According to dependency theories, the cause of underdevelopment is the dependence on industrialized countries while internal factors of developing countries are considered irrelevant or seen as symptoms and consequences of dependence. The development of
industrialized countries and the underdevelopment of developing countries are parts of one historical process. Developing countries are dependent countries. The economic and political interests of industrialized countries determine their development or underdevelopment. The goals are superimposed.
Underdevelopment is not backwardness but intentional downward development. As to the causes of dependence, the various theories differ, economic factors always dominating. External trade theories concentrate on economic relations between countries. Imperialism
theories stress the politico-economic interest while dependency theories concentrate on the deformation of internal structures by dependence which perpetuates the situation. Dependency theories concentrate on explanations of the genesis of underdevelopment and pay little attention to strategies for overcoming this situation. Implicit development here means liberation, end of structural dependence, and independence.
External Trade Theories
The structure of supply and demand in industrialized and developing countries is such that industrialized countries are able to reap the benefits from international trade. This transfer of resources makes development impossible, and these unequal trade relations are seen as the reasons for underdevelopment.
- Theories of Circular Deterioration of Terms of Trade
The structure of supply and demand is such that industrialized countries offer industrial products and buy raw products and the developing industries do the reverse. According to Engel’s law, the demand for raw materials tends to be inelastic while the demand for industrialized goods is elastic. The technological progress in the production of industrialized goods not only makes it possible for industrial countries to increase their incomes and thus the standard of living, but, because of the elastic demand on the world market, also to enforce higher prices.
The situation in developing countries is the opposite: technological progress in primary production results in lower prices because of the inelastic demand. This mechanism leads to deteriorating exchange relations between industrialized and developing countries (and, as well, between the industrialized and the agricultural sector in developing countries).
- Theory of Immiserizing Growth
This theory follows the argumentation of the theory of circular deterioration of terms of trade and concludes that countries, in order to improve their balance of trade, have to increase their exports to compensate for falling prices. This means a further deterioration of terms of trade. The unchanged structure of supply intensifies the structural dependency and, regardless
of growth, there is no development but only ‘immiserizing growth’- impoverishing growth. This situation is especially pertinent for countries with agrarian monoculture. As a consequence, the theory seeks for a speedy industrialization including heavy industry for larger countries.
- Imperialism Theories
The imperialism theories explain the domination of underdeveloped areas by industrialized countries as the consequence of different economic and technological levels and unequal power potential resulting from a different economic growth. The consequence of the development of industrial capitalistic societies is a pressure for expansion which may lead to military or political acquisition (colonies) or to maintaining economic dependence (developing countries). Different theories have their own explanation of the reason for the pressure for expansion but it is always seen as the result of the inability to cope internally with the consequences of permanent technological innovation and their effects on the society.
- Classical Imperialism Theory
The desire for profit maximization causes production beyond the needs of the internal market and leads to the establishment of new markets in underdeveloped areas. Here, the autochthon production and markets are being destroyed and, thus, unemployment is exported to underdeveloped areas. Thus, capital is being exported in order to maximize profits. In the
underdeveloped areas, this capital is invested, not according to the needs of these countries, but according to the interests of industrial countries. The profit is transferred to the industrial countries whose development is based on the exploitation of underdevelopment areas.
- Modern Imperialism Theory
The thesis of classical imperialism theory has been disproved empirically. New imperialism theories therefore, postulate the dependency theorem with a new explanation of exploitative relations. The new phase of relation between industrialized and developing countries can be called technological-industrial dependence. Industrial countries invest in the production and export of raw materials in developing countries, influence with their potential of power the terms of trade in their favor, and thus perpetuate the international division of labour. While imperialism is seen as a phenomenon of capitalism and these theories are based on Marxian concepts, the fact remains, nevertheless, that communist countries also participate in the exploitation of developing countries by accepting the advantages of the world market.