Session 2
Haggard, Stephen, Pathways from the Periphery, 1990, pp. 9-22
“The Neoclassical and the Dependency Perspectives”
Main argument:
Both neoclassical/liberal and dependency perspectives share a common disability; they neglect
politics and institutions. They ignore how domestic political forces constrain economy policies and
shape state responses to the external environment.
Neoclassical/liberal explanations of economic development

Many problems of developing countries can be traced back to misguided government
intervention.

Nationalist economic policies entail high domestic costs. Import-substitution
industrialization (ISI) is often oligopolistic in structure and characterized by excess
capacity, inefficiency, high mark-up and low-quality output.

Trade and investment relations between developed and developing countries are
conducive to development. Liberal international order encourages upward mobility.

Countries pursuing market-conforming policies, for example, East Asian NICs, benefited
from the participation in the international division of labor, technological adaptation and
entrepreneurial maturation.

Liberals argued that the success of East Asia vindicated their claims.
Weaknesses of neoclassical arguments

They tend to ignore the political dimension of the international economy. Asymmetric
economic interdependence could generate power relationships between countries which
favor the stronger.

The shift from ISI to export-oriented growth was also accompanied by state-led
economic, legal and institutional reforms that the neoclassical explanation generally
ignores.

The success of East Asia rests not only on certain discrete policies but also on the
particular political and institutional context that allowed the NICs to adopt those policies in
the first place.
Dependency perspectives on development

Inspired by Marxist tradition of political economy, dependency theorists posed the most
radical challenge to neoclassical paradigm.

Two underlying assumptions
1) The international economy is conceived as a hierarchically ordered system of
dominance with various mechanisms through which inequality is reproduced.
2) The character of the periphery’s development has largely been a function of the way
in which it was incorporated into the international division of labor.

A “new wave” of dependency writing focused on the relationship between state and
foreign and local firms. There are two main lines of arguments.
1) There is a transnational class coalition, which is “a triple alliance” of states, foreign
firms and local firms.
2)
Foreign firms are the most powerful. Their power vis-à-vis local firms in the market
and their dominant position in the economy constitute a fundamental constraint on
national policy, thus resulting in a restriction of choice among local development
options.
Weaknesses of dependency perspectives

Dependency can also be a result of national policies. The conduct and performance of
MNCs is only an intervening variable between policy choices and economic outcomes.

The view overestimates the importance on foreign direct investment (=MNCs) and rests
on extremely restricted view of how international system constrains state behavior.

Dependency theory is too economistic and apolitical. It ignores political and military
considerations which also influence national policy.

Dependency theory neglects the significance of domestic politics and the wide variation
in state responses to similar situations of dependency. Its structuralist focus draws
attention away from an examination of political forces shaping national policies.