Theories of Economic Development

Terms:
First World Third World
Developed Developing
More Developed Countries Less Developed Countries
Global North Global South
The West The Rest
 Modernization Theory Dependency/World System
Theory

Modernization/ Neo-Liberal/Standard Development Theory

aka the “Washington Consensus:
Principle Elements of Modernity:
• Secularization
• Urbanization
• Increased Science and technology
• Increased social mobility
• Rewards based upon merit
• Tolerance/rewards for social innovation
• Private sphere with limited government control
• Rule of law
• Division of labor

 modern market-based economy

Modernization Theory:

The path to development =

Primary obstacle to modernization =

Third world must also embrace free trade:
Each country should export products according to
its comparative advantage

 Everyone gets what they need

Modernization = most prominent theory of development

Modernization Theory transmitted to third world in various
ways:
Education
Multinational Corporations
International trade (i.e. globalization)
Exports of western culture
Relationship between north & south
= economic interdependence
= mutually beneficial

Issues?
Traditionalism is a nebulous concept
Grouping diverse cultures into a single “Third World”
 History?
Different history, different circumstances; can we
expect the same results?

Can we afford for everyone in the world to live like we do?

Dependency Theory:
Late 1960’s, early 70’s by Latin American economists
and sociologists:
Why isn’t modernization theory working?
Different circumstances
Early industrializers didn’t have to
compete as much with already developed
rivals
Colonialism
How was capitalism introduced to the “third world”?

Today, southern economies are still very dependent

on trade with the north

Northern MNCs generally dominate the most

dynamic industries in the south

Different history, different circumstances, can we expect

the same results?
 Modernization theory argues that problems of
development are internal to the nation state
(lack of modernity)

Dependency theory argues that the problems are

systemic, (global capitalism)
World system theory developed out of Dependency
Theory
Most prominent scholar = Immanuel Wallerstein
Two sets of exploitative relationships:
1. Within particular companies
2. In the global economy
The Core =”the first world”:
Industrialized
Relatively high wage rates and living standards

The Periphery = “the third world” (most countries in the

world):
Limited industrialization,
Relatively low wages and living standards.

Development of core is linked to the underdevelopment of the

periphery
Spread of capitalism via colonialism
 global division of
labor

Core: Technologically sophisticated goods

Periphery: primary (raw) materials or final touch
manufacturing
 Core Core
Manufactured Goods Manufactured Goods

Periphery
Primary Goods
Peripheral economies still geared toward needs of core
markets

Both development and underdevelopment are aspects of the

same phenomenon
“Both are historically simultaneous, both are linked
functionally and, therefore, interact and condition one
another mutually.” Two sides of the same coin
Andre Gunder Frank:
International capitalism = the development of
underdevelopment
Development of core means underdevelopment of periphery
Mechanisms:

Unequal Exchange
Ex: Exporting bananas, importing cars

Negative Trade Imbalance

Ex: My checkbook
Foreign Aid  policies favorable to aid providers
(core
countries)
Multilateral Loans  Foreign control of peripheral
countries’ fiscal policy  less public spending
 Core
Periphery w/in core

Periphery
Core w/in periphery