Dependence is a corollary to dominance. Least developed nations depend on developed countries for domestic and international policies to stimulate their growth. We witness substantial dependence on both primary and agricultural products for exports.
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Dependency theory explains primarily how developed and developing nations interact. The theory is perceived as an alternative to the free enterprise theory of interaction. Dependency theory was formulated during the post-war era in the year 1950s based on Marxian analysis of the world economy. The theory seeks to challenge the economic policies of the free market. The theory holds free-market ideology since Free trade among nations will accelerate the development of the least developed nations.
Free trade implies that tariffs will be minimal, or there will be no barriers to trade, thus opening up the global market for the non-competitive industries in developing nations. Europe and the United States maintain prohibitive barriers that restrict exports from developing nation’s especially agricultural products and textiles. The development of poor countries rests in free markets and at the same time on their competitive participation in the world market.
This will form a platform for economic growth since developing countries will increase their exports and elevate foreign direct investment in their countries. As a result, they will gain much in terms of capital formation than from the foreign assistance they receive from a developed nation (Fineman 78). The capital formation will ensure sustained growth of the economy, hence mitigating the country’s poverty standings. Also, free trade will be helpful to developed countries since they will have a ready market for their products.
It also maintains that free trade supports the aspect of globalization and liberalization around the globe. Conversely, the dependency theory maintains that the success of developed nations is at expense of the least developed nation’s growth. It is linked to the least developed nations performing as colonial dependencies; thus sending their accumulated wealth to developed nations, but in return, gains less compensation from developed countries.
The dependency theory maintains that developed countries actively keep the least developed countries in a subservient position. This is achieved through economic forces such as introducing sanctions, or by forbidding free trade policies, as well as initiating structural adjustment programs for developing countries to get a loan from Breton wood institutions such as International Monetary Fund and World Bank. Andre Frank analyzed the dependency theory in three distinct forms of explanation namely; structural, functional, and intentional, as well. He maintains that the theory does not benefit those who are marginalized and offer no solution to those struggling to overthrow the system.
Also, it offers no strategy to eliminate the polarization of the world into a developed center or metropolis and a marginalized underdeveloped and peripheral satellite. He further maintains that capitalism at both national and international levels produces under development and that the contradiction of capitalism is the expropriation of economic surplus from the many and its appropriation by a few. Also, the capitalist system produces upswings and downswings globally.
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Fernando Henrique Cardoso maintains that dependency theory studies the disparities that are evident between the centers and marginalized/periphery. He believed that periphery are least developed countries and developed countries is a metropolis, and at the center, there is a surplus balance of payment, favorable terms of trade, and production of industrial commodities with high elasticity of demand. In the periphery, certain characteristics exist such as the balance of payments deficits, unfavorable terms of trade, the dominance of multinational companies, and distorted factor prices.
Enzo Faletto defined dependency as a situation in which an economy of a certain country is conditioned by the development and expansion of another economy to which the former is subjugated. While the economies of dominant countries can expand and be self-sustaining, the economies of dependent countries will only expand on reflection of expansion radiated from the center. Therefore, the process of dependency ensures self-reinforcing, accumulation of privileges for special groups as well as the continued existence of a marginalized class. Besides, there is also a dominant dependency on international power relations whether these relations are concerning social, economic, political, and technological (Ghosh 67).
Fineman, Martha. The autonomy myth: a theory of dependency. New York: New Press, 2004. Print.
Ghosh, Baidyanath. Dependency theory revisited. Aldershot: Ashgate, 2001. Print.