What is Dependence Theory? Dependency theory is a theory of how developing and developed nations interact. It can be seen as an opposition theory to the popular free market theory of interaction. Dependency theory was first formulated in the 1950s, drawing on a Marxian analysis of the global economy, and as a direct challenge to the free market economic policies of the post-War era. The free market ideology holds, at its most basic, that open markets and free trade benefit developing nations, helping them eventually to join the global economy as equal players.
The belief is that although some of the methods of market liberalization and opening may be painful for a time, in the long run they help to firmly establish the economy and make the nation Dependency theory, in contrast, holds that there are a small number of established nations that are continually fed by developing nations; at the expense of the developing nations’ own health. These developing nations are essentially acting as colonial dependencies, sending their wealth to the developed nations with minimal compensation.
In dependency theory, the developed nations actively keep developing nations in a subservient position, often through economic force by instituting sanctions, or by proscribing free trade policies attached to loans granted by the World Bank or International Monetary Fund. The critiques of dependency theory can be leveled within a nation as well as internationally. In fact, dependency theory tends to trace its roots to back before the emergence of modern post-colonialism. On an internal level, dependency theory can be seen applying to regions within a country.
In the United States, for example, historically the industrial Northeast can be seen drawing wealth from the agricultural south in a pattern reflected in the modern world by the industrial northern hemisphere and the productive southern hemisphere. Dependency theory also posits that the degree of dependency increases as time goes on. Wealthy countries are able to use their wealth to further influence developing nations into adopting policies that increase the wealth of the wealthy nations, even at their own expense.
At the same time, they are able to protect themselves from being turned on by the developing nations, making their system more and more secure as time passes. Capital continues to migrate from the developing nations to the developed nations, causing the developing nations to experience a lack of wealth, which forces them to take out larger loans from the developed nations, further indebting them. The Relevance of Dependency Theory in the Caribbean Dependency Theory is relevant to the Caribbean region because it act as a helping hand, which aid with the Caribbean being developed.
It encourages trade, exports and tourism, which is a major form of economic growth. The Caribbean can only produce so much for itself; we have to be dependent on other countries to get resources that are absent from within the Caribbean region. The product varies, as sugar from Cuba and Guyana, bauxite in Jamaica and Guyana, petroleum in Trinidad and Tobago and in the Netherlands Antilles, bananas in St. Lucia, Dominica, Grenada, St. Vincent, Guadeloupe and Martinique and coffee in Haiti. Dependency Theory in the Caribbean region has prospered by means of export of the resource-based products.
The Caribbean regions are at a disadvantage but given this, one can seek maximum advantage. Nevertheless given the bad experience of the colonial period most countries turned to some kind of planning, involving and export substitution and export diversification. Assets were created from as early as the colonial period. Tourism is one of the main foreign exchange earners for most of the regions economies. Some implications on how developing countries can alleviate the effects of the world system are by: OPromotion of domestic industry and manufactured goods.
By imposing subsidies to protect domestic industries, poor countries can be enabled to sell their own products rather than simply exporting raw materials. OImport limitations, by limiting the importation of luxury goods and manufactured goods that can be produced within the country, the country can reduce its loss of capital and resources. OForbidding foreign investment, some governments took steps to keep foreign companies and individuals from owing or operating property that draws on the resources of the country.
ONationalization, some governments have forcibly taken over foreign-owned companies on behalf of the state, in order to keep profits within the country. Dependency Theory and its place in the Global Economy Dependency Theory sees the global economy as characterized by a structured relationship between the cores states which, using political military and economic power to extract a surplus from the peripheral countries. Any attempt by the dependent nations to resist the influences of dependency often result in economic sanctions.
Dependency Theory in its various forms has advanced the proposition that development and underdevelopment are opposite faces of the same coin, “or reciprocal conditions of a global system of capital accumulation. Economic vulnerability and dependency are other dimensions that are derived from the relatively high degree of financial dependency of most government in the region. The Caribbean countries face several challenges arising out of structural shifts in the world economy. The main disadvantages are represented by certain primary products exports, preferential arrangements and environmental vulnerability.