Economic Development

There is no one accepted single theory of economic development. Dependency theory, as the name suggests, focuses on the dependence of developing countries on rich countries. The term 'developing country' could be defined as middle to low per capita GDP. It is often approached from a Marxist perspective. It can also be approached from the perspective of helping poorer countries become politically and economically self-sufficient. The neo-classical revival may produce efficient markets but it has no answers for poverty reduction.

Many of the developing countries were once under the control of a colonial power. They were under political control and were also affected economically. Even after independence there may be ties that are difficult to break. Industries started by colonial powers may be serving the needs of the colonial power more than their own. The profit motive is still a reason for business interest in these emerging markets. They are an opportunity to make large profits quickly in financial markets. They are also a sales opportunity for consumer goods. These developing countries also need infrastructure. So there are a number of diversification opportunities but they are above average risk and have high transaction costs. Specialist local knowledge is key.

The world's political and economic order is dominated by powerful nations and multinational corporations. It is also a cause of inequality. Rapid globalisation led by the world's biggest economies is marginalising the poorest countries. The culture of dependence is said to hold back development. Conventional economic growth may not be the answer for all of their economic problems. They aren't all capitalist countries. What works in one place may not work in another. As these countries and the whole theory of economic development are still new, reliable economic models for transition do not yet really exist. There are some indices that can be used in selecting markets, but the efficiency of these markets needs to be tested. Empirical data is lacking and imperfect information is all potential investors have to make their decisions.

Poorer countries remain poor if they are controlled by corrupt governments more interested in power and wealth than development. Social problems in health and education, famine and malnutrition that often accompany this do not help.

So much for the analysis, but what can be done about it? Poor countries need to trade more with conditions of peace, democracy and the rule of law. Following that there are 2 main schools of thought. Those in favour of trade liberalisation and market reform which is the position of the ‘Washington consensus’, the WTO, the IMF and the World Bank, and those supporting more government intervention and international action, the favoured position of UNCTAD. As there are 2 strong but different positions there is no consensus and therefore the debate is ongoing.

Policies are needed to change the balance of political and economic power between rich and poor countries. They should have more representation at the international institutions. Foreign policy should also be supported by domestic political, social and institutional reforms and direct government action on economic development.