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Development economics core course

Lecture 6

Structuralism, dependency theory and other radical approaches

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Important factors for growth & development (overview)

1. Capital2. Population growth3. Technical progress4. Human capital, externalities Today: Balance of payments, regional specialisation,

increasing returns, dependency, exploitation

Coming up next lecture: complementarities, increasing returns (in

a modern formulation) Dualism Agriculture Inequality and poverty Trade Aid Role of the state

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Paradigms (schools of thought) in development economics (brief)

1. Neoclassical paradigm

2. Structuralism

3. Radical approaches Marxism Neo-marxism Dependency theory

Strukturalism

Characteristics of the center

High manufacturing production and low population growth

Ability to develop technology

Productivity improvements, good export prices

Elasticity of imports less than one

Institutions geared towards production and growth.

Characteristics of the periphery

Dualism: small modern sector & large subsistence sector

High population growth

Small open modern sector

Not able to develop own technology; use of in-appropriate technology

Elasticity of imports greater than one

Raoul Prebisch

Celso Furtado,

Hans Singer

Dudley Seers

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Gunnar Myrdal and cumulative causation

Look at regional differences (within a country)

Theory about instability, dynamic change, cumulative and circular causation. Difefrs from equilibrium theory.

Regions with high growth attract resources (labour, capital, entrepreneurs etc) from slowly growing regions

These are made worse off : backwash effect Compare to neoclassical theory, where factor mobility

leads to equal factor prices between regions (discuss)

Myrdal: growing differences due to multiplicator / accelerator effects and increasing returns

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Take a closer look

Benefits of being a leader: Accelerator and multiplikator effects (jvf Keynes) Industry grows faster than agriculture Increasing returns to scale, learning by doing

Growth productivity gains (Verdoorn’s lov) capital productivity gains (cf Ray ch 4)

2 inter-regional effects

1. Polarisation (Increasing returns)

2. Trickle-down (demand efefcts, remittances etc)

? Hvad gør regeringerne?

? Hvad gør donorer?

Prebisch on the terms of trade

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-80

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81

-85

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86

-90

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91

-95

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96

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-19

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-19

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11-1

3

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-25

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26

-30

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31

-35

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-38

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100 102.496.3

90.187.1 84.6 85.8 85.8

67.373.3

62 64.168.7

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60

80

100

120

Qu

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76

-80

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81

-85

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86

-90

18

91

-95

18

96

-19

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01

-19

05

19

06

-19

10

19

11-1

3

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21

-25

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26

-30

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31

-35

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36

-38

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Source: Prebisch, 1962 (from Hunt, 1989).

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Structuralists on international trade

Reject comparative advantage as basis for specialisation

Terms of trade pessimism (Prebisch and others)

Poor countries have flexible wages,

rich countries tend to have rigid wages and prices

Rich countries therefore can absorb their productivity gains, poor cannot, and terms of tarde evolve to the benefit of rich countries

Low import coefficient in the US

Income elasticities of demand (Singer)

Synthetical substitutes (Nurkse)

Growing protectionims in European (and US) agriculture (Prebisch)

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Discussion: EU, WTO and development today?

Income elasticity of demandC = Center - produces industrial goods

P = Periphery – produces primary goods

Income elasticity for industrial goods, ei = 1.3

Income elasticity for primary goods, ep = 0.8

Begin with equal growth in both countries, gC = gP = 3 %

Import growth in center, mC = gC x ep = 3,0 x 0,8 = 2,4%

Export growth in center, xC = gP x ei = 3,0 x 1,3 = 3,9%

Import growth in periphery, mP = gP x ei = 3,0 x 1,3 = 3,9%

Export growth in periphery, xP = gC x ep = 3,0 x 0,8 = 2,4%

(all in value). Assume constant prices

Balance of payment neutral growth: mP = xP or gP x ei = xP so gP = xP /ei = 1,85

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Conclusions on this little illustration

Policy options

Reduced growth Protectionism, eg quantitative trade

restrictions Borrowing abroad Stimulation of exports

Developing countries have done all of this to a varying extent

How?

General structuralist policy-conclusions

Foreign demand as a source of growth?

Possibility of generating growth in the domestic economy?

Industrialisation through government directed import substitution only road ahead

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Strukturalism: summing up

Eclectic Loose ends (but has later been reborn in ”modern” guise): see

Krugman link on course homepage

Development is not just growth Focus on the structure of the economy, and on industry Bottlenecks and disequilibrium Inequality, tensions and conflict Need for institutional analyses Planning and state intervention

How did it go in practice???

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Radical approaches - introBaclground: Marxist ideas and vocabolary Many Third world contributions Political involvement and normative theory

Is capitalistic development in the periphery possible?

Marxism

Neo-marxism, 1950-

Paul Baran, André Gunder Frank, Arghiri Emmanuel

Dependency theories, 1970-

André Gunder Frank, Samir Amin,

Celso Furtado, Sunkel

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A true ’radical’

One must denounce the existence of economic, financial, and social mechanisms which, although they are manipulated by people, often function almost automatically, thus accentuating the situation of wealth for some and poverty for the rest. These mechanisms, which are maneuvered directly or indirectly by the more developed countries, by their very functioning, favor the interests of the people manipulating them. But in the end they suffocate or condition the economies of the less developed countries.

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The rich in the periphery countries are allied with the center in exploiting the poor and the natural resources of the periphery, which is therefore maintained in under-development.

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Unequal exchange

Unequal exchange = (unfair) differences in terms of trade

Wage differences cause the unequal exchange (Emmanuel)

Why wage differences? Institutional reasons Produktivity differences?

Is capitalistic development possible

1. Marxism

Poor countries become rich but remain exploited until global revolution

2. Neo-marxism

Poor countries cannot grow rich

3. Dependency theory

Development difficult but possible with the right policy

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Summing upWhat were the issues?

Constant or growing regional inequality due to increasing returns etc

Strukturalists and balance of payment constrained growth

Unequal exchange and exploitation

? Globalisation critique, ATTAC, WTO protests– a modern version of this?