The Dimensionality and Measurement of Economic Dependency: A Research Note
Author(s): Jie Huang and Kazimierz M. Słomczyński
Source: International Journal of Sociology, Vol. 33, No. 4, Across Nations (Part II) Global
Inequalities (Winter, 2003/2004), pp. 82-98
Published by: Taylor & Francis, Ltd.
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International Journal of Sociology, vol. 33, no. 4,Winter 2003-4, pp. 82-98.
? 2004 M.E. Sharpe, Inc. All rights reserved.
ISSN 0020-7659/2004 $9.50 + 0.00.
Jie Huang
and Kazimierz
M.
Slomczynski
The Dimensionality and Measurement
of Economic Dependency
A Research Note
ABSTRACT:
For decades
both theory and empirical research have postulated
three dimensions of economic dependence?international
trade, external debt,
and foreign investment?but never statistically modeled these dimensions in a
comprehensive way or examined their interconnectedness. This article over
comes such shortcomings. In particular, we use a confirmatoryfactor analysis
to test the hypotheses about the structure of economic dependence in sixty-five
developing countries. Our analysis demonstrates that ten indicators?import
prevalence, primary product exports, commodity concentration, multilateral
debt and debt service, bilateral debt and debt service, private debt and debt
international trade,
service, as well as the use of capital from abroad?reflect
external debt, and foreign investment in a way that contradicts an established
theoretical argument.Moreover, we discovered that threepostulated dimensions
are related to each other and reflect the overarching construct, economic de
pendency as such. Our estimates, obtained for 1980, allow us to discuss the
validity of some published results that refer to the late 1970s and early 1980s.
For decades, economic dependency has been one of themost important con
cepts in the studies of international political and economic relations. It is rec
ognized by many scholars in development studies that economic dependency
attribute. Theories and empirical research suggest that
is a multidimensional
JieHuang is affiliatedwith theNationwide Insurance Company. Direct all corre
spondence to JieHuang and Kazimierz M. Slomczynski, Department of Sociology,
Ohio State University, 300 Bricker Hall, 190 N. Oval Mall, Columbus, OH 43210;
e-mail:
slomczynski.
1@sociology.osu.edu.
82
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83
the threemost salient dimensions of economic dependency are: international
trade, external debt, and foreign investment (e.g., Rubinson 1977; Bornschier
and Chase-Dunn
1985; Ragin and Bradshaw 1992; Ce andWilliamson 2001).
Researchers have tried to use single and/ormultiple indicators as proxies of
these dimensions of economic dependency. These proxies, however, have never
been justified nor the pattern of relationships among indicators examined.
In this article we pose three questions:
First, is the concept of economic dependency really multidimensional?
Second, if it is multidimensional, how are these dimensions related to
each other?
Third, if these dimensions are interrelated, do they actually underlie a
latent overarching construct, that is, economic dependency in toto?
Using confirmatory factor analysis, we attempt to test specific hypotheses
about the nature and the structure of economic dependency. In closely exam
ining the issue of dimensionality, the results obtained in this article contribute
to the discussion
of dependency and its role in economic development. We
for 1980 insofar as at that time economic dependency
estimate our models
began tobe seriously manifested through external debts. Researchers frequently
use data from the late 1970s and early 1980s for their own analyses. In the
discussion, we comment on a need for reinterpretation of some results re
ported in the literature.
Theoretical
Considerations
The dependency issue first arose as a response to the failure of the program of
the Economic Commission for Latin America (ECLA) located in theUnited
Nations organization. Originally, this program represented "the voice from the
periphery" that challenged the intellectual hegemony of theAmerican modern
ization school (So 1990). However, the ECLA
strategy of protectionism and
industrialization resulted in unemployment, inflation, currency devaluation,
declining terms of trade, and other economic problems. By conceptualizing that
dependency is produced through unequal economic exchanges, some theoreti
cal arguments?like those of Baran (1957) and Prebisch (1959)?have
directed
researchers to examine the economic dimension of dependency. Initially, other
and cultural dependency,
types of dependency?political
as
considered
its natural product.
in particular?were
An emphasis on international trade has been an important part of Baran's
(1957) early work. In his study of colonialism in India, he shows that the
British deindustrialized India by creating an export agricultural structure. In
his view, the British goals in creating a colonial government were to ensure
the smooth extraction of raw materials and minerals from the colony to the
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84
INTERNATIONAL
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"mother nation," and to facilitate foreign imports into the periphery.
The theoretical argument of Prebisch (1959) is similar. In addition, Amin
(1976) asserts that transition to peripheral capitalism is fundamentally differ
ent from transition to central capitalism because of the distorted development
on themargin. In this context, peripheral capitalism is characterized by extra
version toward export activities and nullification of foreign investment. In
particular, Amin points out that "extraversion does not result from inadequacy
of the home market but from the superior productivity of the center in all
fields, which compels the periphery to confine itself to the role of complemen
tary supplier of products for the production of which it possesses a natural
advantage: exotic agricultural produce and minerals" (Amin 1976: 200). Such
extraversion lowers the level of wages in the periphery.
It has also been argued (Landsberg 1979) that export-led industrialization
is just a new form of imperialist domination and does not serve self-expanding
growth. According to this argument, in historical perspective, the less devel
oped countries suffered from foreign domination because theywere forced to
spend large sums of foreign currency to import almost all manufactured goods.
In order to earn the needed foreign currency, they had to rely on exports of
primary products, vulnerable to price fluctuations in the world market. To
it even worse, the lack of foreign currency led to an accumulation of
substantial external debt. Since the majority of the population in the less
developed countries remains poor and does not have the buying power for
make
luxurious and durable goods, import substitution results in the incurrence of
debt to foreign countries. Instead of importing foreignmanufactured goods, in
practice, import substitution increases import of foreign capitals and technol
ogy. This results inmassive outflows of profits back to the home countries of
the transnational corporation. As a consequence, the deficits and debts in the
less developed countries continue to grow.
At the core, "associated development"?the
notion promoted by Cardoso and
Falletto (1979)?is
the impact of foreign investment. In this view, international
capital has become interested in direct investment in themanufacturing sectors by
establishing factories and plants inLatin America. In analyzing theBrazilian case,
Cardoso found that in the late 1960s foreign capital occupied 72 percent of the
capital goods sector, 78.3 percent of the durable consumer-goods sector, and 53
percent of the nondurable consumer-goods sector.The growing industrial power
of foreign-owned manufacturing firms has changed the economic structure of
Brazil and deprived the local bourgeoisie of their relative power. Evans (1979)
found thatforeign capital investment inBrazil is one of themost importantfactors
shaping the global process of dependent development.
When Mexico was unable to pay back its debt in 1982, its financial col
lapse dramatized the financial crisis of less developed countries. From a
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WINTER 2003^
85
(1986), Sweezy andMagdoff (1984) argue
dependency perspective, MacEwan
that "debt trap" becomes the key factor in explaining the crisis facing Latin
American countries. Debt trapwas observed inmany Latin American coun
in themid-1980s foreign debt amounted to 76 percent of its
tries. InMexico,
total gross national product. In Brazil, foreign debt increased from $4 billion
in the early 1970s to $50 billion in the later 1970s, and then jumped to $121
billion in 1989.
In the 1970s, growing private debt attracted the attention of scholars of
development. At the beginning of the 1970s, two-thirds of the financial flows
to the less developed countries were in the form of "official development
bilateral ormultilateral grants, aids, and loans. Private bank
lending represented only one-third of the total. But by the end of the 1970s,
commercial banks accounted for nearly 50 percent of the loans to the less
assistance"?either
developed countries(Kojm 1984). Stallings (1987) observed the trendof
"privatization" inU.S.-Latin American financial relations. She argues that
privatization has enabled the banks tomaintain and bolster their profits at
the expense of the benefits of the bulk of the population in Latin American
countries. She concludes that privatization has obstructed the economy of
those countries because terms on the new private loans are more stringent
than those from the public institutions.
Using different terminology, Dos Santos
(1970) distinguished consecutive
historical phases of dependency. During colonial dependency, the colonized
country,monopolized by the commercial and financial capital of the dominant
country, exported gold, silver, and tropical products to the dominant countries.
By the nineteenth century, given the domination of capital from the core, the
economies of the dependent countries were centered upon the export of raw
materials and agricultural products for consumption in European countries.
After World War
II, the technological-industrial form of dependency became
dominant. According toDos Santos, industrial development is now dependent
on the existence of the export sector, because only the export sector can bring in
needed foreign currency for the purchase of advance machinery by the indus
trial sector.Moreover, Dos Santo's argues that industrial development is very
influenced by fluctuation of price and interest rates in theworld market.
much
As a result, itdepends more and more on foreign financing and investment.
Dimensions
and Indicators
ofDependency
in Cross-National
Research
Since the 1960s and 1970s, the economic literature clearly has suggested that
dependency can be conceptualized in terms of international trade, external debt,
and foreign investment. In their early attempt to test the theory of dependency,
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86
INTERNATIONALJOURNALOF SOCIOLOGY
et al. (1975) used fourmeasures of trade dependency: (1) value of
trade to largest trading partners as a percent of GNP (for 1967); (2) value of
trade to largest trading partner as a percent of total trade 1967; (3) value of trade
Kaufman
to largest partner as a percent of total trade (in 1929); and (4) value of two
leading exports as a percent of total exports (in 1965-68). Their main principle
was to include as many measures as possible in different time points to assess
the "possible lagged effect of dependency." Since these variables covered only
seventeen countries, theyhave not been frequently used in subsequent research.
(1979) have derived twomeasures of trade dependency
Ragin and Delacroix
from the theory of comparative advantage and neo-Marxist theories.According
to the principle of comparative advantage, specialization in primary product
export is economically progressive, whereas it is treated as a hindrance to the
development process by various neo-Marxist theories.Moreover, another indi
cation of trade dependency is the specialization of a country in a small number
of commodities. Marxist theorists believe that specialization in the export of a
few products thathave a large international demand hinders the development of
the less developed countries. Thus, in the study by Ragin and Delacroix (1979),
primary product exports and commodity concentration were used as twomea
sures capturing separate aspects of trade dependency. These measures have been
widely used in later cross-national research (e.g., Delacroix and Ragin 1981;
Dixon
1984; Bradshaw
1985). In addition, an export partner concentration,
defined as a percentage of a nation's total exports thatgoes to its largest export
partner, and the value of imports and exports per GNP are treated as measures of
trade dependency (Chase-Dunn 1975; Rubinson 1977).
In the present study, a new variable is constructed tomeasure trade depen
dency. Import prevalence is used to capture the imbalance between imports
and exports that characterizes the trade structure of the less developed as well
as the developed countries. Previous cross-national studies have favored the
use of export/GNP and trade/GNP (Kaufman et al. 1975; Rubinson
and Delacroix
1979).
1977; Ragin
Debt dependency. Along with the emerging debt crisis in theworld, schol
studied various consequences of international financial imbalance
ars have
and liability. However, most scholars tend to limit their analyses to the total
amount of external debt divided by GNP or population. The results are some
times contradictory due to themeasurement incomparability of both explana
1975 vs. Bradshaw
tory variables and those to be explained (cf. Chase-Dunn
and Tshandu
1990).
The contradictory findings make one suspect that theproblem of debt should
be treated in a holistic and detail fashion. As a matter of fact, the past few
decades have witnessed
the transformation of debt from the dominance of bilat
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WINTER 2003^1
87
eralism to the dominance of multilateralism and to the growing dominance of
private debt. The 1950s were a period of the dominance and diversification of
bilateral loan programs of the developed countries. The 1960s were marked
by the emergence ofmultilateralism with the increasing influence of the Inter
national Monetary Fund and World Bank in the world economy. In the
mid-1970s, private bank lending expanded. Thus, as suggested in the litera
ture, rather than using one single indicator tomeasure the effect of debt, the
assessment of impact of this complex variable should be broken down into
three categories: bilateral debt, multilateral debt, and private debt. Only when
we bring all three types of debt into the picture can we objectively capture the
effect of external debt.
Investment dependency. Evans and Timberlake (1980) and Kaufman et al.
(1975) used various U.S. Department of Commerce figures on the value of
U.S.
countries. Two studies used the number of
corporations operating in each country as a mea
investment inLatin American
subsidiaries ofmultinational
sure of foreign investment penetration (Bornschier and Chase-Dunn
1985;
on
which
investment
direct
"debits
used
studies
Several
income,"
1979).
is the amount of profitmade by foreign-controlled firms (Chase-Dunn 1975;
Evans
Rubinson 1977; Szymanski1976).
Since the publication ofA Compendium ofData for World-System Analyses
by Ballmer-Cao and Scheidegger (1979), researchers tend to use stock of for
eign investment tomeasure foreign investment penetration. It is constructed
as the ratio of total direct, private foreign investment toGNR This variable has
been frequently used in cross-national research (e.g., Bradshaw
1985; Lew
1987; Bradshaw and Huang 1991).
The three-dimensionality of economic dependency is clearly suggested in
theories of empirical research. Students of development have achieved a con
sensus that international trade, external debt, and foreign investment represent
three major dimensions. However, most researchers have tried to test the
effects of specific dimensions of economic dependency using only a very
limited number of indicators, usually not exceeding three indicators for one
type. In addition, typically, only one or two dimensions of dependency are
included in analyses. Thus, the concept needs to be analyzed in its complexity,
taking into account a relatively large number of indicators and examining the
relationships among underlying dimensions.
Sample, Measurement,
and Method
In this section we provide basic information on the data and mode of our
we present
analyses, beginning with a short description of the sample. Then
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88
INTERNATIONAL
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our operationalization of the variables. This section ends with a formal de
scription of the basic model, using standard notation (J?reskog and S?rbom
1979;Bollen 1989).
Sample
In this study, our sample is restricted to the developing countries. In terms of
theWorld Bank's (1980) definition of developing countries, both low-income
and middle-income
countries are included in the analysis. With available in
formation, sixty-three countries are retained in the sample. The 1980 data are
used mainly because many less developed countries had accumulated consid
erable debt around this time.Moreover, researchers frequently use data from
the late 1970s and early 1980s for theirown analyses. Using data for 1980, we
can comment about a needed reinterpretation of some published
results.
Measurement
All variables
literature.We
thatwe use in our analyses were in some form suggested in the
list themwithout an a priori decision about how to link them to
specific dimensions of economic development. In the next section, construct
ing themodels, we will formulate specific hypotheses in this regard.
Our indicators are:
Import prevalence is expressed as the total amount of imports divided by
the total amount of exports. If the ratio is reversed, itmeasures export preva
lence. Thus, this ratio variable also reflects the imbalance of trade in a country.
Primary product exports. This variable is used as an indicator of one type
of foreign trade. It estimates the degree of specialization in the export of pri
and Ragin
1979; Delacroix
1981;
mary products (Ragin and Delacroix
Bradshaw
1985). Primary product exports is calculated as the percentage of
exports classified in Standard Trade Classification
(category 0 to 4).
concentration
evaluates
the
Commodity
degree of commodity concentra
tion of export commodities. It is calculated as the percentage contribution of
the top three exports to totalmerchandise exports.
Multilateral debt measured by the total amount ofmultilateral debt divided
by totalGNP.
Multilateral debt service measured by the total amount ofmultilateral debt
service as the percentage of total export.
Bilateral
totalGNP.
debt measured
by the total amount of bilateral debt divided by
Bilateral debt service measured by the total amount of bilateral debt ser
vice as the percentage of total export.
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WINTER 2003-^
debt measured
Private
totalGNR
89
by the total amount of private debt divided by
Private debt service measured by the total amount of private debt service as
the percentage of total export.1
We use stock of foreign investment, standardized by total GNR This ratio
variable is logarithmically transformedbecause of thehighly skewed distribution.
Data for all indicators were collected for 1980, except foreign investment for
which necessary pieces of informationwere available for earlier years, themid
1970s (World Bank 1980,1987a, 1987b). In additional analysis we use all indi
cators of economic dependency for 1975, and economic growth for 1978-85.
Method
Confirmatory factor analysis allows the researcher to specify the relations be
tween the unobserved (latent) and the observed (manifest) variables, and to
find out whether thehypothesized structure is consistent with thedata (J?reskog
and S?rbom 1979; see also Bollen 1989). We hypothesize that our ten indica
tors jcp . . . jc10, listed inTable 1, are linked to three dimensions of economic
dependency: international trade (^), external debt (?2), and foreign invest
ment (^3). Moreover we testwhether the three dimensions can be treated as
reflecting an overarching construct (T|). The statistical program LISREL, origi
nally developed by J?reskog and S?rbom (1989), is used to perform the analy
sis.
symbols of the variables included
1. The following functions describe
served and the latent variables (^ and T|):
The
Table
in the analysis are presented in
the relationships among the ob
x= X^ + e
where X and ? are coefficient matrixes and w and z are vectors of residuals.
The models are estimated using the covariance matrix of all indicators de
picted inTable
Analysis
1.
and Results
began with the congeneric model to test the hypothesis that latent factors
reflect indicators. According to the initial hypothesis, the first three indica
tors?import prevalence (jc^, primary products export (x2), and commodity
We
concentration (jc3)?are loaded on the latent factor of trade dependency (^).
The next six debt variables?multilateral debt (x4),multilateral debt service (x5),
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90
INTERNATIONAL
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Table 1
Variables
in the Measurement
Variables
Symbols
Models
Indicators
Importprevalence x1
Primaryproductexports x2
Commodity concentration x3
Multilateraldebt x4
Multilateraldebt service x5
Bilateral debt x6
Bilateral debt service x7
Private debt x8
Private debt service x9
Foreign Investment x10
Factors
Trade dependency ?,
Debt dependency ?2
Investmentdependency ?3
Dependency
r\
bilateral debt (jc6), bilateral debt service (x7), private debt (jc8), private debt
service (jc9)?are loaded on the latent factor of debt dependency (?2). The last
variable, stock of foreign investment (x10), is loaded on the investmentdepen
dency (?3). In the firstmodel, the relationships among the three factors are or
thogonal (Table 2,Model 1); the second is the oblique model (Table 2,Model 2).
model (Model 1), thenewmodel (Model 2) better
Comparedwith thefirst
reflects the data, as can be assessed by the smaller ratio of the chi-square to the
degree of freedom (a change from 4.12 to 2.59). However, residual values for
most indicators suggest rejecting the hypothesis that each indicator is related
to one and only one dimension (factor). Indeed, the analysis of residuals con
vinced us that themodel should be relaxed.
In a measurement model presented inTable 3 we postulate mixed, that is,
double, loadings. According to our new specification, primary product exports
is related not only to the factor of trade dependency but also to the factor of
investment dependency. Import prevalence is related not only to trade depen
dency but also to debt dependency. Bilateral, multilateral, and private debt
service, and private debt are allowed to load on factors of external debt and
foreign
investment.
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91
Table 2
Three-Factor Congeneric
Variables
Models
1
Factor
Orthogonal model
Importprevalence
Primaryproductexports
Commodityconcentration
Multilateraldebt
Multilateraldebt service
Bilateral debt
Bilateral debt service
Private debt
Private debt service
Foreign investment
Factor 2
Factor 3
0.081
0.713*
0.546*
0.792*
0.578*
0.550*
0.724*
1.000*
0.802*
0.447*
123.48
30
0.001
t
d.f.
p-value
Ratio
4.12
Oblique model
prevalence
Import
Primaryproductexports
Commodity
concentration
-0.048
0.747*
0.587*
Multilateral
debt
Multilateraldebt service
Bilateraldebt
Bilateraldebt service
Privatedebt
Privatedebt service
Foreign investment
0.970*
0.452*
0.056
0.465*
0.892*
0.889*
0.431*
X2
85.56
d.f.
33
0.000
p-value
Ratio
2.59
*Significant
at/? < 0.05.
Not all freed relationships between indicators and dimensions proved to be
statistically significant. However, the double loadings suggest that the rela
tionships between indicators and dimensions are complex (cf. Table 3). In
particular, the opposite signs of import prevalence for trade dependency and
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92
JOURNALOF SOCIOLOGY
INTERNATIONAL
Table 3
Three-Factor Oblique
Model with Some Double
Loadings
Latent
factor1
Variables
Importprevalence
Primaryproduct exports
Commodity concentration
Multilateraldebt
Multilateraldebt service
Bilateral debt
Bilateral debt service
Private debt
Private debt service
Foreign investment
-0.732*
X2
34.89
factors
factor2
factor3
0.701*
0.779*
0.247*
0.609*
0.888*
0.507*
0.195
0.498*
0.140
0.421*
0.328*
0.885*
-0.001
0.921*
0.393*
28
d.f.
0.173
p-value
1.25
Ratio
at p < 0.05.
^Significant
debt dependency require some explanation. Let us note that import prevalence
is calculated as total import divided by total export and transformed logarith
mically. Thus, if the value is larger than zero, it refers to import prevalence; if
the value is smaller than zero, it thenmeans
export prevalence. Here, the nega
tive sign on factor of trade dependency indicates that import prevalence is
inversely related to trade dependency; dependent countries import less than
they export. Lower import prevalence, greater primary product exports, and
higher levels of commodity concentration imply higher levels of trade depen
dency. However, in a different context, the sign for import prevalence changes.
Higher import prevalence leads to higher debt dependency.
Compared with the first twomodels, in themodel presented inTable 3 the
value of chi-squared drops significantly. The ratio of chi-squared to the de
=
1.25). The probability level
grees of freedom is relatively small (34.89 /28
is 0.17, which
provides
ismuch
larger than the threshold of 0.05. Therefore, thismodel
evidence that distinguishable dimensions of economic
convincing
should be measured
dependency
by a set of multiple,
sometimes overlapping
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WINTER 2003^4
93
the question as towhether the three factors of foreign
can hold together and really measure the construct
and
debt
investment, trade,
of economic dependency remains to be answered.
indicators. Nevertheless,
In order to answer this question, a higher-order factor analysis is needed.
Based on themodel inTable 3, a second-order factor analysis was performed
to test the hypothesis that the three latent factors are loaded on one super
dependency. In Table 4 we present our final model,
includes correlations among some error terms.A natural solution is to
relax the error independence assumption. In our model, the error of bilateral
construct of economic
which
debt service is allowed
to be correlated with the error terms of bilateral debt
and multilateral debt service.2
The final model yields a chi-square of 35.21 with 27 degrees of freedom.
The probability level is 0.133. This second-order model represents a good
data fit.All the parameters are significant at p < 0.05.
Estimates obtained from themodel presented inTable 4 suggest that three
dimensions do underlie the indicators. The second-order factor analysis suc
cessfully confirms that the three latent factors underlie the super construct of
economic dependency.
Additional Analysis
economic dependency negatively influence economic growth? To an
swer this question we take into account the ten-year period of economic per
formance, 1975-85, which has been crucial in the debates in the literature. For
this additional analysis the indicators of economic dependency are measured
for 1975 or close to thatyear. International trade is represented by the value of
Does
primary-product exports divided by GDP. The external debt dimension ismea
sured by combined foreign debt?multilateral, bilateral, and private. We also
include foreign investment (standardized by GDP).
5 demonstrates, primary product exports have a statistically
significant negative effect on economic growth. Higher levels of exports are
associated with a lower level of economic growth. The effect of external debt
As Table
is also negative but not statistically significant. However,
investment is positive.
Conclusion
the effect of foreign
and Discussion
studies, dependency is correctly interpreted as a
multidimensional concept. Nevertheless, ithas often been measured separately
as international trade, external debt, and foreign investment, usually by a lim
ited number of indicators. To a large extent, both theory and empirical research
In quantitative cross-national
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94
INTERNATIONALJOURNALOF SOCIOLOGY
Table 4
Second-Order
Factor Analysis
of Economic
Dependency
First-orderlatentvariables
Second
factor1
Variables
factor2
factor3
order latent
variable (r|)
Indicators
Importprevalence
Primaryproductexports
Commodity concentration
Multilateraldebt
Multilateraldebt service
Bilateral debt
Bilateral debt service
Private debt
Private debt service
Foreign investment
-0.672*
0.652*
0.697*
0.555*
0.890*
0.392*
0.219*
0.476*
0.441*
0.938*
-0.288*
0.858*
0.369*
Factors
Trade dependency
Debt dependency
Investmentdependency
0.577*
0.628*
0.224*
X2
35.21
d.f.
p value
0.133
27
Ratio
*
1.30
Significant
at p < 0.05.
ignore the interconnectedness among the three forms of dependency. In the
past, these types of dependency were often addressed as if no relationship
existed among them.
One of the important findings of our analysis is the discovery of the com
plex and close relationship among indicators of international trade, external
debt, and foreign investment. This is manifested by the mixed loadings of
indicators on the latent factors. In particular, in our finalmodel, import preva
lence loads on international trade and external debt. Two indicators,multilateral
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WINTER 2003^
95
Table 5
Economic Growth, 1975-1985, Regressed on Selected Indicators of
Economic Dependence, Controlling forUrbanization and International
Monetary Fund Pressure: Standardized Solution
Independentvariables
Economic dependence
Primaryproductexports
External debt
Foreign investment
Control variables
Urbanization
International
Monetary Fund Pressure
0.390
R2
Adjusted
Beta
T-value
-0.369
-0.110
0.176
-3.360
-1.100
1.760
0.291
-0.253
2.789
-2.388
debt service and private debt service, load not only on debt dependency but
also on foreign investment.
loadings have some important implications for future research.
The most important finding in this regard is thatprivate debt service has strong
The mixed
loading on the investment factor. This finding is consistent with the fact that
by the 1980s private debt constituted about 50 percent of total debt in the
world. The role of private banks and other private financial institutions be
comes more and more important in theworld system.
This finding has an implication for several studies demonstrating thathigh
levels of foreign investment are associated with high levels of income inequal
1985;Wimberley
ity (Evans and Timberlake 1980; Bornschier and Chase-Dunn
1990; Tsai 1995; Dixon and Boswell
1996). For these studies, itwould be
better to extend themeasure
of investment dependency so that it includes two
other related variables: private debt and private debt service. Future research
should conceptualize foreign investment in broad terms so that conditions for
investment are taken into account. It is not surprising thatpoor countries bor
to build a necessary infrastructure for foreign investment.
row money
The indicators thatwe included in our analysis do not all load significantly
on one factor.As we demonstrated they can be grouped so that they load sig
nificantly on three factors. These three factors are related to each other. The
second-order factor analysis has proved that economic dependency
treated as super construct. The structure of this construct is complex.
can be
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96
INTERNATIONALJOURNALOF SOCIOLOGY
argue that one form of dependency would generate another form of
dependency and influence economic growth. If one country starts trading its
primary products in theworld market, it is very likely that itwill invitemore
We
foreign investment and borrow more money from the outside sources. More
over, the effect of one form of dependency would reinforce the effect of an
other. Since various forms of dependency are locked by one chain, the ultimate
effect of dependency will be stronger than simple summation of effects of
dependencies. If a country like Taiwan has succeeded in its foreign trade,more
foreign investment and other financial resources will be more likely to boost
further trading and other sectors of the economy. In contrast, ifa country such
as Brazil suffered a setback in primary product exports, additional foreign
investments and loans could make the situation worse. The chained effect of
dependency is more powerful because it can influence the whole economic
structure.We provide evidence that some indicators representing three dimen
sions of economic dependency have an effect on economic growth.
Notes
1.To construct thedebt and debt-service variables, two differentdenominators are
used. Multilateral, bilateral, and private debts are all standardizedby totalGNP. These
measure
the amount
of debt as a proportion
of the total gross
national
product.
The
debt
service variables are divided by total export. It is argued thatdebt service divided by
export actuallymeasures thereal burden of debt fora country (Walton and Ragin 1990).
2. Regarding the correlation of error terms,see Bollen (1989).
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