Dependency theory

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Can raw materials help fuel industrialization? Structuralists argued that developing countries needed to move beyond dependence on commodity exports.

© marcorubino, Andrei, Pablo/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

Dependency theory is an approach to understanding economic underdevelopment that emphasizes the constraints imposed by the global political and economic order. Developed in Latin America beginning in the 1960s, dependency theory drew on the work of Argentine economist and statesman Raúl Prebisch and gained prominence in the 1960s and ’70s.

Dependency theory formed part of a broad critique of Western ideas of economic development known as modernization theory, which held that less-developed parts of the world could follow essentially the same growth path as industrialized countries and that participation in the global economy was fundamentally positive.

Dependency theory also grew out of structuralism and dissatisfaction with some of its ideas about economic development. Structuralism was closely associated with the Economic Commission for Latin America and the Caribbean (ECLAC). Leading economists at ECLAC, including Prebisch, had stressed the need for a planned strategy of national development built around a major role for the state and import substitution industrialization (ISI).

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Argentine economist Dr. Raul Prebisch (right) of The U.N.C.T.A.D. (United Nations Conference on Trade and Development) Union, April 28, 1966.

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Prebisch divided countries into two categories, “core” and “periphery,” with the core consisting of industrialized economies of the Global North and the periphery consisting of economies dominated by agriculture and resource extraction in the Global South.

According to dependency theory, underdevelopment is mainly caused by the peripheral position of affected countries in the world economy. Typically, underdeveloped countries offer cheap labor and raw materials on the world market. These resources are sold to advanced economies, which have the means to transform them into finished goods. Underdeveloped countries end up purchasing the finished products at high prices, depleting the capital they might otherwise devote to upgrading their own productive capacity.

The result is a vicious cycle that perpetuates the division of the world economy between a rich core and a poor periphery. Dependency theorists also emphasized the links between internal and external forces, including shared economic interests between powerful groups within developing countries and those in the core economies.

Dependency theory encompassed writers with different backgrounds and views. Moderate dependency theorists, such as the Brazilian sociologist Fernando Henrique Cardoso (who served as the president of Brazil from 1995 to 2003), considered some level of development to be possible within the global capitalist system. More radical scholars, such as the German American economic historian Andre Gunder Frank, argued that the only way out of dependency was the creation of a noncapitalist (socialist) national economy.

Critics argued that dependency theory underestimated the ability of developing economies to grow while participating in the global capitalist system, particularly as East Asian economies industrialized. They also argued that the theory placed too much emphasis on external forces while downplaying domestic conditions and the histories of individual countries.

By the mid-1980s, dependency theory had lost influence as criticism of the approach grew and neoliberal economic ideas gained prominence. Later approaches to economic development moved in other directions, although questions raised by dependency theorists—including the effects of global capitalism and unequal economic relationships between countries—continued to influence debates over development and globalization.