Dependency theory is an economic theory that was developed by the Latin American dependency school of thought. The main goal of dependency theory was to analyze how the global economy functions and how it impacts different countries.
It is a framework that was created by economist, sociologist and political scientist who studied the relationship between developed and developing countries. The theory was first introduced in the 1950s and it was primarily focused on Latin America.
The theory is based on the idea that there are three types of economies, which include:
1) A core economy- an economy with a high level of industrialization, advanced technology and strong market demand
2) A peripheral economy- an economy with low levels of industrialization, low levels of technology and little market demand
3) A semi-peripheral economy- an economy with intermediate levels of industrialization, intermediate levels of technology but still has some market demand.
Dependency refers to over-reliance on another nation. Dependency theory uses political and economic theory to explain how the process of international trade and domestic development leads some low developed nations are economically dependent on developed countries. Using this situation, how the domestic development can be monitored.
The dependency school of thought argues that there are two types of economies: a dominant, rich economy, and a dependent, poor economy. The dominant country holds power over the dependent country in order to extract natural resources and cheap labor from them while simultaneously injecting capital into the dependent country in order to maintain this relationship. This creates a cycle where both countries are tied together in a system where one cannot survive without the other.
The Maturity Curve
The maturity curve is a well-known concept in economics. It basically depicts the stages of economic development for a country or region. The curve is divided into four stages which are the following:
1) Traditional Economy
2) Takeoff Stage
3) Drive to Maturity Stage
4) Decline and Degeneration Stage.
The maturity curve is also applicable to businesses, especially startups. It can help them understand their current stage and what they need to do in order to progress towards the next stage.
Impact of Dependency Theory on Development Strategy in Third World Countries
The dependency theory, which is a Marxist-Leninist perspective, argues that the underdevelopment of Third World countries has been caused by their dependence on developed countries.
The dependency theory suggests that the underdevelopment of developing countries is due to their economic dependence on developed countries. It argues that this economic dependence has led to a form of neocolonialism in which the industrialised nations exploit the natural resources and labour force in developing nations.
The Importance of Reducing Dependence on the U.S.
The U.S. has been the world’s most dominant economic power for a long time, but it is now experiencing a major decline in its position. The dependence theory may be the best way to explain this phenomenon, which argues that economic growth is dependent on the export of capital and raw materials.
It has three types of dependencies: direct, indirect, and induced. Direct dependency means that one country exports capital to another country and then imports goods back from it; indirect dependency means that one country exports raw materials to another country for production, which then exports the finished product back to the first country; induced dependency refers to an increase in domestic consumption resulting from an increase in foreign consumption.