Dependency theory of development

Question 1

What is the dependency theory?

Answer 1

Dependency theory emerged as a critical response to the conventional understanding of economic development.
Developed by economists such as Prebisch and Singer in the mid-20th century, it challenges the notion that all societies progress through similar stages of development.
Instead, it argues that underdevelopment is structurally linked to the international capitalist system, characterised by a divided world of rich (core) and poor (periphery) nations.

Question 2

findings of Prebisch and Singer - core and periphery countries

Answer 2

Prebisch and Singer highlighted a historical pattern where wealth is concentrated in ‘core’ countries while ‘periphery’ countries remain stuck in cycles of underdevelopment. A pivotal aspect of this theory is the ‘terms of trade’ between core and periphery countries. They observed that over time, the price of primary goods (exported mainly by peripheral countries) tends to decline relative to the price of manufactured goods (exported by core countries), leading to deteriorating terms of trade for the periphery.

Question 3

Mechanisms Proposed by the Theory to Explain Economic Disparities:

Answer 3

1. Market Structures: The theory underscores the structural differences in market dynamics between the periphery and the core. Peripheral countries are often trapped in adverse market structures that limit their exports to primary commodities with less elastic demand and more price volatility.
2. Monopoly Capitalism: The theory also criticizes the global monopoly capitalism that leads to unequal exchanges, where multinational corporations exploit cheaper labour and raw materials in peripheral economies, reinforcing their underdeveloped status.
3. Role of Transnational Corporations: According to Cardoso, another proponent of dependency theory, transnational corporations play a significant role in maintaining dependent relationships, although they also rely on peripheral countries as markets for their products.
   Cardoso propose that dependency can also arise from complex political and economic interactions in the global system.

Question 4

Critiques of Dependency Theory

Answer 4

1. Economic and Political Critiques: Critics argue that dependency theory oversimplifies the complex nature of international relations and often ignores internal factors such as political corruption, cultural aspects, and poor economic policies that can also contribute to underdevelopment.
   Botswana has experienced significant economic growth and development since its independence in 1966, largely due to good governance, sound economic policies, and effective management of diamond resources. This example shows that internal factors like governance can play a critical role in a country’s development trajectory, challenging the dependency theory’s focus on external economic relationships.
2. Empirical Critiques: The empirical basis for deteriorating terms of trade has been contested. Some studies suggest that terms of trade for certain groups of developing countries have improved over specific periods.
   India has developed a robust IT and services sector that exports software and IT services worldwide, commanding high prices and favorable trade terms. This development contradicts dependency theory’s expectation that peripheral economies can only export low-value primary commodities and face deteriorating terms of trade.
3. Theoretical Critiques: From a theoretical standpoint, dependency theory is sometimes criticised for promoting an outlook that may discourage proactive economic and political policies in developing countries by portraying them as victims of an unchangeable global order.
   Across Africa, mobile technology and mobile banking have spurred economic innovation and growth, demonstrating that peripheral economies are not merely passive victims of global forces but can also be active creators of technological advancement and economic value.