dependency theory

dependency theory, an approach to understanding economic underdevelopment that emphasizes the putative constraints imposed by the global political and economic order. First proposed in the late 1950s by the Argentine economist and statesman Raúl Prebisch, dependency theory gained prominence in the 1960s and ’70s.

According to dependency theory, underdevelopment is mainly caused by the peripheral position of affected countries in the world economy. Typically, underdeveloped countries offer cheap labour and raw materials on the world market. These resources are sold to advanced economies, which have the means to transform them into finished goods. Underdeveloped countries end up purchasing the finished products at high prices, depleting the capital they might otherwise devote to upgrading their own productive capacity. The result is a vicious cycle that perpetuates the division of the world economy between a rich core and a poor periphery. While moderate dependency theorists, such as the Brazilian sociologist Fernando Henrique Cardoso (who served as the president of Brazil in 1995–2003), considered some level of development to be possible within this system, more-radical scholars, such as the German American economic historian Andre Gunder Frank, argued that the only way out of dependency was the creation of a noncapitalist (socialist) national economy.