Raul Prebisch and Andre Gunder Frank developed dependency theory which argues that poorer countries' economies are negatively impacted by their relationships with richer countries. Dependency theory states that the wealth of rich nations increases at the expense of poor nations, as poor countries export raw materials to rich countries who manufacture goods and sell them back at higher prices. This creates underdevelopment in poor countries and enriches elites in both rich and poor countries who benefit from the unequal system. Dependency theory critics argue poor countries' internal markets cannot support industrialization and they lack political will and control over external forces to transform their economies. The document discusses dependency theory and provides context on its proponents and implications for development policies.

1. Dependency Theory
In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III

2. Dependency Theory
In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
TOPICS:
1.Who are Prebisch and Frank?
2.Dependency Theory
3.Criticisms of the Model

3. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
• Raul Prebisch (April 1901- April
1986)
• Argentine Economist
• Structural and Neo- Marxist
economist
• Contributed the Prebisch- Singer
hypothesis (basis of dependency
theory)
Dependency Theory
• Andre Gunder Frank (Feb 1929-
April 2005)
• German- American economic
historian and sociologist
• Promoted Dependency Theory
and World- Systems Theory
Sources: http://en.wikipedia.org/wiki/Ra%C3%BAl_Prebisch http://en.wikipedia.org/wiki/Andre_Gunder_Frank

4. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
Dependency Theory
Increase in the wealth of the richer nations at the expense of
the poorer ones.
Poor countries exported primary commodities to the rich
countries who then manufactured products out of these
commodities and sold them back to poorer countries
Fisherman
Abundant marine life
Backward ways in fishing
Sufficient supply
Businessman
Foreigner
Machines &
Technology
BUSINESS RELATIONSHIP
Sells fish LOW PRICE Sells sardines 5x
higherBorrows Money to
afford sardines Lends money

5. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
Dependency Theory
SOLUTION: Poorer countries must go for IMPORT
SUBSTITUTION program (not to purchase manufactured
products from the richer countries).
SOLUTION: Poorer countries must sell primary products on the
world market BUT foreign exchange reserves must be used to
develop their countries.
REFUTE: Internal markets of the poor countries are not large
enough to support the economies of scale used by richer
countries to keep prices low.
REFUTE: Poor countries don’t have enough political will to
transform their base as product producers only.
REFUTE: Poorer countries can’t control external forces when
selling products abroad.
Source: Vincent Ferraro, Development Economics Reader, London

6. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
MORE DEFINITIONS: Dependency Theory
[Dependency is…] historical condition which shapes a certain structure
of the world economy such that it favors some countries to the
detriment of others and limits the development possibilities of the
subordinate economies… a situation in which the economy of a certain
group of countries is conditioned by the development and expansion of
another economy, to which their own is subjected.
(“The Journal of Development Studies, Vol. 6, no. 1, Oct. 1969, p23”)
Theotonio dos Santos
Brazilian Economist
INTERNATIONAL SYSTEM
• DOMINANT
• CENTER
• METROPOLITAN
• Advanced industrial nations
• Dependent
• Periphery
• Satellite
• Latin America, Asia, Africa with
low per capita GNPs
 MNC
 International Commodity
Markets
 Foreign Assistance
 Communications
 Technology
 Dependency occurs due to the
interaction
 Internationalization of capitalism
Source: Vincent Ferraro, Development Economics Reader, London

7. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
MORE DEFINITIONS: Dependency Theory
• DOMINANT
• CENTER
• METROPOLITAN
• Advanced industrial nations
• Dependent
• Periphery
• Satellite
• Latin America, Asia, Africa
with low per capita GNPs
cheap minerals, agricultural
products, and labor
Surplus capital, obsolescent
technologies, manufactured
goods, self-serving ECONOMIC
INTEREST
CA
Comparative advantage is an economic
law that demonstrates the ways in which
protectionism is unnecessary in free
trade. Popularized by David Ricardo,
comparative advantage argues that free
trade works even if one partner in a deal
holds absolute advantage in all areas of
production - that is, one partner makes
products cheaper, better and faster than
its trading partner.
Source: Vincent Ferraro, Development Economics Reader, London

8. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
Central Propositions: Dependency Theory
Underdevelopment
Undevelopment Resources not being used
Resources being used for the dominant states
Underdevelopment • Latin America, Asia and Africa are NOT
UNDERDEVELOPED
• Became POOR only when coercively integrated into
the European Economic system (producers of raw materials or
repositories of cheap labor)
Export Agriculture • Poor economies have high rates of malnutrition
despite being producers of food for export
Peripheral Elites • Elites maintain a dependent relationship since their
private interests coincide with the dominant states
Source: Vincent Ferraro, Development Economics Reader, London

9. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
Dependency Theory
POLICY IMPLICATIONS
1. The success of richer countries was contingent to their respective economic
history (exploitative colonial relationships) to which would be entirely different to
other countries.
2. Dependency theory refutes the central distributive mechanism of the
neoclassical model– or on how to distribute wealth– primary concern is on
efficient production and assumes that the market will allocate the rewards in a
rational and unbiased manner.
3. Aside from GDP and GDP as measurements– use life expectancy, literacy, infant
mortality, education and other social indicators as economic parameters.
Source: Vincent Ferraro, Development Economics Reader, London

10. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
RETROSPECT
INTERNATIONAL
SYSTEM Dominant
Center
Dependent
Periphery
Socialism

11. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
RETROSPECT: HRD @ THE NATIONAL LEVEL
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
1990 1995 2000 2005 2009
Agriculture
Industry Sector
Service Sector
Trend in Employment by Industry 1990- 2009
(Prof. Cabegin IR 204)
Briones (2011) said that “since 1990, considerable headway has been made towards eradication
of poverty, reduction in child mortality, as well as improvement in household potable water and
sanitation.” Page 3. Assessing Development Strategies to Achieve MDGs in the Republic of the Philippines, Roehlano M. Briones, UN
Department for Social and Economic Affairs, 2011.
Catelo and Pabuayon (2013) explain:
“agricultural sector is important in the
Philippine economy; providing for the
food needs of the population and the
raw material requirement of industry,
creating jobs and wealth, and
generating foreign exchange.”
Page 1, Overview of PH Agriculture, 1990- 2009, Salvador
Catelo and Isabelita Pabuayon, UPLB- College of Economics
and Management, 2013.
Park and Shin (2012): “GDP share of
services in 1980s @ 81.7%, 1990s @
58.3%, and 200s @ 62.8%.”
Page 8, The Service Sector in Asia: Is it an Engine of Growth,
Donghyun Park and Kwanho Shin, ADB, 2012.

12. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
RETROSPECT: HRD @ THE NATIONAL LEVEL
3.7
4.8
3.4
5.2
3.4
4.4
3.2
4.6
1999 2000 2001 2002
Arroyo
GNP GDP
NEDA’s Socio Economic Report 2002 positioned the Philippine economy as the “firmest
growth in the post- Asian crisis period. The growth was supported by policies that encouraged
healthy domestic and foreign demand; a low inflationary environment as induced by prudent
monetary policy.”
Page 1, Chapter 1, Socio Economic Report 2002, National Economic Development Authority.
• Strong surge in OFW remittances, growing at an
annual average of 19.1 percent for the period
2004-2006.
• Total remittances in 2007 rose by 13.2 percent to
US$14.4 billion
• World Bank reports that GDP was worth
US$272.02B billion in 2013
http://www.tradingeconomics.com/philippines/gdp

13. In partial completion of IR220- HRD @ the National Level
Prof. ROSA MERCADO
By Alfredo V. Primicias III
RETROSPECT: HRD @ THE NATIONAL LEVEL
• PH economic growth decelerated to
5.7% in the Q1 2014
• PH continued to outperform other
countries in the region surpassed
only by China (7.4%) and Malaysia
(6.2%)
• Growth of overall investment at
7.7% driven mainly by domestic
investment
• Growth slowed down due to
 weak government consumption
and private construction on the
demand side
 weak agricultural production
on the supply side
Source: PH Economic Update, World Bank, August 2014