Dependency Theory

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Theorists from all works of life have been trying their best to find the remedy in addressing the problems of third world countries. Despite all these efforts, these countries, (third world) which are characterized with poverty, poor medical facilities, and poor road networks seem to be experiencing more of underdevelopment unlike the so many sorts of development. Developed nations on the contrary seem to be benefiting from this continuances lack of development in these countries.

The main objective of this essay is to discuss the main tenets of the dependency theory and analyze its analytical relevancy to developing countries. This will be done by first defining the key terms to be used in the essay. It will then give a brief history of the origins of dependency theory. Then it will go on to analyze the relevancy of dependency theory to developing countries. Lastly it will give a brief overview of the paper. Developing countries in this case will be used to refer to countries that are technologically less advanced, or developing nations of Asia, Africa and Latin America. They are generally typified as low income, having economies dependent on the export of major products to the developed countries in return for finished products. These nations also tend to have high rates of illiteracy, disease and population growth, unstable governments. Many are at the bottom of the league in terms of human development, such as they find themselves depending on developed nations for their well being. Dependency is a conditioning situation in which the economies of one group of countries are conditioned by the development and expansion of others (H.Bernstein, 1973, P.76)

Dependency theory is a body of social science theories, both from developed and developing nations, which are predicated on the notion that resources flow from a “periphery” of poor and underdeveloped states to a “centre” of wealthy states, enriching the latter at the expense of the former. Dependency Theory developed in the late 1950s under the guidance of the Director of the United Nations Economic Commission for Latin America, Raul Prebisch. Prebisch and his colleagues were troubled by the fact that economic growth in the advanced industrialized countries did not necessarily lead to growth in the poorer countries. Indeed, their studies suggested that economic activity in the richer countries often led to serious economic problems in the poorer countries. Such a possibility was not predicated by neoclassical theory, which assumed that economic growth was beneficial to all (Pareto optimal) even if the benefits were not always equally shared.

Prebisch’s initial explanation for the phenomenon was very straightforward: poor countries exported primary commodities to the rich countries who then manufacturing products out of those commodities and sold them back to the poorer countries. The “Value Added” by manufacturing a usable product always cost more than the primary products used to create those products. Therefore, poorer countries would never be earning enough from their export earnings to pay for their imports. Prebisch’s solution was similarly straightforward: poorer countries should embark on programs of import substitution so that they need not purchase the manufactured products from the richer countries. The poorer countries would still sell their primary products on the world market, but their foreign exchange reserves would not be used to purchase their manufactures from abroad.

This policy was difficult to follow due to the three issues. The first is the internal markets of the poorer countries were not large enough to support the economies of scale used by the richer countries to keep their prices low. The second issue concerned the political will of the poorer countries as to whether a transformation from being primary products producers was possible or desirable. The final issue revolved around the extent to which developing nations...
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