Sunday, November 19, 2006

THE IMPACT OF DEPENDENCY THEORIES FOR THE UNDERDEVELOPMENT AND DEVELOPMENT OF DEVELOPING ECONOMIES.

According to the Wikipedia, the free encyclopedia Dependency theory is the body of social science theories by various intellectuals, both from the third world and the first world that creates a world view which suggests that the wealthy nations of the world need a peripheral group of poorer states in order to remain wealthy.

UNDERDEVELOPMENT

Dependency theories have led to the underdevelopment of developing economies in the following ways: -

The capitalist system has enforced a rigid international division of labor, which is responsible for the underdevelopment of many areas of the world. The dependent states supply cheap raw minerals, agricultural commodities, and cheap labor and also serve as the repositories of surplus capital, obsolescent technologies and manufactured goods. These functions orient the economies of dependent states towards the outside: money, goods and services do flow into dependent states but the economic interests of the dependent states determine the allocations of these resources.

The poor nations provide natural resources, cheap labor destination for obsolete technology and markets to the wealthy nations without which the later would not have the standard of living and this would further lead to exploitation of raw materials exported to the developed countries hence leading to underdevelopment of developing economies.

First world nations actively, but not necessarily, consciously, perpetuate a state of dependency through various policies and initiatives. The state of dependency is multifaceted, involving economics, media control, politics, banking and finance, education, sport and all aspects of Human Resource development.

Dependency theories prescriptions lead only to more wealth for the capital owners and more poverty for the third world, meaning that their advocacy of restricted trade and self development leads to the same out come as mercantilist trade as experienced under colonialism, also dependency theory conflates free market economics with current capitalist economic trading arrangements, and thus assumes that free market international trade will not work.

These theories lead to interference of the dependent economies by dominant economies. Any attempt by the dependent economies or countries to resist the influences of dependency will result into economic sanctions and or military invasion and control.

The theory suggests dependent states should therefore attempt to pursue policies of self- reliance centrally to the neo- classical models endorsed by the International Monetary Fund and the World Bank; greater integration into the global economy is not necessarily a good choice for poor nations. Often this policy of autarky, and there has been some experiments with such a policy such as China’s Great Leap and Tanzania’s Ujama policy.

According to the theory dependent countries are not behind or catching up to the richer countries of the world. They are not poor because the lagged behind the scientific transformations or the enlightenment values of the European states. They are poor because they were coercively integrated into the European economic system only as producers of raw materials to serve as repositories of cheap labor and were denied the opportunity to market their resources in any way that compete with dominant states.
On the hand however, dependency theories have an impact on the development of developing economies in the following ways.

Exportation of raw materials to dominant states that leads to foreign exchange and increase in productivity. Dependent states export raw materials though at a cheap price but later leads to foreign exchange, good international relations and economic corporation.

To a country like Uganda Kiira dam as constructed due to the fact that Uganda being a dependant state, the dam was constructed for generation of power to industries which were run in Uganda by dominant states, but in the long run the dam was turned into a source of power to Ugandan industries.

Dependency theories make the dependent country to depend on donations or increase in donations, which are used to develop their economies. For example a country like Uganda survives much on foreign aid and donations, which may sometimes be conditional, or unconditional where by the country has to use this money for development purposes.


It is believed that International Political Economy developed or originated from the OPEC (oil embargo) and trade relations. In other words it was developed from International Relations
On the other hand, Political economy can be described as a study of production, the acts of buying and selling and the relationship that emerge to the laws customs of the government.


Foreign investments can be described as a situation where by an individual or group of individuals from a different country invests or runs a business in a foreign country.
Foreign investments have got both merits and demerits for a country like Uganda and these are as follows;
One of the requirements for economic development in a low-income economy is an increase in the stock of capital. A developing nation like Uganda may increase the amount of capital in domestic economy by encouraging foreign direct investment occurs when foreign firms either locate production plants in the domestic economy or acquire a substantial ownership position in a domestic firm.

Foreign investment may encourage economic growth in the short run by increasing aggregate demand in the host economy. In the long run the increase in the stock of capital raises the productivity of labour and leads to higher incomes and further increases to aggregate demand.

Investment by Multi National Companies allows developing economies to share in the considerable benefits of the global economy. Official incentives, trade barriers and other regulatory policies, though can result inefficiency and waste.

Foreign investments can foster innovation productivity and an improved living standard. Therefore, government seeking those advantages would be advised to favor policies of openness, rather than regulation, when it comes to investment. This will help in developing or improving the standards of living of Ugandans hence a high Gross National Product.

Foreign investments will increase the productive capability of the rural poor. Infrastructures such as roads and electricity will immediately help the poor access other resources but for more long term benefit, if education basic and vocational becomes more widely available, the poor will be more capable of course, the possibility of this happening will depend on the governments’ money use of funds generated from investment that is efficient tax collection and use of public funds.

Foreign investment in a country like Uganda brings to the country not only capital and foreign exchange, but also managerial ability, technical knowledge, administrative organization, and innovative in produces and production techniques all of which are in short supply. These benefits are not immediately apparent in the economy because it takes time to develop.

Foreign investments bring technology, improved productivity, competition in domestic markets, small, medium and micro enterprises. Small, medium, and micro enterprises development can tackle poverty because they are closer to poor people both in urban and rural areas in terms of low level of human resources or skills and also in terms of geographic location.

On the other hand, below are the demerits of foreign investments to a country like Uganda.

Many developing economies have attempted to resist direct or foreign investment because of nationalist sentiment and concerns about foreign economic and political influence. One reason for this sentiment is that many developing countries have operated as colonies of more developed economies. This colonial experience has often resulted in a legacy of concern that foreign investment may serve as a modern form of economic colonialism in which foreign companies might exploit the resources of the host country.

In recent years however, restrictions of foreign investments in many developing economies Uganda inclusive have been substantially reduced as a result of international treaties, external pressure from the World Bank or IMF or Unilineal actions by governments that have come to believe that foreign investment will encourage economic growth in the host country. This has resulted in a rather dramatic expansion in the level of foreign investment in some developing economies.

Another demerit comes through “ technology transfer” the transfer of technological knowledge from industrial to developing economies. Many economists argue that this transfer of technology may be a primary benefit of foreign investors benefit from it while it’s of a disadvantage to a country like Uganda.

A number of studies have shown that foreign firms are more productive than their domestic counter parts but also that diffusion of best practices into the domestic economy is possible depending on the effective functioning of the domestic markets and absorption capacity of the host economy.

Foreign investment can lead to unemployment. In the long run most investment firms or individuals come with their own employees to the host country whereby the investor can either be granted or buy any company of his choice and people who have been employed in that host country will loose jobs and hence leading to unemployment.

Environmentalists are concerned that the growth of foreign investment in developing economies may lead to deterioration in the global environment since investment is expanding more rapidly in countries that have relatively lax environmental standards. Technology transfer from the developed economies however, may also result in the sound production techniques than would have been adopted in the absence of foreign investment.

To crown it all, foreign investment is advantageous to a country like Uganda, basing on an International Political Economy perspective in that it increases or contributes to economic growth and development through increasing aggregate demand of the host country. However, there has been several demerits of foreign companies in that they can exploit resources of the host country.

8 Comments:

Blogger Aisha Alhassan said...

This has been very helpful in my understanding of the theory and how it is used.

2:02 AM  
Blogger Aisha Alhassan said...

Can u add how the decency theory affects the day to day lives of ordinary African citizens

2:04 AM  
Blogger Aisha Alhassan said...

This has been very helpful in my understanding of the theory and how it is used.

2:05 AM  
Blogger Steve Biko said...

Very Educative. Thank so much Mr Mwesigye.

9:00 PM  
Blogger Steve Biko said...

Very Educative. Thank so much Mr Mwesigye.

9:02 PM  
Blogger Steve Biko said...

Very Educative. Thank so much Mr Mwesigye.

9:03 PM  
Blogger Steve Biko said...

Very Educative. Thank so much Mr Mwesigye.

9:03 PM  
Blogger Steve Biko said...

Very Educative. Thank so much Mr Mwesigye.

9:03 PM  

Post a Comment

<< Home