The Effects of International Economic Dependence on Development and Inequality: A Cross-National Study

Abstract

The research reported in this paper studies the effects of a nation's dependent position in the world economy on its economic development and income inequality. Two kinds of international economic dependence are studied: investment dependence, the penetration of a country by foreign capital and debt dependence, the dependence of a government on foreign credit. The dependent variables studied include three measuresofaggregate economic development: gross national product per capita, kilowatt hours of electricity consumed and the percentage of the male labor force not employed in agriculture. In addition, two control variables are included in the analysis: domestic capital formation and the extent to which the national economy is specialized in mining. The research design employed is panel regression analysis, which utilizes data at two points in time (1950 and 1970). The results indicate that both types of international economic dependence have overall negative effects on aggregate economic development. A cross-sectional estimate of the dependence effects on income inequality produces positive, though not statistically significant effects. It is concluded that dependency theories predict the effects of inputs from advanced nations to less-developed ones better than neo-classical international economic theories or sociological modernization theories.