dependency school theory of international trade n.
Skip this Video
Download Presentation
Uneven development - Dependency

Loading in 2 Seconds...

play fullscreen
1 / 91

Uneven development - Dependency - PowerPoint PPT Presentation

  • Uploaded on

DEPENDENCY SCHOOL, THEORY OF INTERNATIONAL TRADE. Uneven development - Dependency. THEORY OF INTERNATIONAL TRADE, NEOLIBERALISM. Post-war mainstream theories- MODERNIZATION SCHOOL AND DEPENDENCY PERSPECTIVE. Structure of the presentation. 1) theories of growth

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'Uneven development - Dependency' - zia

Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
structure of the presentation
Structure of the presentation
  • 1) theories of growth
  • 2) theories of international trade – neoclassical and its criticism
  • 3) structuralist perspective - Prebish
  • 4) new school of dependency studies
  • 5) world system theory - Wallerstein
production possibility frontier
Production- possibility frontier
  • PPF shows the maximum amount of alternative combination of goods and services that a society can produce at a given time when there is full utilization of economics resources and technology
  • The PPF shifts outward over time as more resouces become availabe or technology is improved
production possibility frontier1
  • Economic problem of limited production – explained by PPF
  • ECONOMIC GROWTH occurs when the economy´s productive capabilites increase
  • - growth depicted as an outward shift of PPF
ppf and growth
PPF and growth
  • When production is at its maximum, increased output of A requires reduced production of other goods,
  • there s opportunity cost to the increased production of A
  • Increasing opportunity costs – continous expansion in the production of A is secured by sacrificing increasing amount of other goods.
opportunity cost
Opportunity cost
  • = the benefits forgone when a specific decision is made
  • Of two options - the opportunity cost of the option chosen is the opportunity forgone for the other option
  • (accounting vs. economic theory OP)
increasing costs
Increasing costs
  • Recourses are not homogenous - not equally efficient in the production of goods and services
  • Not equally productive when used to produce alternative good
  • This imperfect substitutability of recourses – due to differences in the skillds of labour, fertility of soil, specialized funcion of machinery, buildings etc.
post war concepts of development
Post-war concepts of development
  • BINNS, T.: Dualistic and unilinear concepts of development pp. 91-95, in: companion_II.pdf.
  • Dualism or dichotomous nature of development
  • Advanced and modern sector of the economy coexisted alongside the traditional and backward sectors (Binns, 2008:82).
truman s presidential address 1949

„we must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth

Truman´s presidential address, 1949

arthur lewis
Arthur Lewis
  • 1954 : Economic Development with unlimited labour
  • Proponent of dualistic structure of underdeveloped economies
  • Goal - absorption of underempoyed labour force in susbsistence agriculture
  • Very influential in the 60s and 70s
arthur lewis1
Arthur Lewis
  • Criticism: failed to appreciate the positive role of small agriculture
  • Some successes of Green revolution – raising productivity in the rural substistence sector - help development process rather then obstacle
dualism in geographical concepts
Dualism in geographical concepts
  • Early spation development models
  • Different qualities and potential of contrasting regions
  • Initial regional inequalities as a prerequisite for eventual overall development
institutionalists gunnar myrdal albert hirschmann
Institutionalists - Gunnar Myrdal, Albert Hirschmann
  • Cumulative causation
  • Particular regions – by virtue of some initial advantages - moved ahead = new increments of activities and growth will be concentrated in those regions already ahead.
criticism of rostow s model and similar ones
Criticism of Rostow´s model (and similar ones)
  • 1) unilinear development - ´things can only get better´ x cf sub-Saharan countries and LA
  • Sub-Saharan worse off then at the independence
  • 2) eurocentic model – developing countries will imitate the development path in Europe and America
  • 3) development occurs in stages
neoliberalism saps
Neoliberalism, SAPs
  • Reading: SIMON, D. : Neoliberalism, stuctural adjustment and poverty reduction strategies, in : companion_II.pdf, pp. 86
  • Dramatic oil price increases – 1973 and 1979 – triggered a slowdown, severe recession and debt crisis 1981-2
crisis of keynesian model
Crisis of Keynesian model
  • Profound disillusionment - record of the state involvement in economic and social life
  • Keynesian state involvement - inefficient, bureaucratic, unnecessary drain on public coffers (Binns, 2008:87)
opportunity cost1
Opportunity cost
  • = the benefits forgone when a specific decision is made
  • Of two options - the opportunity cost of the option chosen is the opportunity forgone for the other option
  • (accounting vs. economic theory OP)
dependency readings
Dependency - readings
  • Conway, D.; Heynen N.: Dependency theories: from ECLA to André Gunder Frank and beyond, in. Companion_II.pdf
  • International division of labour
  • Based on Ricardo´s model of international trade
  • Factor endowment theory
  • Specialization on the production of good in which partricular country has comparative advantage
factor endowment theory
  • Different countries – different factor endowments
  • Cf china, South Africa
  • Heckher Ohlin Hypothesis of international trade
  • Specialization according to the prevailing factor endowements
  • USA, UK – focus on what kind of goods?
  • Sierra Leone?
raul prebish singer
Raul Prebish, Singer
  • LA historical marginalization and resultant underdevelopment – perpetuated by such unequal commercial arrangements
  • LA shoukd benefit from export strategies
  • Evidence showed oterwise
  • Structuralist economists – argued that core countries benefited at LA expense
frank development of underdevelopment
Frank – development of underdevelopment
  • Metropolis satellite relations occured not only among states bust also on region and sub-regional levels
  • Dependebcuy – perpetuated through global capitalims
  • Importance of historical significance and transformative impact of capitalism´s penetrartion into continents structures
  • Import substitution industrialization
  • Prebish - insisted on major structural changes in development policy
  • Favoured switching to more domestic production under tariff protection
  • as a means of replacing industrial imports ISI
  • Capital goods, intermediate product and energy would be purchaised with national income revenue from export of primary commodities (Conway, Heynen, 2008:93)
new forms of dependency
New forms of dependency
  • Multinational corporate power and authority over technology transfer anc capital investment emerged as a new form of dependency (Conway, Heynen, 2008:93).
fernando cardoso
Fernando Cardoso
  • Associated dependent development
  • Triple alliance
  • Domestic elite in cooperation wt transnational corporation
  • ISI under authoritarian regimes, state policies favoured multinational capital at the expense of labour
theory of international trade
Theory of international trade
  • SAPSFORD, D.: Smith, Ricardo, and the world marketplace 1776-2007: back to the future?
classical depencency school
Classical depencency school
  • LA – ECLA , Prebish – head of ECLA
  • Voices of the periphery
  • Prebish – criticized outdated international division of labour
  • LA – asked to produce raw materials for industrial centers
andr gundar frank
André Gundar Frank
  • development of underdevelopment
  • Concepts of modernization school distilled from the categories derived from the Western world
  • Western categories are unable to guide an understanding of the problems facing 3W
  • Modernization school ignores the historical experience of colonialism
  • Metropolis-satellite relationship explain how underdevelopment works
  • Replicated within countries
  • Calcuta
  • Satellite flourishes when cut off from the centre
  • Industrialization during WWI WWII
social destruction
Social destruction.
  • Creation of client serving class
  • Extension of the colonial power
  • Corruption of local elites
  • Disintegration of communities, social conflicts
  • Educational system
  • Did not enhance knowledge and technological advances
  • Ubiquous knowledge
baran colonialism in india
Baran – colonialism in India
  • Politics of de-industrialization
  • unfavorable terms of trade
  • Appropriation of 10%
  • Plus asymetry of power -
raul prebish
Raul Prebish
  • Structuralist approaches
  • Critique of Ricardian theory of international trade - empirical evidence – did not prove
  • LA – growth during both wars
  • Close links with centers not beneficial to the growth of peripheries
the anatomy of structural adjustment programmes
The anatomy of structural adjustment programmes
  • (Simon, 2008:86) Structural Adjustment Programmes - designed to cut government expenditure, reduce the extent of state intervention in the economy and promote liberalization and international trade
  • SAPs explicit about the necessity of export promotion based on the Ricardian notion of comparative advantage
nature of international trade
Nature of international trade
  • International trade is unbalanced and unequitable
initiatives connected with debt relief
initiatives connected with debt relief
  • the structural adjustment programmes (SAPs) of the 1980s,
  • the Heavily Indebted Poor Countries Initiatives (HIPCI) 1990s
  • Multilateral Debt Relief Initiative (MDRI) announced after the summit of the G-8 states in Gleneagles in 2005.
  • debt crisis broke out in August 1982 when Mexico, Brazil no longer able to service their debts – triggering panic
  • Developed countries advanced enormous commercial loans to the debtor countries
  • during the 1970s - Pearson Report to warn
the reasons of the debt crisis
The Reasons of the Debt Crisis
  • The Reasons of the Debt Crisis
  • Developing countries - substantial economic growth in the 1960s (average of 6.6% between 1967 – 1973, see Todaro 1994:459)
  • the OPEC countries decided to increase oil prices. They rose four times (Pilbeam 1998:290), which started to cause problems in both the developed and the developing world as oil was needed everywhere.
debt crisis
Debt crisis
  • Walt Whitman Rostow that all countries have potential to develop along the same trajectory,
  • the only obstacle being delay due to the lack of resources to promote rise of economic capacities of the “backward” states
debt crisis1
Debt crisis
  • The loans, even though very large, did not seem risky at first because of the relative strength of primary commodity prices in the 1970s (Mulhearn 1996:170). I
  • in addition, surplus of money on the international markets meant higher levels of inflation; interest rates were thus relatively low, which made borrowing even more attractive.
loans from commercial banks
Loans from commercial banks
  • Commercial lending boomed as countries were reluctant to borrow from institutions such as the IMF or the WB due to the required conditions - AAA rating
imf policies saps
IMF policies - SAPs
  • Geared to maximizing the propects for and amounts of repayment by the debtor countries
  • SAPs explicit about the necessity of export promotion based on the Ricardian model of comparative advantage
  • International trade is often unbalanced and unequitable
Debt service payments tripled between 1975 and 1979 (Todaro 1994:463) but debtor countries managed to maintain the growth which made debt servicing possible.
debt crisis2
Debt crisis
  • Rapid countermeasures and strict penalties imposed
  • Threat of domino effect among debt-ridden countries – bankrupcy
  • Undermine the whole systém
  • IMF assimed leading role in addressing the crisis
  • The problem of default – diagnosed as entirely the fault of the debtor countries.
interpretations of debt crisis
Interpretations of debt crisis
  • Western countries interpreted the crisis as the fault of developing countries –
  • Government being corrupt, interventionist, bloated by bureaucracy, loss-making state enterprises
  • Dramatic increase in interest rate paid (monetarist policies of expensive money) was not considered as sufficient explanation
odious debt
  • Question of the legitimacy of debt
  • Non-democratic regimes – burden on the whole of population when appropriated by administration?
  • Question whether loans in question were contracted willingly not asked
  • CAMPAIGN – Jubilee 2000
oil shocks
  • After the second oil shock in 1979, oil prices increased from $13 per barrel in mid-1978 to $32 billion in mid-1980 (Pilbeam 1998:297).
  • The governments of the industrialized countries imposed strict monetary policies in order to stabilize the economy and to lower inflation levels.
global recession
Global recession
  • Global recession at the beginning of the 1980s
  • a new wave of protectionism in the developed world
  • deteriorating terms of tradefor developing countries.
  • This coincided with falling primary commodities prices
global recession1
Global recession
  • Compared to 1980 prices, the export earnings from cotton fell by 47%, coffee by 64%, from cocoa and sugar by 71%, 77% respectively (Commission for Africa 2005:109).
terms of trade
  • Terms of trade= A proportion between money earned from exports and money spent on imports.
development in the 1980s and the 1990s
Development in the 1980s and the 1990s
  • At first, the debt crisis was seen only as a temporary shortage of liquidity problem not as something which was supposed to cause difficulties in the international system till the new millennium.
  • The main concern was to ensure that there would be no collapse of any important banks due to default of a major debtor.
liquidity solvency problems
Liquidity; solvency problems
  • A liquidity problem means that the government does not have enough foreign currency to meet its obligations but is able to repay them in the long run, a solution may be just rescheduling.
  • On the other hand, if a solvency problem is the case, the government is not and probably will not be able to repay debts even if rescheduled, the only solution is thus debt forgiveness
debt structures
Debt structures
  • Latin American countries entered the 1980s as much largely indebted than the sub-Saharan states.
  • At the end of the decade Brazil owed about $120 billion, Mexico $100, Argentina $70 and Venezuela $50 billion (Wiarda 1990:411).
the creditors
The creditors
  • the largest amount of money in Latin America was owed to commercial banks while in sub-Saharan Africa to official creditors such as states and multilateral institutions.
The World Bank could provide more funding for different plans and programmes to deal with the situation. The International Monetary Fund was not entitled to do this as it could lend money only to support reform policies not particular projects.
  • Pilbeam (1998:419) argues that both of the institutions were restricted in their actions by the amount of possible capital to be lent because the IMF did not have enough resources and the WB had to keep its AAA rating.
programme for sustained growth
Programme for Sustained Growth
  • In 1983 and 1984, $126.4 billon of private debts of 25 developing countries had to be rescheduled, $118.1 billions owed by the Latin American governments (Parkins 1996:60).
  • In 1985 the Programme for Sustained Growth was announced by the US Secretary of Treasury James Baker
  • management of the debt crisis in developing countries the IMF
  • Structural Adjustment Facility in 1986, renamed to the Enhanced Structural Adjustment Facility (ESAF) a year later.

debtor countries were required to pursue a number of reforms which are known as the structural adjustment programmes (SAPs)

  • designed to improve the economic situation. The usual requirements of the SAPs were
washington consensus
Washington Consensus
  • cuts in government expenditure on health, education, employment or food subsidizes, currency devaluation, export promotion, trade liberalization, privatisation and deregulation.
  • These measures met with strong criticism in developing countries as well as in academic circles, and they became know as „the Washington Consensus[
lost decade
„lost decade”.
  • The achievements of these programmes are questionable because they were followed by declining living standards, rising unemployment and rising inequalities within the societies so the 1980s are frequently referred to as a “lost decade of development”. A
  • the mid-1990s attention started to shift from Latin American countries which seemed to be more or less stabilised to sub-Saharan Africa where the situation was not improving.
  • In 1996 total external debt of Africa was $320 billion which was equal to the region’s GDP per year, making it the most indebted part of the world as Latin American proportion of debt to GDP was “only” 60% (Ayittey 1999).
hipci i
  • In 1996, the IMF and the WB launched a joint programme called the Heavily Indebted Poor Countries Initiative (HIPCI).
  • to reduce the external debt of the world's poorest states to sustainable levels
  • to ensure that the countries had enough resources to make repayments and to finance economic growth at the same time
  • BWIs reaching first the decision point and then the completion point.
  • At that moment debt relief was granted.
  • the HIPC Trust Fund with basic capital of $500 million to pre-pay debts
  • to help and cover debt service if a country could not meet it and to purchase debts and then cancel them.
  • The IMF established the ESAF Trust Fund to provide the poor countries with grants which were, as argued by Raffer and Singer (2001:185), then used to repay the IMF but it allowed the institution to maintain reputation that it did not reduce debts.
washington consensus1
Washington Consensus
  • The term Washington Consensus was initially coined in 1989 by John Williamson
  • to describe a set of ten specific economic policy prescriptions
  • considered to constitute a "standard" reform package promoted for crisis-wrackeddeveloping countries
  • by Washington D.C based institutions such as the International Monetary Fund (IMF), World Bank and the U.S. Treasury Department.[1]
The consensus included ten broad sets of recommendations[12]:

Fiscal policy discipline;

Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructureinvestment;

Tax reform – broadening the tax base and adopting moderate marginal tax rates;

Interest rates that are market determined and positive (but moderate) in real terms;

Competitive exchange rates;

Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;

Liberalization of inward foreign direct investment;

Privatization of state enterprises;

Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions; and,

Legal security for property rights.

washington consensus2
Washington consensus
  • the term has come to be used in a different and broader sense, as a synonym for market fundamentalism;
  • in this broader sense, Williamson states, it has been criticized George Soros and Nobel Laureate Joseph E. Stiglitz
  • The Washington Consensus is also criticized by others such as some Latin American politicians and heterodox economists.
washington consensus3
Washington Consensus
  • The term has become associated with neoliberal policies in general
  • drawn into the broader debate over the expanding role of the free market, constraints upon the state, and US influence on other countries' national sovereignty.
anti globalization movement
Anti-globalization movement
  • Many critics of trade liberalization, such as Noam Chomsky, Tariq Ali, Susan George, and Naomi Klein, see the Washington Consensus as a way to open the labor market of underdeveloped economies to exploitation by companies from more developed economies.
anti globalization movement1
Anti-globalization movement
  • The prescribed reductions in tariffs and other trade barriers allow the free movement of goods across borders according to market forces, but labor is not permitted to move freely due to the requirements of a visa or a work permit.
The criticism is that workers in the Third World economy nevertheless remain poor,

any pay raises they may have received over what they made before trade liberalization are said to be offset by inflation,

whereas workers in the First World country become unemployed, while the wealthy owners of the multinational grow even more wealthy

anti globalization
  • critics further claim that First World countries impose what the critics describe as the consensus's neoliberal policies on economically vulnerable countries through organizations such as the World Bank and the International Monetary Fund and by political pressure and bribery.
They argue that the Washington Consensus has not, in fact, led to any great economic boom in Latin America,

but rather to severe economic crises and the accumulation of crippling external debts that render the target country beholden to the First World

poverty reduction and growth facility
Poverty Reduction and Growth Facility
  • Reduction of poverty became the main target which went in line with the Millennium Development Goals (MDGs) discussed by the United Nations and agreed on a year later.
  • The IMF’s Enhanced Structural Adjustment Facility (ESAF) introduced in 1987 was changed into the Poverty Reduction and Growth Facility.
The requirements to qualify for the HIPCI II were lowered and debt relief is now provided from the decision point, not the completion one.

Countries need to create a Poverty Reduction Strategy Paper (PRSP) where the freed resources are used effectively to alleviate poverty. The other two key elements emphasised are country-ownership and civil society participation.

Countries can achieve the decision point after three years of economic stability and an interim PRSP

hipci ii
  • In March 2008 thirty-three countries were receiving debt relief under HIPCI II;
  • twenty-three of them reached the completion point
  • ten were benefiting from some debt reductions as they were in the interim period between the decision and completion points (IMF 2008).
the total external debt
The total external debt
  • The total external debt of all developing countries at the end of 2005 was $2,800 billion and debt service payments over the year reached $511 billion (Jubilee 2000: The Basics about Debt).
  • For sub-Saharan Africa, which is the most problematic region now, the external debt increased by 175% from $84.1 billion in 1980 to $231.4 billion in 2003 (African Development Report 2006:13) while its share of world exports between 1980 and 2001 fell from 4.6% to 1.9% (Randriamaro 2003:121).
  • Despite this, a new debt relief initiative which was named the Multilateral Debt Relief Initiative (MDRI) was agreed on in 2005 at the G-8 summit in Scottish Gleneagles.
  • it emphasises debt forgiveness not just relief and focuses on multilateral creditors.
Most of the private banks’ loans have already been repaid with money from the BWIs, and bilateral relief is granted by the Paris Club so the multilateral institutions were the last ones to lend.

Paris Club a group of major creditors set up in 1956 when Argentina’s debt had to be restructured for the first time.

hipci ii1
  • The qualification criteria for the MDRI are the same as for the HIPCI II, and after reaching the completion point debts of the countries which are owed to the IMF, the International Development Association (IDA)[1] and the African Development Bank (AfDB) are cancelled.
hipci ii2
  • On 6 January 2006, the IMF was the first multilateral institution to cancel the debts owed to it by 19 of the world’s poorest countries.
  • IDA - an agency which belongs to the World Bank group and provides concessional lending for the low-income countries i.e. loans with long maturities (10 years) and low fixed interest rates of 0.5% per year.