Dependency and unequal exchange
Poor countries are not behind rich ones on the same road; they are poor because of the way they are joined to rich ones, and the terms of that connection get worse over time.
Raúl Prebisch, Hans Singer, Andre Gunder Frank, Samir Amin · Credits and sources ↓
What it says
Prebisch and Singer began with a statistic. Over the long run, the prices of the primary commodities that poor countries export have fallen against the prices of the manufactures they import. A country exporting the same tonnage of tin or jute year after year can buy less machinery with it each decade. If that is true, then trade is not simply an exchange of gains, and specialising in what you are currently best at is a way of getting poorer slowly.
The explanation has two halves. On the demand side, as incomes rise people do not eat proportionally more; they buy manufactures and services instead, so demand for primary products grows more slowly than demand for what is traded against them. On the supply side, when productivity rises in a rich country, organised labour and concentrated firms capture the gain as higher wages and profits, so prices hold. When productivity rises in a poor country with a reserve of unemployed labour, nobody can hold the price up, and the gain passes to the foreign buyer as a lower price.
Frank pushed this from a fact about trade to a claim about history. The now-rich countries were never in the position poor countries occupy; they were undeveloped, not underdeveloped. Underdevelopment is something that happened to the periphery, produced by a chain of metropolis and satellite relations running from a world centre down through a national capital to a provincial town and finally to a landless labourer, with surplus travelling upwards at every link.
The policy that follows is protection, then industrialisation behind it, and in Amin's version a deliberate loosening of the connection itself. Almost every large developing country tried some version of it between 1950 and 1980, India included.
Drawn one step at a time
The theory as a graph, revealed a layer at a time. Use the buttons, or the left and right arrow keys. Each step adds the boxes that step introduces and the arrows into them.
- Starting condition
- Mechanism
- Outcome or policy
Four placements, and the reason for each
The four scores are editorial. They run from -3 to +3, they were assigned by the ImpactMojo editorial team from the theory's own texts, and each theory page shows the sentence that justifies its placement so the placement can be argued with. They are a way of arranging a shelf, not a measurement.
Prices are the problem, so prices cannot be the solution. The state sets tariffs, allocates foreign exchange and often owns the new industry.
Growth matters, but growth of the wrong kind is what the theory is about. The composition and the ownership of output come before its size.
Class and nation do the work. Caste, and gender, appear in the later Latin American writing hardly at all, and the Indian adaptations had to add them.
Split. Prebisch wrote for finance ministries and built an international organisation. Frank and Amin wrote for movements and thought finance ministries were part of the mechanism.
The theory against the record
Each entry takes one claim the theory makes and reports what the evidence says about it, with a named source and a year. This section is the reason the library exists; a catalogue of positions without it is a reading list.
The claim Commodity terms of trade decline over the long run.
This has largely survived. Grilli and Yang built a commodity price index for 1900 to 1986 and found a downward trend against manufactures of roughly half a per cent a year, small annually and large across a century. Harvey and colleagues later took the question back to 1650 across twenty-five commodities and found statistically significant negative trends in eleven of them, with no commodity showing a significant positive trend.
Enzo Grilli and Maw Cheng Yang, World Bank Economic Review; David Harvey, Neil Kellard, Jakob Madsen and Mark Wohar, Review of Economics and Statistics · 2010
The claim Industrialising behind protection breaks the dependence.
Mixed, and the mix is the interesting part. Import substitution did build industrial capacity in India, Brazil and Mexico. It also produced foreign exchange crises rather than curing them, because the new industries needed imported capital goods and did not export. India's balance of payments crises of 1957–58, 1966 and 1991 each arrived in an economy that had spent decades protecting itself against exactly that.
Reserve Bank of India and IMF balance of payments records; Bhagwati and Desai, India: Planning for Industrialisation · 1970
The claim A peripheral country cannot industrialise through the world market.
This is where the theory took its heaviest damage. South Korea and Taiwan were peripheral by any 1950s measure and industrialised by exporting into the centre, under states that directed credit and disciplined firms rather than delinking. That does not rescue free trade, since neither followed the open-market prescription either, but it does refute the claim that the position on the chain determines the outcome.
Alice Amsden, Asia's Next Giant; Robert Wade, Governing the Market · 1990
What this does not settle
The empirical core and the policy conclusion have come apart, and thirty years later nobody has put them back together. The price finding stands up better than most propositions in development economics. The inference that a country should therefore withdraw does not, and the East Asian record is the reason. What is still argued is whether the East Asian states escaped the mechanism or were allowed through it, given that both were front-line Cold War allies granted market access and land reform on terms that were not on offer elsewhere.
How it landed here
India had its own version first, and it was about a colony rather than a periphery. Dadabhai Naoroji's drain theory, set out across the 1870s and gathered in Poverty and Un-British Rule in India in 1901, argued that a measurable share of India's annual product left the country as home charges, pensions and remitted profits, and that this transfer, not Indian backwardness, explained Indian poverty. R. C. Dutt's economic history made the deindustrialisation case alongside it. When Latin American dependency arrived in Indian debate in the 1960s it landed on ground already prepared, which is part of why the Second Plan's autarky met so little intellectual resistance.
One that agrees, one that does not
Planning for the capital goods sector
The Second Plan is the dependency prescription carried out at scale, arrived at largely independently: build the capital goods sector because the foreign exchange to import it will not be there.
The stages of economic growth
Same event, opposite sign. Contact with the advanced economy is what starts Rostow's clock and what stops the periphery's.
Whose theory this is
Raúl Prebisch 1901–1986
Argentine economist, head of the UN Economic Commission for Latin America and later founding secretary-general of UNCTAD. He arrived at the argument from central banking and trade statistics rather than from Marx.
Hans Singer 1910–2006
German-born, Keynes's student, worked at the UN. Published the same finding as Prebisch in the same year, independently.
Andre Gunder Frank 1929–2005
Took the argument from trade to structure: underdevelopment is not a starting condition but a product.
Samir Amin 1931–2018
Egyptian-French economist who drew the policy conclusion the others hesitated over, and called it delinking.
What ImpactMojo added
The causal diagram, the four placements and the notes justifying them, and the evidence section: what each claim predicted and what the record shows, with a named source and year for every entry.
ImpactMojo · content CC BY-NC-ND 4.0 · code MIT
Start with these
- Raúl Prebisch, The Economic Development of Latin America and Its Principal Problems (1950). The ECLA report, often called the Latin American manifesto. The statistics come first and the theory is built to fit them.
- Andre Gunder Frank, The Development of Underdevelopment (1966). Monthly Review, September 1966. Twelve pages, and the source of the distinction between undeveloped and underdeveloped.
- Dadabhai Naoroji, Poverty and Un-British Rule in India (1901). The Indian precursor, with the drain estimated rather than asserted.
Open access, in Development Discourses:
- Trade and Development Report 2023 — UNCTAD (2023)
- The Long-Term Effects of Africa's Slave Trades — Nathan Nunn (2008)