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Development Theories: Dependency and Neoliberalism Theories

Development Theories: Dependency and Neoliberalism Theories

Introduction

The market is a major determinant factor of the economic progress of a country. A favorable market policy will boost trade and thereby promote the economic growth and development of a nation. On the other hand, an unfavorable market policy declines economic growth and development. A variety of development theories have been developed on how a market of a country can be structured to bring about economic progress. Two of such theories are dependency theory and neoliberalism theory. This paper gives an analysis of how the market is afforded a central role in promoting economic progress through the prism of the two theories mentioned above.

Dependency Theory

The dependency theory argues that economic growth in advanced industrialized countries does not promote economic growth in the poorer non-industrialized countries. Instead, this disparity is always a disadvantage to the poor countries (Kiely 2006). Unlike the neo-classical development theories that state that economic growth of one country is beneficial to all countries, the dependency theory argues that the difference in economic growth always pulls back the poor countries. The explanation provided by this theory is that poorer non-industrialized countries export primary goods to the rich industrialized countries. These goods fetch very little in the market. On the other hand, the richer countries manufacture products of high value out of these primary goods. They then sell these manufactured goods at very high prices to the poor less developed countries (Saul & Leys 2006). The difference in the prices between the goods produced by the countries of different economic development levels is enormous, which causes a situation where the less developed countries always face a deficit balance of payment/trade.

According to the dependency theory, to solve this problem, the less developed countries should aopt a method of import substitution so that they may not purchase the manufactured goods from the developed countries (Cardoso 1995). Another method would be to increase their exports, which can either be achieved by increasing the value of their exports or the quantity. Moreover, they may come up with ways of reducing imports. It will reduce the deficit in the balance of trade and payment for these less developed countries. However, this may not be necessarily effective because considering that developed countries use economies of scale to keep their prices down; they still have an advantage in the market. The less developed countries have markets that are not large enough to enjoy the economies of scale hence this may limit their potential (Hewitt 2000).

The theory addresses the two markets: the markets from the developed countries and those from less developed ones. Focusing on the markets of the less developed countries, these have raw materials that are used by developed countries to manufacture finished goods (Kay 1989). While the developed nations acquire raw materials from less developed ones at very low prices, they sell their finished products to less developed countries at very high prices. It, therefore, causes less developed countries to have the deficit balance of payments while the developed ones have the surplus. Although some developed countries at times have a deficit balance of payment, the deficit is not as great as in the less developed states (Willis 2005). This surplus makes the developed countries generate a lot of wealth in a shorter time hence a higher rate of economic growth and development while reducing the rate of economic growth in less developed countries.

Primary goods produced by the poor countries take long to mature since most of them are agricultural products. Moreover, most of the products from the less developed countries are seasonal. They are allso affected by weather patterns. Sometimes, if it does not rain, the less developed countries have nothing to export while they still need to import manufactured goods. This aspect increases the inefficiencies in wealth creation in less developed countries (Rapley 2002). On the other hand, developed countries produce goods that are not seasonal. They have also diversified their exports. Hence, they have a wide variety of exports such that if one is not in stock, the effect on the economy is minimal. In addition to this, a manufactured good takes a shorter period to be produced. Hence, there is a continuous flow of goods being manufactured, which is a significant advantage for the developed countries (Kay 1989).

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The deficit balance of payments in less developed countries reduces their economic growth. Low economic growth has several disadvantages. One of these is that it results in brain drain. People who study in poor countries shift to developed ones to receive higher payments since their home countries cannot afford their salaries. Therefore, they travel abroad (to developed countries) seeking for better living conditions and professional realization (Kiely 2006). Consequently, the less developed countries have very few professionals as compared to the developed ones. In addition to this, the developed countries have the best human personnel hence their economic growth is boosted while that of less developed countries is inhibited. Brain drain enables developed countries to access cheap labor hence giving them an added advantage to create even more wealth hence a greater economic progress. To solve this problem, the less developed countries should ensure that people who study in their countries have good jobs and appropriate salary packages. By doing so, brain drain will be minimal. Hence, the skills should be utilized in the country to improve the economic condition (Hewitt, 2000).

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