Economic Dependence

We explain what the economic dependence of a country is, its effects and to what degree it can occur. In addition, its relationship with globalization.

economic dependence
Economic dependency exists in commercial and financial relations between nations.

What is economic dependency?

economic dependency It is the situation of anchorage or need experienced by the economy of a country with respect to that of another whose level of production is much higher. This relationship occurs due to the asymmetric commercial and financial links that exist between both nations, and that They are generally the result of old colonial relations or political subjugation between them..

Economic dependency is part of the ideas proposed by the Dependency Theory, formulated by social scientists between the 1960s and 1970s, to explain the difficulties faced by the nations of the so-called Third World on their way to development and industrialization.

According to this theory, these difficulties are a consequence of the establishment of widely unequal cultural, economic and political relations between rich and poor countries, a legacy of the colonial world of past centuries.

According to this theory, economic dependence exists in commercial and financial relations between two nations, one being developed and the other developing, when these mostly benefit the former, since competition does not occur in equal terms.

This is explained because the developed nations try to maintain an exchange of raw materials with the others for higher value processed products, in which they always win. Furthermore, through military and political means (such as international sanctions) they stand in the way of any nation that seeks to become independent and develop autonomously.

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However, it is also possible to speak of economic dependence in another context, such as globalization. In this sense, dependency is established as a logical consequence of the volume of exchange between two nationswhich does not mean that it is an equitable or symmetrical process.

For example, in the trade competition between China and the United States at the beginning of the 21st century, China is even more dependent on the US economy than the United States is on China, even though that balance of power seems to change very rapidly.

See also: Economic globalization

Effects of economic dependency

Economic dependence is expressed in the dependent country through situations such as the following:

  • Lack of productive diversification. When a power buys a single product from a weaker nation, said income usually becomes the majority of its economy, causing the growth of its production well above the rest of the items in the economy. Thus, the dependent country runs the risk of becoming a mono-exporting country, and of being at the mercy of the ups and downs of the economy of its majority buyer.
  • Control of productive sectors. It occurs when companies from another country, especially transnationals or mega-corporations, fill a sector of the dependent country’s economy, defeating the competition and controlling the supply of said goods and/or services. Then, the country begins to depend on those items of companies whose ulterior objective is to provide wealth to the foreigner.
  • sociopolitical dependency. When the economy of a country (and therefore the standard of living of its people) is strongly subject to a foreign country, the latter obtains significant power when it comes to pressuring society to advance in one direction or another, or precisely to prevent it from doing so. Thus, economic power brings with it political and cultural power, establishing hegemony.
  • Postponement development. Although economic dependency provides wealth in the short term to the dependent nation, such wealth does not translate into the development of the rest of the productive and social areas, but rather, on the contrary, tends to slow down the development dynamics and keep the country in its path. subaltern status.
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Degrees of economic dependence

Economic dependence is a qualitative concept, that is, it is not usually quantifiable, since it deals with the functioning of the economy and its consequences in other areas.

However, specialists have tried to find indicators of the degree of dependency between two countries, for which they usually use the percentage of exports from one country to the other: The greater the exports, the greater the degree of dependence on that country..

For example, the United States and Mexico have close trade relations, given their geographic proximity. However, 74% of Mexican export products are consumed by the United States, while Mexico consumes only 13% of total US exports. This means that Mexico is more dependent on the United States, in a ratio of 74/13%.

Continue with: Macroeconomics

References

  • “Dependence (political)” on Wikipedia.
  • “The theory of dependency” in the Junta de Andalucía (Spain).
  • “Economic dependency” by Guillermo Mayr in El Jinete Insomne.
  • What is economic dependency? in Market Business News.