Report Prebisch Frank dependency theory

Dependency Theory

In partial completion of IR220- HRD @ the National Level

Prof. ROSA MERCADO

By Alfredo V. Primicias III

Dependency Theory


Prof. ROSA MERCADO


TOPICS:1. Who are Prebisch and Frank?2. Dependency Theory3. Criticisms of the Model


Prof. ROSA MERCADO


• Raul Prebisch (April 1901- April1986)

• Argentine Economist• Structural and Neo- Marxist

economist• Contributed the Prebisch- Singer

hypothesis (basis of dependencytheory)

Dependency Theory

• Andre Gunder Frank (Feb 1929-April 2005)

• German- American economichistorian and sociologist

• Promoted Dependency Theoryand World- Systems Theory

Sources: http://en.wikipedia.org/wiki/Ra%C3%BAl_Prebisch http://en.wikipedia.org/wiki/Andre_Gunder_Frank

http://en.wikipedia.org/wiki/Ra%C3%BAl_Prebisch

http://en.wikipedia.org/wiki/Andre_Gunder_Frank


Prof. ROSA MERCADO


Dependency TheoryIncrease in the wealth of the richer nations at the expense ofthe poorer ones.

Poor countries exported primary commodities to the richcountries who then manufactured products out of thesecommodities and sold them back to poorer countries

Fisherman

Abundant marine life

Backward ways in fishing

Sufficient supply

Businessman

Foreigner

Machines & Technology

BUSINESS RELATIONSHIP

Sells fish LOW PRICE Sells sardines 5xhigherBorrows Money to

afford sardines Lends money


Prof. ROSA MERCADO


Dependency Theory

SOLUTION: Poorer countries must go for IMPORTSUBSTITUTION program (not to purchase manufacturedproducts from the richer countries).

SOLUTION: Poorer countries must sell primary products on theworld market BUT foreign exchange reserves must be used todevelop their countries.

REFUTE: Internal markets of the poor countries are not largeenough to support the economies of scale used by richercountries to keep prices low.

REFUTE: Poor countries don’t have enough political will totransform their base as product producers only.

REFUTE: Poorer countries can’t control external forces whenselling products abroad.

Source: Vincent Ferraro, Development Economics Reader, London


Prof. ROSA MERCADO


MORE DEFINITIONS: Dependency Theory

[Dependency is…] historical condition which shapes a certain structureof the world economy such that it favors some countries to thedetriment of others and limits the development possibilities of thesubordinate economies… a situation in which the economy of a certaingroup of countries is conditioned by the development and expansion ofanother economy, to which their own is subjected.(“The Journal of Development Studies, Vol. 6, no. 1, Oct. 1969, p23”)

Theotonio dos SantosBrazilian Economist

INTERNATIONAL SYSTEM

• DOMINANT• CENTER• METROPOLITAN• Advanced industrial nations

• Dependent• Periphery• Satellite • Latin America, Asia, Africa with

low per capita GNPs MNC International Commodity

Markets Foreign Assistance Communications Technology

Dependency occurs due to theinteraction

Internationalization of capitalism



Prof. ROSA MERCADO


MORE DEFINITIONS: Dependency Theory

• DOMINANT• CENTER• METROPOLITAN• Advanced industrial nations

• Dependent• Periphery• Satellite • Latin America, Asia, Africa

with low per capita GNPs

cheap minerals, agriculturalproducts, and labor

Surplus capital, obsolescenttechnologies, manufacturedgoods, self-serving ECONOMICINTEREST

CA

Comparative advantage is an economiclaw that demonstrates the ways in whichprotectionism is unnecessary in freetrade. Popularized by David Ricardo,comparative advantage argues that freetrade works even if one partner in a dealholds absolute advantage in all areas ofproduction - that is, one partner makesproducts cheaper, better and faster thanits trading partner.


http://www.investopedia.com/terms/c/comparativeadvantage.asp

http://www.investopedia.com/terms/a/absoluteadvantage.asp


Prof. ROSA MERCADO


Central Propositions: Dependency Theory

Underdevelopment

Undevelopment Resources not being used

Resources being used for the dominant states

Underdevelopment • Latin America, Asia and Africa are NOTUNDERDEVELOPED

• Became POOR only when coercively integrated intothe European Economic system (producers of raw materials or

repositories of cheap labor)

Export Agriculture • Poor economies have high rates of malnutritiondespite being producers of food for export

Peripheral Elites • Elites maintain a dependent relationship since theirprivate interests coincide with the dominant states



Prof. ROSA MERCADO


Dependency Theory

POLICY IMPLICATIONS

1. The success of richer countries was contingent to their respective economichistory (exploitative colonial relationships) to which would be entirely different toother countries.

2. Dependency theory refutes the central distributive mechanism of theneoclassical model– or on how to distribute wealth– primary concern is onefficient production and assumes that the market will allocate the rewards in arational and unbiased manner.

3. Aside from GDP and GDP as measurements– use life expectancy, literacy, infantmortality, education and other social indicators as economic parameters.



Prof. ROSA MERCADO


RETROSPECT

INTERNATIONAL SYSTEM

DominantCenter

DependentPeriphery

Socialism


Prof. ROSA MERCADO


RETROSPECT: HRD @ THE NATIONAL LEVEL

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

1990 1995 2000 2005 2009

Agriculture

Industry Sector

Service Sector

Trend in Employment by Industry 1990- 2009(Prof. Cabegin IR 204)

Briones (2011) said that “since 1990, considerable headway has been made towards eradication

of poverty, reduction in child mortality, as well as improvement in household potable water and

sanitation.” Page 3. Assessing Development Strategies to Achieve MDGs in the Republic of the Philippines, Roehlano M. Briones, UN

Department for Social and Economic Affairs, 2011.

Catelo and Pabuayon (2013) explain:

“agricultural sector is important in the

Philippine economy; providing for the

food needs of the population and the

raw material requirement of industry,

creating jobs and wealth, and

generating foreign exchange.”Page 1, Overview of PH Agriculture, 1990- 2009, SalvadorCatelo and Isabelita Pabuayon, UPLB- College of Economicsand Management, 2013.

Park and Shin (2012): “GDP share of

services in 1980s @ 81.7%, 1990s @

58.3%, and 200s @ 62.8%.”Page 8, The Service Sector in Asia: Is it an Engine of Growth,Donghyun Park and Kwanho Shin, ADB, 2012.


Prof. ROSA MERCADO



3.7

4.8

3.4

5.2

3.4

4.4

3.2

4.6

1999 2000 2001 2002

Arroyo

GNP GDP

NEDA’s Socio Economic Report 2002 positioned the Philippine economy as the “firmest

growth in the post- Asian crisis period. The growth was supported by policies that encouraged

healthy domestic and foreign demand; a low inflationary environment as induced by prudent

monetary policy.”Page 1, Chapter 1, Socio Economic Report 2002, National Economic Development Authority.

• Strong surge in OFW remittances, growing at anannual average of 19.1 percent for the period2004-2006.

• Total remittances in 2007 rose by 13.2 percent toUS$14.4 billion

• World Bank reports that GDP was worthUS$272.02B billion in 2013

http://www.tradingeconomics.com/philippines/gdp

http://www.tradingeconomics.com/philippines/gdp


Prof. ROSA MERCADO



• PH economic growth decelerated to5.7% in the Q1 2014

• PH continued to outperform othercountries in the region surpassedonly by China (7.4%) and Malaysia(6.2%)

• Growth of overall investment at7.7% driven mainly by domesticinvestment

• Growth slowed down due to weak government consumption

and private construction on thedemand side

weak agricultural productionon the supply side

Source: PH Economic Update, World Bank, August 2014

Education

Report Prebisch Frank dependency theory