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What is the Dependency Theory?

Definition: The dependency theory, introduced by Raul Prebisch in the late 1950s, is an economic concept that identifies a financial dependence between the rich and the poor nations.

What Does Dependency Theory Mean?

What is the definition of dependency theory? More specifically, this theory holds that the richer nations increase in wealth at the expense of the poorer nations due to a relationship that exists between economic and other factors. Initially, Prebisch, as Director of the United Nations Economic Commission for Latin America, was concerned about the fact that industrialized countries were achieving economic growth, yet without contributing to growth to poor countries.

Instead, according to Prebischís studies, the economic activity in the industrialized countries caused a range of economic problems in the poorer nations. Prebisch attributed the situation to the fact that the poorer nations are primarily exporters of commodities and importers of the finished goods that the industrialized nations produce with these commodities. Therefore, it is impossible to achieve equal growth.

Letís look at an example.

Example

Few issues have been discussed so vague in the history of Latin America as the dependence theory. For many, it was not a theory or a development strategy but a plain sociological and political interpretation of the situation in Latin America. However, there are common grounds between the interpretations.

First, the dependency theory is a characterization of the international system as comprising of a dominant and a dependent state, where the dominant states are the industrialized nations belonging to the OECD (Organization for Economic Co-operation and Development), and the dependent states are the states of Latin America, Africa, and Asia, which rely on the export of their commodities to the OECD nations to raise their GDP.

Second, unlike what many people believe, the dependency theory was not critical against imperialism. Instead, it sought to find the connecting dots between the richer and the poorer nations, so that the latter can improve their quality of living. To that end, the dependence theory advocated an increased role of the state to promote the nationalization of domestic industries and protect them from foreign competition.

Summary Definition

Define Dependence Theory: DT means there is an economic relationship between poor countries and rich countries.

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