7.1 Theories of Economic Development and Underdevelopment

Economic development theories offer different perspectives on why some nations prosper while others struggle. Modernization theory focuses on internal factors, while dependency and world-systems theories emphasize external influences and global power structures.

These theories highlight the complex interplay of historical and contemporary factors shaping national economic trajectories. Colonialism's legacy, globalization, and international institutions all play crucial roles in determining development outcomes and perpetuating global inequalities.

Theories of Economic Development and Underdevelopment

Theories of economic development

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• Modernization theory
  • Assumes all societies progress linearly towards development following Western model
  • Emphasizes internal factors drive development (cultural values, institutions, entrepreneurship)
  • Suggests underdeveloped countries can develop by adopting Western values and practices (democracy, free markets, education)
• Dependency theory
  • Argues underdevelopment results from exploitation of peripheral countries by core countries
  • Emphasizes external factors perpetuate underdevelopment (unequal trade, resource extraction, debt)
  • Suggests underdeveloped countries trapped in dependence on developed countries (raw material exports, foreign investment)
• World-systems theory
  • Divides world into core, semi-periphery, periphery countries based on position in global capitalist economy
  • Argues global capitalism inherently perpetuates inequality and underdevelopment
  • Suggests core country development depends on periphery exploitation (cheap labor, raw materials, captive markets)

Strengths vs weaknesses of theories

• Modernization theory
  • Strengths: Highlights importance of internal development factors (effective institutions, entrepreneurial culture)
  • Weaknesses: Ignores external factors shaping development (colonialism, global power imbalances, trade structures)
• Dependency theory
  • Strengths: Emphasizes historical and structural underdevelopment factors (colonial legacy, commodity dependence)
  • Weaknesses: Can oversimplify complex developed-underdeveloped country relationships and interactions
• World-systems theory
  • Strengths: Provides comprehensive framework to understand global economic inequalities and dynamics
  • Weaknesses: May underestimate agency and potential of individual countries to shape development paths

Factors in national economic trajectories

• Historical factors
  • Colonialism extracted resources and labor from colonized countries (India, Africa)
  • Unequal trade relations imposed unfavorable terms of trade on colonies (British textiles, Indian deindustrialization)
  • Slavery's legacy destructively impacted economic development (transatlantic slave trade, plantation economies)
• Contemporary factors
  • Globalization increasingly interconnects world economy (global value chains, financial flows)
  • International financial institutions shape development policies (World Bank structural adjustment, IMF austerity)
  • Foreign aid and development assistance impacts growth and inequality (tied aid, donor agendas)

Impact of colonialism on development

• Colonialism
  • Resource and labor exploitation hindered development in colonized countries (Belgian Congo rubber, Caribbean sugar)
  • Colonial rule destroyed traditional economies and imposed export-oriented structures (African cash crops, Latin American mining)
  • Created lasting economic dependencies and unequal trade relationships (Commonwealth preferences, Francafrique)
• Neocolonialism
  • Former colonial powers retain economic and political influence in ex-colonies (French Africa policy, British Commonwealth)
  • Economic and political pressure shapes developing country policies (structural adjustment, trade agreements)
  • Multinational corporations perpetuate resource extraction and unequal trade (oil companies, agribusiness)
• Global power structures
  • International financial institutions shape developing country economic policies (World Bank privatization, IMF devaluation)
  • Powerful developed countries and blocs dominate global economic governance (US in WTO, EU trade deals)
  • Global trade and IP rules can hinder developing country industrialization and growth (TRIPS and pharmaceuticals)