Dependency theory aims at investigating the value of economic relations between poor and rich countries. The main focus of the theory lies in the fact that capital resources go from a peripheral poor countries to more developed ones. Therefore, wealthy states enrich their capital based on the way how impoverished countries are merged into the world system. The theory resembles neocolonialism and modernization theory in the attempt to explain how developed countries exploit young underdeveloped ones, those which were free of the colonial rules, and way how traditional countries can develop to the same extent as more developed states.
Benefits of Dependency Theory
Dependency theory was elaborated about 1960 based on the previous economic theories, which explored the resemblance between societies in terms of development. Though, in a flow of time, developed countries progressed more, which left others at a disadvantage. Thus, the main task became to provide help for underdeveloped countries to eliminate levels of poverty through global initiatives, investment, sharing technologies, and integrating them into the global market. Dependency theorists refused from the common view that poor areas imitate the developed ones in its basic sense, but supported that the underdeveloped countries can be distinguished as unique in terms of their economic development, political strength, social and cultural unity.Dependency researchers confirmed that poor territories need to release themselves from external negative force by reducing their participation in the world market and elaborating their own independent reforms. Prebish, who was an Argentinian economist at UNCLA, noted that impoverished territories need to limit the international trade in order to protect from foreign competition.
Link between the First and Third World
One of the aspects of the theory was to investigate the reason why poor areas lack resources in their development. The link between the first and third world can indicate the reason of why impoverished areas lag behind others. One of the propositions is connected to the view that the means which can help impoverished areas to develop are an implementation of the reform within world capitalist system and dissemination of assets. Eventually, the impoverished areas will be able to diminish the poverty cycle and promote development. The proponents of the theory illustrate that the possible measures to be taken are tied to reducing the world debt and implementing a Tobin tax. In this way, this type of tax would help to produce huge revenues that later could be utilized to decrease the debt and invest in development projects.
Dependency theorists propose that that third world areas might free themselves from world debt by reducing their reliance on financial establishments. The wrong assumption lies in the fact that these types of countries think that their economy is flourished when they borrow money from banks. Though, the third world areas do not fully understand that they face more debt and get more dependent on the first world areas, which provide further assistance. For example, hegemonic countries utilize their technological and industrial accomplishments that allows them maintaining majority in the world market. For instance, International Monetary Fund, Word Trade Organization, and the World Bank lead their own agendas, which can help them to bring benefits to their firms and satisfy their companies.
The difference between developed and underdeveloped countries lies in financial aspect, which restrains the peripheral territory to borrow costs from different one. Therefore, it is not a matter of technological difference, but in the power of the financial market. Matias Vernengo argues that the United States leads a hegemonic position because it managed to strengthen its financial market. The fact that the state is able to control its national currency gives its more priority to take the lead role in global economics.
Methods for Development
Based on the view of dependency theorists, one of the best ways for impoverished areas to get more independent is the ability to free themselves from the global capitalist system and improve their relations with developed states. Though, they need to find alternative solutions on their own rather than taking the external help. The main purpose should be strengthening their economies from Western capitalist countries. The first approach could be isolation from the influential rich states, as for instance, when China from 1960 to 2000 managed to gain the global economic power by successfully adopting the politics of isolation. Another solution could be a socialist revolution which would then affect the development of a more affluent country as the latter would need to put sanctions for underdeveloped one. The last method would be taking the strategy of associate or dependent development in a way to implement economic reforms to strengthen the value of economic growth.
Limitations of the Theory
One of the drawbacks of the theory is the way how the concept of underdevelopment is interpreted in areas outside of Europe and North America. As was stated above, the power of economic and political development among the rich countries is interconnected with failures experienced by impoverished areas. Though, the theory still keeps the disputable nature. For instance, some parts of Asia, Africa, and South American areas are not developed. On the contrary, in ancient times, all territories were considered advanced in terms of cultural heritage, economic strength, philosophical tradition, political and social accomplishments. Therefore, dependency theorists do not offer any ideas of how these territories underwent decline and what was the reason of North American and European economic advancement.
The dependency theory explores the strength of economy among rich countries, but does not give enough reason and explanation of how they prospered in their economic power. The confines of the proposition are connected to the fact that underdeveloped areas cannot maintain the position at the economic market because of their dependent role on more rich ones, which are hegemonic. Though, those who support the theory do not give the exact reasons of why more developed countries took the leading role and why other countries could not prosper and lag behind their socio-economic, cultural, and political growth. The way underdeveloped territories cannot flourish in their development is related to the diminishing role of the internal motivations and pressure of external forces. The countries of third world cannot develop their internal strategies because they face corruption and underdeveloped politics. The most developed countries as Norway, Australia, the US, the UK account for strong electorate system as well as criminal justice, which allows them to confront corruption.
It should be said that in the long run, economic theorists shift their attention to the Dependency theory in attempt to elucidate the concept of development. The development theory enabled the theorists and researchers to gain deeper insight into the economic problems faced by third world countries and strategies needed to implement in order to improve their economic strength. Though, dependency theory encompasses both advantages and gaps, one of its benefits is the idea that capitalism initially evolved as a multinational system. Now the main question is to find out how countries on the periphery level can be more close to the core.