Dependency Theory

According to dependency theory, Third World countries in the periphery of the global capitalist system are poor and underdeveloped because they are exploited by the advanced capitalist countries in the core. Their major problem is dependency on the core countries. That is the central claim made by dependency theory, a mode of analysis developed primarily by Latin American scholars in the 1960s and 1970s.

Dependency theory emerged as a reaction against the modernization paradigm, which dominated Western liberal approaches to development during the decades after World War II. Modernization theory argued that Third World countries should be expected to follow the same developmental path as taken earlier by developed countries in the West: a progressive journey from a traditional, preindustrial, agrarian society, toward a modern, industrial, mass-consumption society. Development meant overcoming barriers of preindustrial production, backward institutions, and parochial value systems that impeded the process of growth and modernization.

The theoretical endeavors among modernization theorists concerned identification of the full range of impediments to modernization as well as all factors that promote modernization. A famous economic modernization theory by Walt Whitman Rostow specifically stressed that the “takeoff,” the crucial push in moving from traditional toward modern, is characterized by a marked increase in modern sector investment to a minimum of 10% of the gross national product. Another critical [Page 629]element concerns the relationship of Third World countries to the world market. Close market relations with the developed countries are seen to have a positive developmental effect on Third World economies. Foreign trade is viewed as a road to market expansion and further growth of the modern sector. Foreign direct investment in the Third World by transnational corporations (TNCs) brings in the much needed modern technology and production skills.