Stated another way, Marxist theories explain the reasons why imperialism occurs, while dependency theories explain the consequences of imperialism. The difference is significant. In many respects, imperialism is, for a Marxist, part of the process by which the world is transformed and is therefore a process which accelerates the communist revolution. Marx spoke approvingly of British colonialism in India:.
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England has to fulfil a double mission in India: one destructive, the other regenerating--the annihilation of old Asiatic society, and the laying of the material foundations of Western society in Asia. For the dependency theorists, underdevelopment is a wholly negative condition which offers no possibility of sustained and autonomous economic activity in a dependent state.
Additionally, the Marxist theory of imperialism is self-liquidating, while the dependent relationship is self-perpetuating. The end of imperialism in the Leninist framework comes about as the dominant powers go to war over a rapidly shrinking number of exploitable opportunities.
World War I was, for Lenin, the classic proof of this proposition. After the war was over, Britain and France took over the former German colonies. A dependency theorist rejects this proposition. A dependent relationship exists irrespective of the specific identity of the dominant state. That the dominant states may fight over the disposition of dependent territories is not in and of itself a pertinent bit of information except that periods of fighting among dominant states affords opportunities for the dependent states to break their dependent relationships. To a dependency theorist, the central characteristic of the global economy is the persistence of poverty throughout the entire modern period in virtually the same areas of the world, regardless of what state was in control.
Finally, there are some dependency theorists who do not identify capitalism as the motor force behind a dependent relationship.
"Dependency Theory: An Introduction," Vincent Ferraro, Mount Holyoke College, July
The relationship is maintained by a system of power first and it does not seem as if power is only supported by capitalism. For example, the relationship between the former dependent states in the socialist bloc the Eastern European states and Cuba, for example closely paralleled the relationships between poor states and the advanced capitalist states. The possibility that dependency is more closely linked to disparities of power rather than to the particular characteristics of a given economic system is intriguing and consistent with the more traditional analyses of international relations, such as realism.
There are a number of propositions, all of which are contestable, which form the core of dependency theory. These propositions include:. Underdevelopment is a condition fundamentally different from undevelopment. The latter term simply refers to a condition in which resources are not being used. For example, the European colonists viewed the North American continent as an undeveloped area: the land was not actively cultivated on a scale consistent with its potential. Underdevelopment refers to a situation in which resources are being actively used, but used in a way which benefits dominant states and not the poorer states in which the resources are found.
The distinction between underdevelopment and undevelopment places the poorer countries of the world is a profoundly different historical context. These countries are not "behind" or "catching up" to the richer countries of the world. They are not poor because they 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 or to serve as repositories of cheap labor, and were denied the opportunity to market their resources in any way that competed with dominant states.
Dependency theory suggests that alternative uses of resources are preferable to the resource usage patterns imposed by dominant states.
There is no clear definition of what these preferred patterns might be, but some criteria are invoked. For example, one of the dominant state practices most often criticized by dependency theorists is export agriculture. The criticism is that many poor economies experience rather high rates of malnutrition even though they produce great amounts of food for export.
Many dependency theorists would argue that those agricultural lands should be used for domestic food production in order to reduce the rates of malnutrition. The preceding proposition can be amplified: dependency theorists rely upon a belief that there exists a clear "national" economic interest which can and should be articulated for each country. In this respect, dependency theory actually shares a similar theoretical concern with realism.
What distinguishes the dependency perspective is that its proponents believe that this national interest can only be satisfied by addressing the needs of the poor within a society, rather than through the satisfaction of corporate or governmental needs. Trying to determine what is "best" for the poor is a difficult analytical problem over the long run. Dependency theorists have not yet articulated an operational definition of the national economic interest. The diversion of resources over time and one must remember that dependent relationships have persisted since the European expansion beginning in the fifteenth century is maintained not only by the power of dominant states, but also through the power of elites in the dependent states.
Dependency theorists argue that these elites maintain a dependent relationship because their own private interests coincide with the interests of the dominant states. These elites are typically trained in the dominant states and share similar values and culture with the elites in dominant states. Thus, in a very real sense, a dependency relationship is a "voluntary" relationship. One need not argue that the elites in a dependent state are consciously betraying the interests of their poor; the elites sincerely believe that the key to economic development lies in following the prescriptions of liberal economic doctrine.
Some of the most important new issues include:. The success of the advanced industrial economies does not serve as a model for the currently developing economies. When economic development became a focused area of study, the analytical strategy and ideological preference was quite clear: all nations need to emulate the patterns used by the rich countries. Indeed, in the s and s there was a paradigmatic consensus that growth strategies were universally applicable, a consensus best articulated by Walt Rostow in his book, The Stages of Economic Growth.
Dependency theory suggests that the success of the richer countries was a highly contingent and specific episode in global economic history, one dominated by the highly exploitative colonial relationships of the European powers. A repeat of those relationships is not now highly likely for the poor countries of the world.
Dependency theory repudiates the central distributive mechanism of the neoclassical model, what is usually called "trickle-down" economics. The neoclassical model of economic growth pays relatively little attention to the question of distribution of wealth. Its primary concern is on efficient production and assumes that the market will allocate the rewards of efficient production in a rational and unbiased manner.
This assumption may be valid for a well-integrated, economically fluid economy where people can quickly adjust to economic changes and where consumption patterns are not distorted by non-economic forces such as racial, ethnic, or gender bias. These conditions are not pervasive in the developing economies, and dependency theorists argue that economic activity is not easily disseminated in poor economies.
For these structural reasons, dependency theorists argue that the market alone is not a sufficient distributive mechanism. Since the market only rewards productivity, dependency theorists discount aggregate measures of economic growth such as the GDP or trade indices. The size of remittances has a clear impact on financial development with some revealing patterns.
The size of the coefficient is much larger when using total deposits as the left-hand side variable than M1. This implies that emigrant money was channelled into the financial sector primarily through longer-maturity accounts. Interestingly, the size of the coefficient of remittances is consistently larger than the estimated impact of aggregate capital flows, as measured by the trade account balance. Although it is difficult to distinguish between remittances an item of the current account and the items of the financial account, the smaller coefficient of the latter implies that other capital inflows portfolio or FDI contributed less to the development of the domestic financial sector than remittances.
These estimates are also larger than the evidence on contemporary trends. We now consider two variations on this model. The first one explores the possibility that the effect of remittances on financial development may be non-linear. Table 6 re-estimates the full model with country and time effects for two alternative non-linear specifications. In columns 1 — 2 we introduced an interaction term for the level of remittances to mark the period when this level rose above 1 per cent of GDP in our sample of countries onwards.
In columns 3 — 4 we simply added a quadratic remittances term. Both variants testify to substantial nonlinearities whereby the impact of remittances on financial development abated over time or as the country became richer. Irrespective of the choice of dependent variable M1 or total deposits , the results in columns 3 and 4 imply a maximum impact of remittances on financial development when they are in the proximity of 3 per cent of GDP.
The results for the remaining controls are not qualitatively changed. The second variation extends the base model by directly including indicators of local institutional quality. In so doing we are once more limited by the availability of data, in this case, by the relative difficulty in finding historical measures of the quality of economic institutions. Consequently, the bulk of variables added to the models of columns 1 — 2 in Table 7 refer to political institutions. We extracted six variables from the Polity IV database: the polity democracy score; the durability of political regimes in years since last change ; three scores referring to the executive power — constraints Exec.
One would expect a positive association between the five scores and measures of financial development, along the lines of the political economy of financial regimes Haber et al. Because the relation between tenure and institutional quality is unclear, we also interacted the duration of the political regimes with the measure of executive constraints.
In Table 7 , the coefficient of remittances is still strongly significant and has a size very similar to Table 5. The political markers generally have correct signs. Stability of political regimes also shows up as having a negative impact on its own on financial development. However, when interacted with the index of constraints on the executive it is marginally positive, which suggests that except with the worst possible political institutions, the tenure of political regimes did affect the levels of financial development.
In the last two columns we experimented with a model controlling for the quality of economic institutions. Since we do not have historical measures, we included a popular contemporary measure of economic institutions — the index of creditors' rights compiled by Djankov et al. Nonetheless, if we are to interpret the results of the coefficient on creditors' rights based on information collected almost a century after our sample period, we need to assume a remarkable degree of persistence in the quality of legal orderings dealing with economic activity.
Since this is not the topic of this article, we only notice the very large estimates for this coefficient, which, however, do not affect the direct impact of remittances on financial development. The sign of the coefficient on contemporary creditors' rights is also counterintuitive in the case of the regression for deposits. There are two main concerns to address in running our model. First, with a small sample in the cross-section dimension we need to worry about the possibility that the results are driven by outlier observations. We took this into consideration by using Li's robust estimation method.
The results unreported here are virtually similar to the base estimates of Table 5. We also tried excluding countries one at a time , without affecting the tenor of the results. A more significant concern has to do with the potential for reverse causality and measurement error.
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Better domestic financial institutions might actually attract more remittances.