Modernization, Dependency, and the State in Asia, Africa, and Latin America

Abstract

A regression analysis of 92 Asian, African, and Latin American countries during 1970-85 produced the following results: (1) The effect of external debt on industrial growth is positive and statistically significant at high levels of state coercive capacity. (2) This effect is negative and statistically significant at low levels of state coercive capacity. (3) At middle levels of state coercive capacity external debt registered no effect. Based on these findings this paper puts forward the following three arguments: First, the modernization hypothesis of a positive relationship between external debt and industrial growth is more likely if state institutions are strong and capable. Second, the dependency hypothesis of a negative relationship between external debt and industrial growth is more likely when state institutions are weak and relatively incapacitated. Finally therefore, these two perspectives may be studied as special cases of a grander theory of development.