The Economics Book

(Barry) #1

POST-WAR ECONOMICS 243


Many Nigerian oil workers work
for foreign firms. These firms have
poured investment into Nigeria but
may benefit disproportionately from low
local wages and valuable raw materials.

produce raw materials, which are
bought by richer countries, who
then produce manufactured goods
that are sold internally or between
developed countries. This leads to
an unbalanced trading system
where the majority of the poor
countries’ trade is with richer,
developed countries, while the
richer countries’ trade is mainly
internal or with other developed
nations. Only a small proportion is
with the developing countries. As
a result poorer countries find
themselves in a weak bargaining
position—they are trading with
larger, richer powers—and they are
denied the favorable trading terms
they need to progress.
It is argued that these forces
lead to a separation of the global
economy into a “core” of rich
countries to which wealth flows
from a “periphery” of marginalized
poor countries. The economies
of poor countries also tend to be
organized in such a way that they
discourage investment, which is
a key driver of growth in the
economy of any country.


When richer countries bring
industry and investment to poorer
countries, they claim that they
will help grow the poor countries’
economies. The dependency
theorists claim that in reality local
resources are often exploited,
workers are poorly paid, and the
profits are distributed to foreign
shareholders rather than being
reinvested into the local economy.

An alternative route
To avoid the kinds of dangers
outlined by the dependency
theorists, some poor countries have
taken a different route. Far from
opening themselves up to world
trade, globalization, and foreign
investment, they have decided
to do the opposite and insulate
themselves. Some argue that the
rise of the Asian Tigers—Hong
Kong, Singapore, Taiwan, and South

See also: Protectionism and trade 34–35 ■ Comparative advantage 80–85 ■ Development economics 188–93 ■ Economic
growth theories 224–25 ■ Market integration 226–31 ■ Asian Tiger economies 282–87 ■ International debt relief 314–15


Unequal export: raw and manufactured goods


In 1949 and 1950, economists
Hans Singer of Germany and
Raúl Prebisch of Argentina
independently published
papers illustrating the
disadvantage faced by
developing countries when
trading with the developed
world. They observed that the
terms of trade (the amount of
imports a nation can buy with
a given amount of exports) is
worse for countries whose
primary export is a raw
material or commodity than for

countries whose main export is
manufactured goods. This can
be explained by the fact that,
as incomes rise, demand for
food and commodities tend
to remain steady.
On the other hand higher
incomes provoke stronger
demand for manufactured and
luxury goods. This leads to price
rises and results in the poorer
country being able to afford
fewer imported manufactured
goods in return for the money
it receives from exports.

Underdevelopment is not
due to the survival of archaic
institutions and... capital
shortage... it is generated
by... the development
of capitalism itself.
Andre Gunder Frank

Korea—and the extraordinary
economic growth of China expose
flaws in the dependency view.
Here were a group of developing
economies for whom international
trade was an engine of rapid growth
and industrialization. Most recently,
dependency theory has found
echoes in the anti-globalization
movements, which continue to
question the classical approach. ■
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