The dependency theory is a theory that denies the benefits of international trade proposed by the classical school and explains underdevelopment through the subordination or subjugation that occurs to developed countries.
Undoubtedly, this theory tries to find a theoretical answer to why there was an economic stagnation in Latin American countries in the twentieth century. It began to form during the years from 1950 to 1970, when a group of Latin American experts worried about the socioeconomic stagnation that was occurring in Latin America.
Above all, part of the assumption that the world economy is generating a system of inequality for underdeveloped countries and is therefore harmful. The economies of developed countries are growing and strengthening more and more, while the economies of underdeveloped countries are increasingly fragile and weak.
In addition, it states that there is an axis or a country that acts as a centre. This is a developed country that is endowed with a high level of investment in its production infrastructure. For this reason, the goods and services they produce are manufactured and with a high degree of added value.
On the other hand, around this central axis, there are
many peripheral or underdeveloped countries, and for its low level of
industrialization only produce food and raw materials; that have very
Little value in the market and as a consequence, their prices are very low.
Consequently, underdeveloped countries are increasingly suffering from a greater degree of industrial and technological marginalization by industrial, rich or developed countries.
Origin of dependency theory
At first, this theory originated in ECLAC (Economic Commission for Latin America and the Caribbean) during the years between 1950 and 1960. Especially with Raúl Prebisch, an Argentine economist who was executive secretary of ECLAC. What was sought was to find an explanation of why underdevelopment was taking place in Latin American countries.
Structuralist or developmental theory
So, it was formulated by Raúl Prebisch and explained economic dependence as a central-peripheral relationship between countries.
In fact, he proposed that the growing inequality was due to the marked disparity generated in the commercial relations between countries. Causing, in this way, that the economies of underdeveloped countries were subordinated to the economies of developed countries. Which, compared inputs and raw materials at low prices in the world market and transformed them into technological or industrialized products with high added value.
Then, these products that countries exported power plants were sold in the market at high prices and were growing more and more their economies, as opposed to the deterioration suffered by the economies of peripheral countries.
On the other hand, the neo-Marxist theory explains the underdevelopment and inequality that occurs not only in Latin American countries, but at the level of the world economy.
Now, for the neo-Marxists the inequality that is marked between the underdeveloped and the developed countries, is because the developed act as central countries in the great metropolis of the capitalist world and are sustained by peripheral or satellite countries.
Therefore, satellite countries cannot develop because any surplus that is produced passes to the large metropolis that is growing more and more and the underdeveloped become poorer. They consider it to be an effect of the capitalist system.
Conclusions of dependency theory
These theories have in common the following:
- The level of production and wealth of some countries is conditioned by the growth and development of other countries to which they are subject or subordinate.
- The central or developed country has a robust and prosperous economy, so they are self-sufficient.
- Peripheral or underdeveloped countries have a weak and uncompetitive economy, so they depend on the industrial and technological center of the developed country.
- They oppose the classical theory approaches that international trade benefits both parties.
- For them in trade relations, one country wins and the other loses so that inequality in international trade relations increases more and more.
In conclusion, we can say that the dependence theory led to the extreme has led to the application of import substitution models and to implement a series of protectionist policies, especially in Latin American countries.
What worked temporarily during the decade of the 70s, but for the 80s there was a strong contraction of the international demand for raw materials and a high external debt, which caused a serious restructuring for development strategies.