Dependency Theory

Meaning of Dependency
According to the dependency economists, the whole world is divided into two sets of countries DCs
and LDCs. The former are in the centre( Western Europe, Britain and united states) and the latter are in the periphery(backward countries of Asia,Africa and Latin America). According to Frank, DCs are metropolis and LDCs are satellite countries. There are unequal centre periphery relationships whereby LDCs are dependent on DCs in trade, investment and technology etc. This dependency results in underdevelopment of the periphery because the centre is dominated by the powerful capitalist countries that exploit the former for their benefit.
According to Santos," dependency is a situation in which the economy of certain countries is conditioned by the development and expansions of another economy to which the former is subjected."
A dependent relatioship between two or more economies is one when some countries (the dominant ones) can expand and be self sustaining while the others ( the dependents) can do this only as reflection of that expansion, which can have either a positive or a negative effect on their immediate development.
Explanation of The Theory
(1) Dependency: A historical International Process
Dependency theorists hold the present economic and socio-political conditions prevailing in the periphery are the result of a historical international process. Today's developed countries and less developed countries are the outcome of the capitalist system. Development at the centre occurs at the cost of underdevelopment at the periphery. The surplus generated at the periphery is successively drawn off the centre, impoverishing the periphery, increasing misery and poverty thereof.
(2) Foreign Capital
The LDCs are heavily dependent on the centre for foreign capital. Foreign capital leads to external orientation of LDCs by exporting primary commodities, importing manufactured goods and making them dependent for industrialization of other economies. Foreign investors exploit LDCs by insisting on the choice of project's, making decisions on pricing, supply of equipment etc. In fact, they impose development pattern which is not compatible to peripherals countries. Foreign investment and aid signify dependence and as a means of exploitation of the periphery by the centre.
(3) Technological Dependence
The peripheral countries use excessively capital-intensive technologies imported from the developed countries of the centre. The technologies are inappropriate to the production and consumption needs of LDCs and are sold by the MNCs of developed countries. The technological dependence of the LDCs arises because of the urgency of importing technologies as they cannot innovate them. Capital intensive technologies have limited labor absorption capacity and thus add to unemployment, wage differential, income inequality and social tension in the LDCs.
(4) Trade and unequal exchange
Santos give the following reasons for BoP deficit. DCs keep the prices of their exports to LDCs very high and that their imports from LDCs very low. Foreign capital from DCs control major sectors of LCDs which result that there are large outflows of profit, interest and principal. Since wages in LDCs is low, cost of production of the commodity is also low, so is its price. On the other hand, wages being high in DCs, the cost of production is high, so high price, thus unequal terms of trade between the two.
(5) Dualism
The notion is explicit in the views of the dependency theorists. Internationally, the countries are divided into DC and LCDs or metropolitan and satellite or centre and periphery or advanced imported capitalist system and indigenous pre-capitalist system. The interrelationships between the two dualistic system are such that the developed region with the result that there is development of underdevelopment in the LDCs.
Critical Appraisals of Dependency Theory

(1) Dependency Theory is not a complete theory.
(2) Dependency Theory doesnot explain development and underdevelopment.
(3) Dependency Theory ignores production relation.
(4) In this theory, Surplus product is not explained fully.
(5) Dependency Theory ignores the role of internal class structure.
(6)In this theory, capitalist is not always harmful.
(7) Weak empirically.