Answer to Question #100499 in Macroeconomics for DAgim Worku

Question

Is the neoclassical, free-market theory necessarily incompatible with dependence theory? How might these two approaches work together?

Answer 1

Throughout much of the 1980s, neoclassical theory prevailed. The neoclassical counterrevolution in economic thought emphasized the beneficial role of free markets, open economies, and the privatization of inefficient and wasteful public enterprises. Failure to develop, according to this theory, is not due to exploitive external and internal forces as expounded by dependence theorists. Rather, it is primarily the result of too much government intervention and regulation of the economy.

Dependency theory repudiates the central distributive mechanism of the neoclassical model, what is usually called "trickle-down" economics. The neoclassical model of economic growth pays relatively little attention to the question of distribution of wealth. Its primary concern is on efficient production and assumes that the market will allocate the rewards of efficient production in a rational and unbiased manner. These conditions are not pervasive in the developing economies, and dependency theorists argue that economic activity is not easily disseminated in poor economies. For these structural reasons, dependency theorists argue that the market alone is not a sufficient distributive mechanism.

Dependent states, therefore, should attempt to pursue policies of self-reliance.

Contrary to the neoclassical model greater integration into the global economy is not necessarily a good choice for poor countries.