Exam 6: Import Substitution in Latin America

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Dependency theory is a concept that originated in the context of the economic development of countries, particularly in Latin America in the 1950s and 1960s, as a response to modernization theory. It is a theoretical framework that suggests that the economic development of nations is a structured and interconnected process influenced by the historical context of colonialism and imperialism.

According to dependency theory, the world is divided into two sets of states: the core (or developed countries) and the periphery (or developing countries). The core countries are the industrialized nations that control wealth and have strong, diversified economies. In contrast, the periphery countries are those with less developed economies that are often reliant on the export of a limited range of commodities, such as raw materials or agricultural products, to the core countries.

The theory posits that the economic progress of peripheral countries is limited by the unfavorable terms of trade established by the core countries. This exploitative relationship results in the transfer of capital from the periphery to the core, leading to a situation where the periphery is dependent on the core for capital, technology, and access to markets. This dependency traps the peripheral countries in a cycle of underdevelopment and makes it difficult for them to achieve economic growth and diversification on their own terms.

Dependency theorists argue that this unequal relationship is maintained through various mechanisms, including economic sanctions, political pressure, and cultural influence. They also suggest that the international economic system is designed in such a way that it benefits the core countries at the expense of the periphery.

The theory calls for a restructuring of the international economic order to allow for more equitable development and to enable peripheral countries to break free from their dependent status. This might involve strategies such as import substitution industrialization (ISI), where countries aim to reduce their dependency on imports by developing their own industries, or more radical approaches that challenge the global capitalist system itself.

Overall, dependency theory provides a critique of the global economic system and offers an explanation for the persistent inequality between nations. It has influenced various development policies and continues to be a relevant perspective in discussions about global inequality and the challenges faced by developing countries.