (developed countries); however, the timing of revolution is a key point of disagreement. Marx and Engels (2002) argued in The Communist Manifesto in 1848 that all countries go through linear stages of development, with socialism being the last and highest level thereof. Most dependentistas, however, find Marxism’s linearity unacceptable and argue that rather than incurring long-term suffering while waiting for the right point in the process at which to have their revolutions, developing countries need to bypass the stages and take immediate action to improve their situations.
The first writings in what would become dependency theory were from neo-Marxist Latin American economists and sociologists seeking to explain why, despite more than 100 years of independence, Latin America continued to lag far behind western Europe and the United States in terms of economic development. An early and influential work was produced in 1950 by Raul Prébisch while he was working for the United Nations Economic Commission for Latin America (ECLA). It was in this groundbreaking work that the concepts of core (or center) and periphery were introduced along with the assertion that the core exploits the periphery. The arguments developed in this work sparked what would become a vibrant and lively debate between modernization theorists and dependentistas.
In response to modernization’s claim that to stimulate economic growth, developing countries simply need to duplicate the path of the developed countries, dependency argues this is impossible since that path no longer exists. The international capitalist economic system did not exist when the West began the development process; instead, the system is a product of the West’s development that was created to facilitate its continued economic growth. Developed countries were in fact able only to grow their economies, industrialize, and accumulate significant wealth through the political and economic exploitation of other countries by way of colonialism and imperialism. Although colonialism has ended, it remains in developed countries’ best interests to maintain this system given the advantages it provides, and as a result, they actively prevent developing countries from growing competitive economic systems to ensure their continued exploitation. As a result, the rules of the development game are very different for developing countries since they are faced with a coherent and exploitative international economy that is structured to keep them at a disadvantage.
Dependency theory thus argues that rather than being cultural, development is in fact structural and dependent on the nature of a country’s insertion into the international capitalist economic system. For developed countries, this insertion was voluntary and purposeful since they created the system for their own benefit. For former colonies, however, insertion was originally involuntary via colonialism, and on gaining independence, the new states were weak and uncompetitive. The prospects for development are thus influenced by the long-term political and economic effects of the state’s insertion into this system.
1. Early Dependency Theory
Dependence is most clearly defined in Theotonio Dos Santos’s (1970) article “The Structure of Dependence”:
By dependence we mean a situation in which the economy of certain countries is conditioned by the development and expansion of another economy to which the former is subjected. The relation of interdependence between two or more economies, and between these and world trade, assumes the form of dependence when some countries (the dominant ones) can expand and can be self sustaining, while other countries (the dependent ones) can do this only as a reflection of that expansion, which can have either a positive or a negative effect on their immediate development. (p. 231)
Dependence thus involves an asymmetrical power relationship between the core and the periphery, in which the latter has little or no ability to grow and expand because of its continued exploitation by the core. This asymmetrical relationship can ultimately be traced to colonialism since it is the structures put in place during this era that continue to limit development opportunities in the periphery today.
Under traditional colonialism, conquest and subjugation created conditions for the monopolization and exploitation of a colony’s natural resources (including labor). This, in turn, facilitated the rapid development of core economies by allowing them to cheaply fuel industrialization, develop economic diversification, and effectively compete and trade with each other. The effect on the colony was to make it a provider of cheap raw materials and agricultural products to be exported to the colonial power. As a result, the colony’s survival was dependent, in the truest sense of the word, on the colonial power. Although colonialism via political domination officially ended with decolonization, dependency asserts that the core still economically dominates and exploits the periphery, a condition referred to by dependentistas as neocolonialism. Despite the name, neocolonialism applies to all countries in the periphery, not just former colonies, since the structure of the international capitalist economic system creates the same disadvantages for all developing countries.
Under neocolonialism, the economic situation for the periphery remains relatively unchanged as the ability of the newly independent countries to expand and diversify their economies is limited by the core’s continued control of the global economic structures put in place during the colonial era. The periphery remains limited primarily to the production and export of agricultural goods and raw materials and thus finds itself having to import finished goods, technology, and other industrial goods from the core. The wealth generated in the international system continues to flow primarily to the core since, as the financier of the production process, it receives the profit from the finished product as well as any taxes from its sale. The periphery, on the other hand, receives an artificially low agreed-on price for its raw materials and agricultural products (because of the core’s superior negotiating power) with very little, if any, money reinvested in its economies and production processes. Given the relatively high value of the goods the periphery imports from the core, the relatively low value of the goods it exports to the core, its minimal industrial capacity, and its low ability to diversify, the periphery receives a disproportionately small share of gains from trade, has generally unfavorable terms of trade, and builds increasing trade deficits.
Another issue related to colonial legacy and neocolonialism is the need for countries in the periphery to secure foreign investment and borrow capital from the core in an attempt to overcome their structural disadvantage and compete effectively in the international economy. Foreign investment brings desperately needed capital and industry to the periphery but ultimately extracts more than it adds as profits are returned to and reinvested in the core, not in the periphery. The ability to borrow money as a means of raising investment capital is generally considered to be beneficial to developing countries, but dependentistas argue that international financial institutions such as the International Monetary Fund and the World Bank create a perpetual cycle of debt through high interest rates and predatory lending practices. The core, for all practical purposes, thus directs the most profitable sectors of the dependent country’s economy as well as state economic policy and is, as a result, able to keep the periphery dependent on it for infusions of capital. The negative effects of foreign direct investment and debt are considerable for developing countries and leave them at a severe competitive disadvantage and in a perpetual state of underdevelopment. Rather than being a means for escaping poverty and improving economic performance, foreign capital in reality structurally limits growth potential, with the capitalist system serving as another imperialist tool to maintain control of the periphery and to ensure that the periphery remains dependent on the core.
Although the process just described is economic in nature, the economic control the core wields gives it strong de facto political control over the periphery. This continued political dependence arises from the incentive structure created under neocolonialism and the need for the periphery’s political, economic, and military elite to maintain dependent economic relationships for fear the periphery will lose power if it defies the existing structures and agreements. Members of the periphery elite thus find themselves supporting a system that closely resembles the exploitative colonial structure in which only a powerful few benefitted, except now the benefits also accrue to them. The incentive structure is ultimately not conducive to providing collective gains for the entire population but rather selective gains for the elite. As a result, although the core may no longer have the direct political control present under colonialism, it still has significant indirect control leading to continued political dependence.
The prospects for economic growth and political development in dependent countries are thus grim. Since developing countries are relegated to an exploitative system in which production is limited to raw materials and unfinished goods, ruled by elites with a vested interest in maintaining the status quo, and dominated by a core with a vested interest in ensuring it stays that way, development is unlikely. Thus, dependentistas argue, if countries in the periphery cannot develop while participating in the international capitalist economic system, they must withdraw from it. In essence, if the rules of the game are biased against you, then you have two choices: to continue to play by the rules and thus continue to be exploited or to rewrite the rules in a way that does not leave you at an unfair disadvantage. Absent significant changes, the periphery is essentially doomed to continued economic and political dependence. The solution is to remove the periphery from the exploitative capitalist system by creating a competing economic order either with or without full-scale socialist revolution.
2. Dependent Development
In the late 1960s and early 1970s, some Latin American countries (Argentina, Brazil, Colombia, and Mexico in particular) began to experience economic development through diversification and industrialization that was largely fueled by increased investment from multinational corporations (MNCs). This naturally called into question some of the assumptions of dependency theory—particularly the role of foreign investment—and its pessimistic conclusions regarding the prospects for development. Fernando Henrique Cardoso and Enzo Faletto argued in 1969 (the publication date in the original Spanish) that the nature of dependency had changed for these countries because they possessed more resources and had higher industrial capacity than other dependent countries and as a result were able to gain more leverage against and reduce the constraints imposed on them by the core. They were no longer fully dependent, but were instead in a state of “dependent development,” an economic status in which there is growth and some measure of increased economic control, but ultimately, the core maintains significant influence over policy and development (Cardoso & Faletto, 1979).
Dependent development is the result of the internationalization of a dependent country’s internal market via MNCs. Given the profit imperative of corporations, many have sought to cut costs and increase profits by shifting some of their production capacity to developing countries where the cost of land, labor, and raw materials is lower than in the corporation’s home state. The MNC thus negotiates with the political, economic, and perhaps even military elite in the host country (the dependent state) to allow it to open a factory, mine for minerals or metals, or refine a raw material. In exchange, the host country benefits from taxation and fees (usually negotiated at a reduced rate) from the MNC’s activity, diversification of the economy, lower unemployment, and in some cases, improved infrastructure in the form of roads, ports, railroads, or airports that results from the MNC’s need for better access to transportation.
On the surface, MNC investment appears to be beneficial to the host country, but there are other factors to consider that, according to dependent development, may lead to economic decline, political instability, or both. MNCs invest in periphery countries only when it helps to maximize their profits, and thus although the internationalization of a host country’s economy results in increased development, this development is ultimately only a side effect of an MNC’s investment. All profits, aside from those needed to maintain the offshore facility, are invariably invested back into the MNC, thus profiting the home country through tax revenues it receives from the MNC’s domestic and international activities. In addition, all decisions regarding MNC activity are made at corporate headquarters, and thus, key economic decisions that could adversely affect the host country are made without its input and out of its control. Should the MNC’s profits decline or disappear, it has no incentive to remain in the host country and is thus likely to withdraw and seek a better deal in another developing country. The results of MNC withdrawal are potentially devastating since without the MNC driving development, the economic situation is likely to deteriorate, leaving many local workers unemployed and eliminating the economic benefits the host country was receiving.
Dependent development also has implications for political stability within the host country because of the uneven distribution of wealth and increased income inequality that arises from economic growth. The elite benefit greatly from their arrangements with the core, while the masses receive little to no relief from extreme poverty. This in turn has the potential to lead to civil unrest and domestic conflict as the masses challenge the status quo, demanding improved living conditions and reduced income inequality. These circumstances put the elite in an untenable position as they must choose between continued development and domestic turmoil, with the latter potentially leading to open rebellion or even revolution. The most likely outcome in this situation is for the state to implement coercive measures against the masses to ensure the development agenda is not compromised. The MNC–elite alliance thus often serves to develop and maintain repressive governments (Evans, 1979).
Although under the conditions of dependent development countries are able to develop beyond those experiencing full dependence, the process is still neocolonial in nature. Profitable economic sectors remain under the control of the core, except rather than the core state having direct control, MNCs, acting as their agents, now fulfill this role. The host state, on the other hand, experiences growth through foreign investment, but this growth is ultimately dependent on maintenance of the exploitative relationship, leaving the developing country vulnerable to changing economic conditions in the core. In the end, the relationship remains heavily skewed in favor of the core and structured in a way that keeps the periphery at a competitive disadvantage.
World-systems theory was inspired by dependency’s arguments and is most closely identified with Immanuel Wallerstein (1974). Although world-systems has its origins in historical inquiry, theorists argue that the approach in fact transcends traditional disciplinary boundaries since it considers the world as a whole, not just from a political, economic, sociological, or historical standpoint. As a result, world-systems theorists distinguish between systems of the world, as represented by the focus on discrete units such as states, and systems that are a world, represented by a system that is larger than any single national or political unit. A world-system does not necessarily encompass the entire world, but it does integrate multiple political and cultural units whose behavior and interactions are guided by a set of systemic rules and cultural norms known as a geoculture. There are two types of world-systems: world-empires and world-economies. In world-empires, there is a single political authority for the entire system and a common culture that often dominates peripheral areas. In world-economies, on the other hand, although there is no single political authority, there is a dominant economic structure that guides state interactions and creates an integrated system of production that results in a division of labor based on industrial capacity.
The modern world-system, which is a world-economy, originated in the so-called long 16th century in western Europe, which began with the Spanish discovery of the Americas in 1492 and ended with the Peace of Westphalia in 1648. During this period, the core of economic power shifted from the old Mediterranean to northwest Europe. As part of this shift, the old core (the Mediterranean) became the semi-periphery (a new category of developing country described subsequently). The rest of the world that was economically relevant at the time, Latin America and eastern Europe, then became the periphery. The French Revolution of 1789 was another crucial point for the current world-system since it solidified liberalism as the dominant philosophy of the core and thus implemented a new geoculture. With liberalism came the concept of universalism, an important principle stressing equality in citizen access to the system and in the application of laws. Wallerstein (1974) notes that although these values are generally common to core countries, they are not necessarily applied and encouraged elsewhere, leading to inequality within the system. The completion of the modern world-system occurred in the late 19th century when the rest of the world, previously external to the system, became economically integrated into the world-economy via colonization and industrialization’s need for more and cheaper resources. In focusing on long cycles of economic and political development, world-systems broke with the dominant perspective that the modern world order was a product of World War II and its aftermath and argued instead that it was in fact 500 years in the making.
The modern world-system added a new category of state, the semi-periphery, to the relationship between the core and the rest of the world. The semi-periphery consists of countries that possess both core- and periphery-style production capacities. The core-type industries produce higher cost, higher value manufactured goods and behave no differently than producers in core countries in that they exploit countries in the periphery. The periphery-type industries, on the other hand, produce lower cost, lower value goods, such as raw materials and agricultural products, and are exploited by core countries. Countries in the semi-periphery thus have a mix of production capacities that creates two very different economic sectors within a single country and as a result makes it vulnerable to domestic conflict: Those tied to core-type industry seek to maintain what they have at all costs, and those tied to periphery-type industry seek to improve their situations. This is essentially the same relationship one sees between core and periphery countries, except at work within a single country. The relative mix of core- and periphery-type industries determines the degree to which a state is ultimately still dependent on the core and whether it escapes the periphery to join the semi-periphery. However, despite the fact that countries in the semi-periphery are in a better situation than those in the periphery, they remain far less developed than countries in the core and because of the structural constraints of the world-economy will not be able to escape semi-periphery status.
The way in which the state and political power are treated analytically differs between world-systems and dependency. Dependency is a state-oriented approach in terms of the primary level of analysis, yet it tends to ignore state power as an important factor in explaining variation in development levels across countries and relies instead almost exclusively on the international capitalist economy to explain the differences. The world-systems approach, on the other hand, argues that the appropriate level of analysis is the world-system since the study of discrete units such as states, their national histories, and national political structures is analytically limiting given the global nature of state activity. However, world-systems theory recognizes that states are capable of exercising considerable political power and thus contribute to explaining variation in development levels. In fact, state power plays a key role in world-systems since international political history is replete with examples of one state after another upsetting the system in an attempt to gain more power and, ideally, control of the world-system itself. State power is thus considered a key component in explaining the historical emergence of the core and its ability to subjugate and exploit the periphery. State power, or rather lack thereof, also helps to explain the inability of the periphery to develop since these states are either in a colonial situation in which they completely lack autonomy or in a neocolonial situation in which autonomy is low and external influence and control are high.
The effect of this world-system has thus been to create a world-economy with a reach never before seen. It is based on capitalist economic principles with its primary priority being the accumulation of capital for its own sake. To achieve this priority, the system is characterized by a worldwide division of labor in which economic structure (core, periphery, semi-periphery) is determined by a country’s or region’s specific mix of economic activity and each zone being rewarded differently by the world economy, with the core rewarded with the highest levels of surplus and income. The modern world-system is thus ultimately an unequal system in which the core, because of its superior wealth and state power, is able to exploit the periphery and semi-periphery to ensure its own continued enrichment and development.
Wallerstein (2004) later updated his argument to include what he refers to as the current crisis of the modern world-system. This crisis began with the cultural shocks of 1968, which were characterized by widespread social upheaval in the core, periphery, and semi-periphery as a result of increasing disillusionment with the promises of capitalism and democracy’s apparent inability to adequately and appropriately foster economic development, political stability, and social equality. In terms of world-systems theory, many in the periphery and semi-periphery no longer believed investment by the core was the answer to development but instead simply a means of maintaining the core’s power, and thus, large numbers of the exploited and their sympathizers no longer believed that if they were patient, the system would reward them (as it did the core).
These changing beliefs about the nature of the world-system have thus led to increasing questioning of and agitation against the existing system and form the basis of a large-scale rejection of the dominant liberal geoculture that has been emergent since the French Revolution. The result, which jeopardizes the capitalist world-economy, is a destabilization of the world-system, which Wallerstein (2004) argues is reflected in increased institutional instability and political violence throughout the periphery as well as reduced cooperation with international financial institutions such as the World Bank and the International Monetary Fund. The effects of 1968 are thus still felt today and, according to Wallerstein, are likely to continue to be felt for another 25 to 50 years while the existing world-system either stabilizes or a new system emerges.
III. Critical Evaluation and Empirical Evidence
Early work in dependency was primarily theoretical and anecdotal, and given the highly controversial nature of the theory, it has been subjected to strenuous critical evaluation and empirical testing. Critical evaluation has occurred on both theoretical and methodological grounds and points out a number of key weaknesses of dependency. Empirical analysis has been undertaken by both proponents and critics seeking to empirically test dependency’s assumptions and implications and has yielded mixed results. Ultimately, although there is some support for dependency, there is not clear and consistent evidence that satisfies its critics.
A. Critical Evaluation
Dependency theory has a number of recurring criticisms. First, the theory is accused of being both too broad and too narrow. It is too broad because it seeks to be a universal explanation in attempting to explain all cases of a phenomenon while using a single set of assumptions and variables. In the case of developing countries, underdevelopment can be explained for all of them with the same cause and process—namely, exploitation via position in the global economic order. Dependency theory is also accused of having too narrow a focus given the argument that the capitalist international economic system (a single external factor) is the cause of dependence and underdevelopment without taking into consideration important internal factors such as the role of class, culture, state strength, or ethnic heterogeneity. Some dependentistas went so far, for example, as denying tribal relations and conflicts in precolonial Africa a role in the postcolonial political and economic situation even after old ethnic tensions erupted into violence. In treating local history and actors as irrelevant to a country’s development, dependency theory ignores potentially contradictory evidence, thus leading to research results that may be skewed toward supporting the theory despite the existence of information that could in fact dispute it (Smith, 1979).
Another critique is that the concept itself is vague, ill-defined, and potentially tautological because the definition generally includes the very concepts that need to be defined, specifically, exploitation and underdevelopment. Furthermore, dependence is not appropriately operationalized, meaning the definition leads to measuring it in a way that limits its analytical power. Dependence is typically treated as a dichotomy with a country categorized either as dependent or not dependent, rather than as a continuum in which there are various degrees of dependency. Just as there are great disparities between developed countries, there are also great disparities between dependent countries. As a result, the effects of dependency are likely to vary depending on the relative dependence of each individual state. Given this, critics ask whether the same set of policies or solutions is appropriate for all developing countries or whether there is a need to differentiate policy by degree of dependence. In treating all dependent countries the same way, dependency theorists potentially compromise any inferences and conclusions they may draw from their analyses.
The final main critique is that given the primarily anecdotal and historical evidence used by dependentistas, especially in early writings, the evidence is often thin in that it focuses on establishing historical processes without applying empirical tests of actual conditions within countries that would support the theory. Baran (1957), for example, argues that were it not for British exploitation, India would have had a much smoother and much less traumatic development process, yet how can one know this? How does one test for what might have been? Arguments based on conjecture are ultimately untestable since one cannot gather nonexistent empirical evidence. This was in fact a common pitfall of much early dependency literature and became a major issue resulting in a flurry of empirical tests, a summary of which is provided in the next section.
B. Empirical Evidence
Empirical analyses of dependency theory have been conducted by both proponents and critics, with the former attempting to develop solid evidence supporting dependency’s assumptions and implications and the latter seeking to determine whether there is reliable support for the theory’s universalist arguments. Tests of dependency apply a variety of methodological approaches including single case studies, regional studies, cross-regional comparisons that incorporate cases from two or more regions, historical analysis, and statistical analysis. A key issue with empirical analyses of dependency is the difficulty in forming testable hypotheses given the historical and anecdotal approach discussed earlier. Another problem is that, depending on the part of the theory being tested or the country or region being examined, different variables and measures are used, which can make it difficult to compare results across studies and develop a coherent and consistent body of evidence. Ultimately, despite the various approaches used to test dependency, empirical testing of the theory has yielded mixed results, with some studies claiming a relationship between dependency and underdevelopment (Bradshaw, 1985; Chase-Dunn, 1975) and others failing to find sufficient evidence to support the theory’s contentions (Jackman, 1982; McGowan & Smith, 1978).
In empirically comparing developing countries, a number of exceptions, particularly the rapid and sustained economic growth and relatively equitable income distributions of the so-called Asian Tigers (South Korea, Taiwan, Hong Kong, and Singapore) from the 1960s to the mid-1990s, call into question dependency theory’s claims regarding the inability of periphery or semi-periphery countries to experience significant economic growth and development. These countries in fact achieved sustained growth through close ties with the core, consisting of a combination of trade, loans, foreign investment, and technology transfers, all of which are factors dependency theory argues will inhibit growth and deepen dependence. Despite the 1997 economic crisis that appeared temporarily to validate this argument (since the area was heavily dependent on foreign investment), the region has experienced a solid recovery, which would again tend to dispute the conclusions and implications of the dependency approach. The shifting of European Mediterranean countries from core to semiperiphery and back to core again also appears to defy the predictions of dependency theory. All of these countries have apparently found a way to escape dependent status, something dependency theory argues is extremely unlikely. Critics of this approach point to such cases as evidence of its limited explanatory power and argue the reason for this is the failure of dependency theory to take internal factors into consideration.
Overall, the evidence tends to show that those developing countries experiencing the highest economic growth rates, rising per-capita income, and reduced income inequality (the Asian Tigers, for example) have very close ties to the international economic system and to the core. In general, countries with higher levels of foreign investment and lower trade barriers (tariffs, regulations, etc.) experience high levels of growth at a rapid rate. Those applying significant trade barriers and with lower levels of foreign investment, on the other hand, tend to be furthest removed from the core and among the poorest of the developing countries. These relationships run counter to dependency’s predictions. However, as dependency theory predicts, countries that rely primarily on the export of raw materials and agriculture do tend to be very poor and not perform well in terms of economic and social development indicators.
IV. Policy Implications
Dependency and world-systems theory sought to shift the focus of policymakers away from the assumptions and implications of modernization theory and toward those of dependency, particularly the issues of exploitation by the core, predatory lending practices by international financial institutions, and the negative effects of relying on foreign aid and investment.
A popular approach for developing countries seeking to improve their conditions and escape dependence was to implement import substitution industrialization (ISI) policies. These policies have three main characteristics: promotion of domestic production of industrial goods that substitute for imported goods, an overvalued currency that allows the emerging manufacturers to import the heavy equipment and other machinery needed for production, and protectionist barriers to trade such as tariffs on imports intended to protect the developing country’s infant industries from foreign import competition. As a result, these policies are intended to replace foreign control of the economy with domestic production and thus result in the discouragement of foreign direct investment, particularly by MNCs. The logic is that in substituting domestically produced versions of products for imports from the core, the country becomes more self-sufficient and thus reduces dependence. As a result, the policy partially implements dependency’s recommendation that dependent countries must distance themselves, if not remove themselves outright, from the international economic system.
One result of this policy was increasing budget and trade deficits. Budget deficits emerged as government spending increased to develop the infant industries and build infrastructure to support them without having the necessary tax revenue to pay for it. Trade deficits emerged because of the overvaluation of currency, which resulted in lower exports as the developing country’s products became increasingly uncompetitive on the global market. These policies were sustainable for quite some time because of continued investment and aid from developed countries, but once money became scarce, as happened with the 1973 Organization of Arab Petroleum Exporting Countries oil embargo in response to U.S. support of Israel during the Yom Kippur War and the subsequent 1979 reduction in oil supply due to the Iranian Revolution, investment and aid tended to become scarce as well. At this point, countries practicing ISI, some for 20 or 30 years, were faced with an increased need to borrow money; however, when interest rates rose, repayment became more difficult, further adversely affecting their economies. When Mexico declared that it could not meet its debt repayment obligations in 1982, lending virtually stopped and developing countries found themselves having to reconsider their ISI policies (Geddes, 2002).
Given the long-term effects of ISI policies and the results of the empirical research described previously, developing countries have had to reconsider their position on foreign investment, aid, and trade. Since the initiation of the Doha Round of World Trade Organization (WTO) talks in 2001, developing countries have increasingly attempted to renegotiate the terms of trade and demand concessions and exceptions to various provisions of the WTO they feel are discriminatory or that maintain their structural disadvantage. We also see developing countries working together, acting in loose blocs, both within the WTO and in negotiations with the European Union, to increase their leverage.
V. Future Directions
Although dependency and world-systems theory have significant flaws and have not been consistently verified by empirical research and observable development patterns, the underlying concepts and arguments are still appealing to many in the (semi-) periphery and the core. As dependency theory has evolved, theorists have had to accept the limitations of the theory as originally formulated and have instead begun to focus on more specific issue areas. Examples of more narrowly focused research that is likely to prove fruitful for future research include investigation into the effects of globalization on dependence (see, for example, the special issue of Studies in Comparative International Development edited by Heller, Rueschemeyer, & Snyder, 2009), how dependence affects gender issues within the periphery (Scott, 1995), and dependence and political violence (Boswell & Dixon, 1990).
Another potential direction for the dependency approach has its roots in the failure of both dependency and modernization theory to be consistently supported when subjected to rigorous empirical testing. Neither is able to explain development (or its failure) on its own, yet both appear to be at least partially relevant. As a result, there has been a call by some theorists to reconcile and combine the two theories in an attempt to create a true universal theory of development. However, since the two are opposites, or mirror images of each other, there is concern that attempts to reconcile them would create an overly general theory that lacks useful and relevant explanatory power. Nevertheless, attempts to combine them could provide useful insight into the theories, with the potential to spark interesting new approaches to dependency.
Dependency and world-systems theory emerged in the 1950s and 1970s to refute the predominant approach to political and economic development (modernization theory) and provide an alternative explanation as to why developing countries fare so poorly. Their approach was to focus primarily on a singular external influence, the international capitalist economic system, and how a country’s insertion into this system affects its ability to generate economic growth and development. Countries that enter the system as a result of decolonization or other forms of economic exploitation, or that entered well after the system’s creation, are at a distinct disadvantage since the system is designed to benefit the developed industrialized economies of the core and to maintain their economic supremacy. Dependency theory, as a result, argues that although direct exploitation via colonialism has ended, dependence on the core is maintained via the economic control created by neocolonialism. Although dependent development modified dependency to argue that developing countries are no longer consigned to being helpless victims of exploitation by the core, they are still heavily impacted by it, and although some countries may be able to significantly improve their conditions and foster economic growth and development, it will not be enough to reach parity with the core. For those countries unable to attract foreign investment and loans to facilitate industrialization, the prospects remain grim.
This continuing focus on predominantly external factors continues to be a major weakness of dependency theory since it virtually ignores internal factors such as social problems, ethnic conflict, and ineffective political institutions. Dependency theorists critiqued modernization theory for focusing exclusively on internal factors influencing development yet ultimately made the same assumption themselves by focusing exclusively on external influences—and in so doing left the dependency approach vulnerable to the criticism of being as biased and incomplete as modernization theory. Given the variety of experiences that have shaped developing countries, it is problematic to argue that regardless of colonial status, region, or domestic history, all are influenced in the exact same way by a limited set of influences. Because of these criticisms and the failure to establish clear and consistent evidence for the theory’s assumptions and implications through empirical testing, mainstream dependency theory has moderated the breadth of its claims with recent scholarship, focusing instead on more specific issue areas rather than continuing to develop a universal theory with only limited support.
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