Dependency Theory In Developing Countries Economics Essay


Dependency theory is a theory of how underdeveloped and developed states interact. Dependency perspective focal points on reform attempts on inequalities in the international system instead than on domestic policy. It is an resistance theory to the popular free market theory of interaction. Rudiger Dornbusch ( 1992 ) lists “ improved resource allotment ” due to the monetary value mechanism, “ entree to better engineerings, inputs and intermediate goods ” , “ economic systems of graduated table and range ” and “ greater domestic competition ” as benefits of a free and unfastened market topographic point.

Dependency theory, in contrast, holds that there are a little figure of established states that are continually fed by developing states, at the disbursal of the developing states ‘ ain wellness. The underdeveloped states are basically moving as colonial dependences, directing their wealth to the developed states with minimum compensation. In dependence theory, the developed states actively keep developing states in a subservient place, frequently through economic force by establishing countenances, or by forbiding free trade policies.

Dependency theory besides posits that the grade of dependence additions as clip goes on. Affluent states are able to utilize their wealth to farther influence developing states into following policies that increase the wealth of the affluent states, even at their ain disbursal. At the same clip, they are able to protect themselves from being turned on by the development states, doing their system more and more secure as clip base on ballss. Capital continues to migrate from the developing states to the developed states, doing the developing states to see a deficiency of wealth, which forces them to take out larger loans from the developed states, farther indebting them.

The dependence position explains why the fringe remains trapped in a backward agricultural province. In the dependence position, incorporation on the developing areas/countries into the markets is a beginning of marginalisation which perpetuates instead than erodes dualism ( Hayami and Ruttan, 1985 ) .

The failure of many counties of the fringe to do the investing in physical and institutional substructure needed to spread out the volume of agricultural and natural stuffs exports is a more important beginning of slowdown in development than overdependence on exports. ( Hayami and Ruttan,1985 ) .

There have been many different and conflicting thoughts on how underdeveloped states can relieve the effects of the universe system, several of the undermentioned protectionist/nationalist patterns have been adopted at one clip or another by such states:

Promotion of domestic industry and manufactured goods. By enforcing subsidies to protect domestic industries, hapless states can be enabled to sell their ain merchandises instead than merely exporting natural stuffs.

Import restrictions. By restricting the importing of luxury goods and manufactured goods that can be produced within the state, the state can cut down its loss of capital and resources.

Forbiding foreign investing. Some authoritiess took stairss to maintain foreign companies and persons from having or runing belongings that draws on the resources of the state.

Nationalization. Some authoritiess have forcibly taken over foreign-owned companies on behalf of the province, in order to maintain net incomes within the state.

Today Dependency Theory still applies to a certain grade. Lowering trade barriers does non needfully intend that developing states will come on or that there will non be trade instabilities because of the value of merchandises and services that are being exchanged. The values of merchandises from developed state are frequently higher in value than natural stuffs coming from developed states therefore trade may non be equal. Although labor is cheaper in developing states due to miss of resources it does non intend that the local labor pool can react to the demands of a planetary economic system. Besides authorities subsidies on agribusiness merchandises by developed states forces developing states that are frequently agriculture based to take down their monetary values further or hazard being unable to vie in the planetary market.

Developing states, are so used to grants that they budget for what they do n’t hold, trusting to acquire financess to further development undertakings. Developing states must budget and allocate resources from its ain basket as opposed to that of the giver ‘s. No affair what approaches can be devised, what the developing states demands is difficult work and to be after centrally for the resources they do hold. Adopt the attacks Chile, South Korea, China, Taiwan used. Strong establishments and independent anti-corruption bureaus coupled with developing traditional industries is what will salvage developing states.


During the 1950s and early 1960s, it was widely accepted among economic experts and policymakers that the fringy merchandise of labor in agribusiness in developing states was zero, so that labor could be withdrawn from agribusiness for industrialisation at no cost to agricultural production. It was besides widely argued that husbandmans in developing states were guided by tradition or civilization and did non react to economic inducements.

In Transforming Traditional Agriculture, Schultz demolished these statements. A cardinal thesis of Schultz ‘s work was that husbandmans in developing states are “ hapless but efficient ” intending that they make efficient usage of their few resources. In other words, farm families made good allotment determinations with respect to the meager resources and traditional engineerings available, but were hapless due to miss of sufficient resources. He “ steadfastly rejected the impression that little husbandmans were hapless due to cultural features ” and stated that these husbandmans “ needed new cognition and accomplishments to follow new engineerings, but besides to get by with altering economic environmentsa╦ć┬Ž ” ( AJAE, April 2010, p. 454 ) .

From Schultz ‘s position, traditional agribusiness is characterized by subsistence, labour intensive activities, trust on homo or animate being power, low degrees of mechanisation, minimum usage of commercial inputs, and low end product per individual. Even today, most husbandmans in developing states are engaged in traditional agribusiness, although the bulk of planetary agricultural production is from modern commercial agriculture systems.

He was optimistic that planetary agribusiness has the possible capacity to bring forth more nutrient for the universe ‘s turning population and could greatly better the income and public assistance of hapless people in both rural and urban countries.

Since agribusiness is the chief support in most underdeveloped states, transforming traditional agribusiness to a modern commercial endeavor is an indispensable ingredient of long-run economic growing and development. Agricultural modernisation requires considerable investing in: ( 1 ) new scientific and proficient cognition which requires both public and private sector support of agricultural research, ( 2 ) industrial capacity to bring forth new inputs and the establishments ( market or governmental ) to do the inputs accessible to farm families, and ( 3 ) instruction of farm people to increase their capacity to put and do direction determinations for proper usage of new engineering.

Schultz recognized that overhauling agribusiness creates a batch of uncertainness and requires doing rapid accommodations on the farm and throughout the agri-food sector. In his position, entrepreneurial endowment was required to constructively manage rapid alteration.

Recently, some development economic experts have questioned the efficient but hapless hypothesis, reasoning that facets of agricultural family determinations and land occupancy agreements in developing states apparently defy efficient economic behavior.