Growth and development
Andre Gunder Frank (1929–2005)
1841 German economist Friedrich List argues against free trade and for protectionism in domestic markets.
1949–50 Hans Singer and Raúl Prebisch claim that the terms of trade between poor and rich countries deteriorate over time.
1974–2011 US sociologist Immanuel Wallerstein develops Frank’s development theories to devise world-systems theory. This uses a historical framework to explain the changes that were involved in the rise of the Western world.
Rich countries claim that they do not set out to keep poor countries poor—rather that relationships between them should help both parties. However, in the 1960s German economist Andre Gunder Frank claimed that the development policies of the Western world, along with free trade and investment, perpetuate the global divide. They preserve the dominance of the rich world and keep poor countries poor. Frank called this “dependency theory.”
"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
Rich Western countries were never junior trading partners to a bloc of powerful and economically advanced countries, as poor countries are today. For this reason some economists have pointed out that policies that helped the advanced countries develop may not benefit today’s poor countries.
The liberalization of international trade is often extolled by economists as a guaranteed way of helping underdeveloped economies. However, Frank’s dependency theory claims that such policies often lead to situations where rich countries take advantage of poorer ones. Underdeveloped countries 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.
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.
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 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.
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.