Dependency Theory and Economic Stability in Latin America

Abstract

Dependency Theory and Economic Stability of the Latin America The dependency theory explains the uneconomic development of less industrialized countries. Dependency theorists believe that countries that rely on foreign aid, foreign investment, and relying on industrialized industries for trade purposes gain nothing but negative effects (Gitlitz and Landsberger, 2019). Dependency theory theorists say that reliance on developed countries encourages corruption, poor governance, and conflicts. The theory also posits that profits are not reinvested, and only foreigners own exporting businesses. These theorists suggest that developing countries should cut ties with industrialized countries rather than join them. However, the dependency theory faces criticism from the free-market model which denotes that there is a lack of competition when a developing country fails to interact with industrialized countries. Less developed counties lack incentives and innovations to sustain their industries. Free market economists also say that lack of guidance from developed countries may lead to economic stagnation and unprofitable economic structure. Therefore, free market theorists insist that underdeveloped countries need to keep their ties with the world market. Free market theorists argue that some countries achieve massive economic growth by relying on developed countries. The least developed countries mostly export very few export products which affect them negatively especially when the price of the products increases suddenly. The price of the export goods such as labor and raw materials decrease in price while the price of the manufactured imported goods increase (Keen and Haynes, 2012). Developing countries experience the need for dependency to attain balance in terms of imports and exports. Additionally, some regions still experience caudillismo, which is a system where the leaders hold too much power and authority characterized by violence intimidation, and use of torture. Latin America has a history of high reliance on agriculture and mining in stabilizing its...