The Dimensionality and Measurement of Economic Dependency

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 overcomes such shortcomings. In particular, we use a confirmatory factor 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 service, as well as the use of capital from abroad–reflect international trade, external debt, and foreign investment in a way that contradicts an established theoretical argument. Moreover, we discovered that three postulated dimensions are related to each other and reflect the overarching construct, economic dependency 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.