Dependency theory
Topic: Schools of Economic Thought and Economic Laws · NCERT: Beyond NCERT
Meaning
Dependency theory says poor countries stay poor because of how they are tied to rich countries. The world has a rich "core" and a poor "periphery". Trade and capital links between them are exploitative, so they pull wealth from the periphery to the core. A.G. Frank (1966) called this the "development of underdevelopment": the periphery's poverty is a result of those links, not an early stage it will grow out of.
Example
Dadabhai Naoroji's drain theory is an Indian precursor. Under colonial rule, India was turned into "a raw material supplier for Great Britain's own rapidly expanding modern industrial base". India also ran an export surplus that brought no gold or silver into the country, because the surplus paid for home charges and British wars.
Don't confuse with
- Structuralism (Prebisch-Singer): blames falling terms of trade and rigid economic structures, and prescribes import substitution. Dependency theory goes further and blames exploitation by the core itself.
Related concepts
- Institutional economics
- New institutional economics
- Path dependence
- Creative destruction
- Development economics
- Structuralism (development economics)
- Developmental state