Trade Strategy and the Dependency Hypothesis: A Comparison of Policy, Foreign Investment,
and Economic Growth in Latin America and East Asia
Author(s): Simeon Hein
Source: Economic Development and Cultural Change, Vol. 40, No. 3 (Apr., 1992), pp. 495-521
Published by: The University of Chicago Press
Stable URL: http://www.jstor.org/stable/1154573 .
Accessed: 15/07/2011 21:05
Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless
you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you
may use content in the JSTOR archive only for your personal, non-commercial use.
Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at .
http://www.jstor.org/action/showPublisher?publisherCode=ucpress. .
Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed
page of such transmission.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.
The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to
Economic Development and Cultural Change.
http://www.jstor.org
Trade Strategy and the Dependency Hypothesis:
A Comparison of Policy, Foreign Investment,
and Economic Growth in Latin America
and East Asia*
Simeon Hein
Washington State University, Pullman
Introduction
The role of state policy in the industrialization of Third World nations
has become the subject of increasing interest in recent years. In the
past, the debate over economic development has either focused on
the traditional modernization approach' or the dependency theory of
underdevelopment.2 Dependency theorists base their model of devel-
opment on the belief that foreign investment from core countries is
harmful to developing nations' long-term economic growth. Economic
relationships between the core and the periphery are structurally detri-
mental for the latter because of the inherent dynamics of international
capitalism. Yet, despite the claims of dependency theory, the recent
experience of the East Asian newly industrialized countries suggests
a wider range of development possibilities which include government
policies specifically designed to attract foreign investment. These
countries appear to have structured their domestic economies in order
to mitigate the pernicious effects of dependent relationships with core
countries. This raises new questions about the development process
and the role of policy and foreign investment in the economic transac-
tions between core and peripheral countries.
Dependency theory, a neo-Marxist predecessor of world-systems
research, claims that First World nations become wealthy by ex-
tracting surplus labor and resources from the Third World. Capitalism
perpetuates a global division of labor which causes the distortion of
developing countries' domestic economies, declining growth, and in-
creased income inequality.3 Those countries on the periphery cannot
become fully modernized as long as they remain in the capitalist world
? 1992 by The University of Chicago. All rights reserved.
0013-0079/92/4003-0004$01.00
496
Economic Development and Cultural Change
system. To get out of this economically debilitating relationship, Third
World nations must develop independent of foreign capital and goods.
Applied specifically to Latin America by the dependency theorists,
this theory became an ideology and the basis for official policy in the
1970s and was predicated on import substitution and a hostile attitude
toward foreign investment. Import-substituting industrialization at-
tempts to generate wealth through the domestic production of goods
that were previously imported from the international market. It is ac-
complished through tariffs and other barriers which make foreign
goods less competitive with local manufacturing. This type of protec-
tionist strategy can produce economic growth for a finite period of
time but is not a permanent development solution because it causes
higher prices and the market for consumer and industrial goods eventu-
ally becomes saturated. These inwardly oriented policies appear to
have had a harmful effect on Latin American economies, particularly
those in the Southern Cone, which have done poorly in the last de-
cade.4 Not all Latin American countries have had the same economic
experience. Brazil had moderately open policies toward foreign invest-
ment for many decades, large amounts of foreign investment, and until
recently sustained real economic growth.' However, these policies
generally represent an exception to those of the region.
In contrast to most of Latin America, the East Asian countries
have sustained economic growth despite dependency on core coun-
tries.' Countries such as Taiwan and Korea used import substitution
strategies in the 1950s and deliberately shifted to export-led growth in
the early 1960s. Hong Kong and Singapore, as entrepot economies,
have long been outward oriented with brief periods of import-
substituting industrialization.7 One aspect of these policies was to de-
liberately attract foreign investment into the domestic economy. This
entailed foreign capital inflows through tax exemptions and investment
guarantee treaties. These policies are concomitant with economic
growth in East Asia during the 1970s and 1980s.
The basic contention of this article is that dependency theory can-
not explain the experience of the Pacific Rim nations and therefore
is not a general explanation for Third World economic development.
Although it may be appropriate as a partial explanation of Latin Amer-
ica's economic underdevelopment, it is unable to describe the full vari-
ety of economic relationships that exists between core and peripheral
countries. These interactions produce differing outcomes depending
on nations' policies, endowment of natural resources, proximity to
other countries, and unique historical heritage. The dependency ap-
proach to development may be applicable to specific regions of the
world at certain historical periods, but its ability to generalize to other
cases is limited.8
Simeon Hein
497
Background and Theoretical Propositions
One of the central propositions of the dependency hypothesis is that
international capitalism underdevelops Third World nations. If surplus
wealth is taken from the Third World by multinational corporations,
the economic performance of developing countries suffers to the bene-
fit of foreign capital. The profits that accrue from use of indigenous
labor and resources are not reinvested in the host country, and this
stifles development. This flow of wealth could be measured by the
multinationals' net profits overseas. Developing countries gradually
lose control of their domestic economy or suffer distorted develop-
ment. If the dependency theory is valid, one would expect that rates
of economic growth are slower the higher the level of foreign capital
penetration into the domestic economy (fig. 1).
The dependency school arose as a response to the traditional theo-
ries about modernization that were popularized by Rostow and others
in the 1950s. In the modernization theory, all countries go through a
similar set of economic stages of growth which eventually culminate
in a fully industrialized society. Capitalistic development is presented
as an entirely beneficial economic process that propels industrializa-
tion and the transformation of Third World nations into modern societ-
ies. In addition to Rostow, members of the Chicago school, such as
Milton Friedman, claimed that free trade was the key to economic
growth and that autonomous development was detrimental to it. Both
positions had adherents in Latin America who tried to implement these
beliefs through policy. Developed within the United Nations Economic
Commission for Latin America, the dependency approach claimed that
underdevelopment was a condition imposed and fostered by the capi-
talist system. Modernization would never happen in some regions be-
cause their underdevelopment furthered the interests of foreign capital.
Though countries attempting to develop autonomously often em-
ploy import substitution or protectionism, the latter policies do not
necessarily imply hostility toward foreign capital. Protectionist legisla-
tion, used by some nations to shelter domestic production from foreign
competition, can be a separate issue from policies concerning foreign
investment, ownership, and operations of multinational firms. How-
Foreign capital and surplus
-, Loss of control and wealth to
multinational
penetration
of
foreign powers
economy
Underdevelopment
and economic
stagnation
FIG. 1.-The dependency hypothesis
498
Economic Development and Cultural Change
ever where autonomous development is favored, protectionism is also
likely to find support because restrictions on imports and foreign own-
ership concomitantly reduce dependency on the international econ-
omy. In the countries studied here protectionism and import substitu-
tion are part and parcel of a strategy based on the ideal of economic
autonomy.
Another set of explanations of underdevelopment was created by
Immanuel Wallerstein, who argued that capitalism created a world
system that was globally stratified into a core, a semi-periphery, and
a periphery.' This relationship was shaped by economic and technolog-
ical imperatives which allowed Europe to turn premodern indigenous
societies into colonies that provided them with labor and resources
and new markets. The global system of stratification served to increase
the wealth of the core countries that actively sought to keep the periph-
ery underdeveloped in order to exploit it better. Therefore, the periph-
eral nations were kept in an economically backward state so that the
industrialized nations could accumulate wealth.
The Wallerstein world system built on the work of dependency
school theorists and shared many of the same essential principles.
Capitalist development via foreign capital only benefits the First World
nations and serves to underdevelop the Third World. The dependency
school believed that the only way to industrialize in a way that bene-
fited Third World nations was to remove foreign capital and goods
from their economies through import substitution and protectionist
measures. These policies, coupled with nationalist sentiments, particu-
larly in Latin America, became an ideology in which foreign capital
was portrayed as being intrinsically harmful while domestic industry
and capital were inherently beneficial to the country.
Wallerstein's model presents economic development in a mecha-
nistically deterministic manner where every nation's future is shaped
solely by its historical position in the world system. Strategies for
growth and national policy have no impact on development because
the world system as a whole determines a country's destiny. Ostensi-
bly, there is no way out of the world system short of becoming eco-
nomically autonomous from it. The model also oversimplifies the char-
acterization of the economic actors. Multinational corporations, for
example, are seen as entities representing the core's interests whose
motivations and actions stem entirely from their position in the world
system. This is theoretically problematic because it implies that foreign
investment has a different economic effect depending on which coun-
try it comes from. Is all foreign investment necessarily detrimental to
the peripheral country or only when it comes from the core? The
theoretical mechanisms by which foreign investment and dependency
are expected to interact are unclear.
H. B. Chenery and P. Eckstein present an alternative develop-
Simeon Hein
499
ment model based on data from Latin America."1 In this model, foreign
investment is conducive to domestic development by providing needed
capital that the domestic economy is unable to produce. In the long
term, inflows of capital reduce external resource costs by helping to
promote exports and import substitution. Foreign investment may
compensate for a low rate of savings or a gap between the value of
exports and imports. In this manner, foreign investment temporarily
fills these potential gaps in savings and trade and is positively related
to economic growth. Inflows of foreign capital foster economic devel-
opment and may eventually reduce dependency.
Asian Development and Dependency Theory
In contrast to Latin America, some of the East Asian nations have
experienced economic growth in the context of dependent develop-
ment. This has been accomplished through consciously formulated
state policies. During the 1950s and early 1960s some of the East Asian
nations developed with import substitution and protectionism. The
economies of such nations as Korea and Taiwan were inward oriented
in the same way that many Latin American nations are today. How-
ever, policies were later initiated to attract foreign investment, and
this has produced flexible, dynamic economies with high rates of
growth. The essential questions here are: To what extent have their
improved economic conditions been the result of these policies? What
is the appropriate role of the state in regulating economic activity? If
these policies can be shown to be responsible for faster economic
growth, could they be duplicated in newly industrialized countries in
other regions of the world?
The Asian policies of export-led growth of the 1960s and 1970s
were based on a strategy which was responsive to changes in the world
economy and included attempts to attract foreign investment. Taiwan,
Hong Kong, and Singapore all have relatively small domestic markets
and resource bases. Given the exhaustion of import substitution by
the 1960s, export-led growth became a necessity." The second set of
would-be newly industrialized countries (NICs), Malaysia, Indonesia,
Thailand, and the Philippines, can still count on internal growth be-
cause of larger domestic markets and natural resource bases available
to them. Therefore, an export-led strategy that includes agrarian re-
form and production of industrial and consumer goods is not necessar-
ily desirable or plausible in countries where the domestic economy still
offers a basis for growth. Some of the Asian countries have used vary-
ing degrees of protectionism in order to assist newly formed industries
in computers and automobiles, for example, as in the case of South
Korea. Therefore, an outward-oriented strategy may contain import-
substituting measures such as import controls.12 The basic principle of
an outward-oriented strategy is that the aggregate effect of all policies
500
Economic Development and Cultural Change
should be to neither discriminate in favor of exports nor bias against
import substitution.13 In South Korea, protection of domestic manufac-
turing is balanced by export incentives. Inward-oriented countries,
such as Chile from 1963 to 1973, have direct controls, quotas, and
licensing schemes on the export sector in addition to incentives for
domestic protection.
In some outward-oriented economies openness to foreign capital
is decreasing as the prosperity of the country increases. This suggests
foreign multinationals might have only a temporary place in export-led
growth. Both South Korea and Taiwan have relied on martial law
to maintain order over populations that want economic and political
reforms; it should not be assumed that liberal trade policies are neces-
sarily consistent with democratic practices or open regimes, at least
not initially. Export-based policies seem to fit into an overall process
of development, which at different times includes both outward- and
inward-oriented economies.
The experience of the Asian NICs directly challenges many of the
tenets of the world-system approach and the dependent development
school. R. E. Barrett and M. K. Whyte argue that Taiwan meets all
the criteria of dependent development and yet has not displayed any
of the expected signs of economic consequences.14 Taiwan was a Japa-
nese colony from 1895 to 1945 and therefore had its economic infra-
structure established from without. It received aid from the United
States in the 1950s and foreign investment in the 1960s."5 Accordingly,
Taiwan should have exhibited disadvantageous economic aspects of
dependency by the 1980s, yet this has not occurred. Therefore, the
dependency theory does not have universal applicability. Others have
argued that Taiwan's particular historical experience as a Japanese
colony and recipient of U.S. aid produced a unique infrastructure fa-
vorable to economic growth.16
Any comparison of Latin America and East Asia must recognize
the historical differences that make cross-national analysis difficult.
The colonial experiences of these areas differ greatly and might make
dependency theory more applicable to Latin America. For instance,
though Taiwan and Korea were Japanese colonies they never experi-
enced the large-scale migrations of settlers as did Latin America. Fur-
thermore, the colonial economy of Latin America was clearly estab-
lished as a permanent social structure designed to send raw materials
back to Europe. While some of the Asian countries, such as Indonesia
and Malaysia, were colonized, there was no permanent settlement of
these countries by Europeans. Yet, in the East Asian countries the
small farmer became an established element of the social structure and
economy. These variations in national development necessitate new
interpretations of the dependency theory.
Although the theory implicitly recognizes that policy does play a
Simeon Hein
501
role in economic development, the full ramifications are never devel-
oped. Policy is intrinsically linked with the state, and a theory that
attempts to explain variations in development must deal with this rela-
tionship. If the state can establish import-substituting strategies can it
also successfully encourage export-oriented industries as a basis for
growth? Developing nations may be able to alter the perceptions of
investors in such a way as to attract an inflow of foreign capital. Also,
foreign investment might have different economic effects depending
on existing state policies. Therefore, official policies could affect how
foreign investment interacts with the domestic economy.
Countries that have outward-oriented policies are expected to at-
tract more foreign investment, while the opposite would be true of
autonomously developing nations. This is because those outward-
oriented countries produce for both domestic and foreign markets. One
relevant criticism of the Asian development model is that its economic
policies could be a function of its linkages with the First World. F. C.
Deyo suggests that aid and loans from the United States in the 1950s
to South Korea and Taiwan could have had institutional consequences
that affect current economic policy." Similarly, Hong Kong's liberal
trade regulations are a function of its status as a colony of Great Brit-
ain. S. Haggard and T. Chang point to unique conditions fostering East
Asian development, specifically relations with Japan and the United
States, which would be unlikely to exist elsewhere.'8
Empirical Studies
Dependency theory has been the subject of many empirical studies in
recent years, particularly concerning the effects of foreign investment
on economic growth and income inequality. These studies can gener-
ally be divided into two groups: those that look either at accumulated
foreign investment (stocks) or at current investment (flows), and some
that analyze both.'9 V. Bornschier and C. Chase-Dunn argue that for-
eign investment has a short-term positive effect on economic growth
and a long-term negative effect. C. Stoneman was one of the first to
test for these effects and found they were supported by data from a
world sample taken in the 1950s and 1960s. In Stoneman's study,
stocks and flows are basically found to have equal but opposite effects,
which is consistent with the theory. Other comparable studies have
been done using larger samples and other measures of dependency.20
In general, the results of these efforts show that flows of foreign invest-
ment do indeed have a short-term positive effect on economic growth.
P. Evans and M. Timberlake focus on the role of foreign invest-
ment and technology in creating pernicious changes in the structure of
the labor force.21 Specifically, they argue that dependency creates
growth in the tertiary labor market and the bulk of these new jobs are
unskilled and low paying. This uneven growth of the labor market is
502
Economic Development and Cultural Change
harmful in the long run and evolves solely to meet the needs of foreign
capital.
M. B. Dolan and B. W. Tomlin weight foreign investment by the
square root of energy consumption times the population of the country
for the same reasons.22 A common way to standardize foreign invest-
ment is to divide by the gross domestic product (GDP), as is done in
this study. This method for standardization is justified because it con-
trols for the economic output of the countries in the sample through the
original process of selection: only middle-income nations have been
selected.
J. D. Sachs argues that regulation of multinationals is a self-
fulfilling prophecy for Third World states."2 This notion is supported
by V. Bornschier and C. Chase-Dunn, who argue that regulation of
multinationals is empirically linked with declining growth rates.24 Para-
doxically, countries that impose few regulations provide no incentives
for unfair trade practices and so establish a more straightforward in-
vestment climate. It appears then that perceptions of economic interac-
tions between investors and host countries can have significant out-
comes for development.
R. W. Jackman points to the internal theoretical contradictions
within dependency theory and concludes that foreign investment has
a positive effect on wealthier Third World countries and no effect on
the poorer ones.25 Furthermore, Jackman is able to show that the effect
of foreign investment on economic growth is spurious when crude
birth rates are included in the equation. Countries with high fertility
experience slower growth per capita GNP regardless of their level of
dependency.
The relationship between population growth and economic devel-
opment is complex. A steady-state economy with a constant rate of
consumption and savings that experiences rapid population growth will
suffer lower levels of per capita consumption. However, there is also
some evidence that population growth may be a catalyst for economic
growth. Such factors as the size of labor force, economies of scale,
and population-induced innovation all relate positively to economic
growth.26 Nevertheless such variables as age-sex structure, migration,
and institutional effects create additional interactions such that the
effect of population growth on economic growth varies according to
the conditions in each country.
A Policy-Development Model
In the following sections I present a model of the way in which national
trade strategy, foreign investment, and economic growth might inter-
act. I am specifically interested in testing the proposition that semipe-
ripheral states can make a difference in their economic conditions
through consciously formulated policy. In Latin America, a policy of
Simeon Hein
503
Latin America
Inward-oriented
-
Import substitution
closed to -, Slow growth
policy
foreign investment
East Asia
Outward-oriented
Favorable to export-led
-
Rapid growth
policy
growth conducive to foreign
investment
FIG. 2.-The policy-development model applied to Latin America and
East Asia.
autonomous development leads to an inward-oriented economy based
on import substitution, while the outward-looking Asian countries seek
economic interaction with the international economy, which leads to
growth (fig. 2).
Figure 2 presents a simplified hypothetical model that could gener-
ally describe Latin American and East Asian development. Here, pol-
icy is expected to attract or repel direct foreign investment. Two di-
chotomous types of policy are defined: import substitution and
export-led growth. These policies are official policy and determine
the investment climate for foreign capital. Foreign investment affects
economic growth by stimulating the domestic economy and creating
new industries. Growth is expected to be slower where there is little
foreign investment.
In addition, the current level of development, as measured by the
population growth rate, is included in the regressions to determine its
effect on flows of foreign investment (see table 2). With the exception
of the oil-based Middle Eastern countries, the population growth rate
tends to be inversely related to per capita income.27 Therefore, the
population growth rate can be used as a proxy for the level of develop-
ment. The expected direction of this relationship is uncertain because
less developed nations with high rates of population growth may be as
favorable to foreign investment as countries with more stable demo-
graphic characteristics.
Geographical regions could have unexplained effects on foreign
investment-for instance, on the cultural perceptions of investors-
and so are included in the regressions as well. Also, other factors, not
measured here, might affect where multinationals locate their opera-
tions. These include the strength of unions, labor costs, the size of the
domestic market, and other economic aspects. The region variables
account for factors not specifically tested here. It also can be inter-
preted in a broader sense to include differential historical development
such as length and type of colonialization.
Political instability is included as theoretical antithesis to state
504
Economic Development and Cultural Change
policy. While favorable policy encourages foreign investment, state
instability, as measured by unfriendly government takeovers, is ex-
pected to have a negative effect. Dependency theory has defined global
relationships between the First World and the Third World in exclu-
sively economic terms. However, dependency may also have political
effects independent of the economic ones. Does dependency affect the
stability of the state? If it can be shown that states can effectively
mediate the effects of dependency through policy, then the theoretical
tenets of the dependency hypothesis are weakened.28 This model at-
tempts to determine the relationship between political instability, de-
fined as irregular transfers of power, and foreign investment.
The second part of this model investigates the causes of variation
in economic growth (per capita gross national product growth rate,
1973-82). The same independent variables as above are tested, al-
though their theoretical meanings change slightly in this context. In
addition, per capita GNP in 1973 (GNPPC73) is added to regressions
(6) and (8) in table 2 as a measure of the initial level of per capita
wealth and acts as a control on the dependent variable. Also, the
population gro'wth rate is measured from 1965 to 1973 in order to pro-
vide a time lag with the average annual per capita GNP growth rate.
The most relevant independent variable here is foreign investment.
The effect of flows of foreign investment on economic growth is pre-
dicted to have a short-term positive effect. Most dependency theorists
agree with this finding; however, here the length of the lag is slightly
longer than short-term. The effect should still be slightly positive if the
dependency theorists are correct. One problem is the disagreement
over what constitutes a short-term or long-term lag. M. B. Dolan and
B. W. Tomlin suggest that 3-6 years is long-term, while P. McGowan
and D. Smith consider 8 years to be short-term.29 Regressions (5)-(8)
in table 2 in this article use an overall lag of 12 years which, judging by
the length of time used in most dependency studies, can be considered
medium-term. V. Bornschier and C. Chase-Dunn and J. L. Ray and
T. Webster argue that dependency as measured by flows of foreign
investment correlates positively with per capita economic growth.30
In addition to foreign investment, the population growth rate is
added to the equation as a control variable to test for a negative rela-
tionship with economic growth in a similar way to Jackman. Though
Jackman used crude birth rates, the relationship here is expected to
be the same. Also, political instability is expected to have negative
consequences on the economy and is included as another intervening
variable. Here again, it is possible that the actions of the state super-
sede the effects of foreign investment and dependency relationships.
Long-term economic growth is, in fact, highly dependent on state inter-
vention and the efficacy of the political system.
Simeon Hein
505
State policy can have an effect on economic growth independent
of foreign investment through the organization of the economy and
general economic policy. Three categories of policy need to be exam-
ined: inward oriented, neutral, and outward oriented. These categories
define the orientation of the country toward the international economy
and they might also indirectly affect economic growth independent of
foreign investment.
Methods
The analysis attempts to break the model down into two relationships.
The first regression in table 2 tries to ascertain the effect of government
policy on flows of direct foreign investment which is measured and
summed from 1970 to 1973 and standardized on the summed GDP for
the same period. In some countries, foreign investment tends to fluc-
tuate greatly from year to year. For this reason the foreign investment
variable is averaged over 4 years in order to increase the reliability of
the measure. The specific time period 1970-73 is chosen because it
allows for a lag with the period of per capita economic growth,
1973-84. This takes into account the multiplier effect of investment
that manifests itself in the economy later on. This measure of foreign
investment does not include loans or other public aid flows, and the
data were collected from a sample of 41 lower- and upper-middle-
income East Asian, Latin American, Central American, Caribbean,
and African countries.31
The point here is to see whether outward-oriented policies attract
more foreign capital than their inward-looking, protectionist counter-
parts. Policy is measured by whether the economy is based on
outward- or inward-oriented strategy. One dummy indicates an out-
ward orientation and the other a protectionist, inward orientation.
Countries that are neutral, meaning with no specific trade orientation,
or that have mixed policies are in the omitted category.32 Nations with
a more moderate policy, such as Brazil and Thailand, are also in the
omitted category. Only those countries that have extremely outward-
or inward-oriented policies were coded. This coding scheme, there-
fore, is designed to test only policy that is clearly representative of
one approach or the other.
The first set of regressions, (1), (2), (3), and (4) in table 2, with
foreign investment as the dependent variable, uses policy measured
from 1963 to 1973. Hong Kong, the Republic of Korea, Singapore,
and Taiwan are coded as strongly outward-oriented (OUTWARD73);
Argentina, Chile, Dominican Republic, Peru, Turkey, Uruguay, and
Zambia as strongly inward-oriented (INWARD73).
In addition, two other measures, the average annual population
growth rate for 1960-70 (POPGR70) and the number of irregular execu-
506
Economic Development and Cultural Change
tive transfers (COUPS) between 1963 and 1973, are included in order
to help explain regional effects. Population growth rate is included to
determine if Jackman's results are replicated in regard to population
growth's negative effect on per capita GNP growth. In the first four
regression equations the population growth rate, 1960-70, is used as
a control variable by being regarded as a crude measure of the level
of development. The measure of irregular executive transfers is used to
determine if political instability has an effect on foreign investment.33
Two region dummy variables are used to determine if foreign in-
vestment and economic growth are contingent upon unexplained fac-
tors associated with different geographical areas of the world. Asia
and Latin America each have an associated dummy and the other
regions such as the Caribbean, Central America, and Africa are coded
with zeros in order to place them in the "OTHER" category. These
nations are all middle income, and the smaller sample represents a
core set of Asian and Latin American countries for comparison. The
region categories are regressed on the dependent variables separately
and together with the full equations in order to see whether region has
an unexplained effect on foreign investment and economic growth.
This is consistent with V. Bornschier and C. Chase-Dunn's findings
that regions could have effects independent of other variables.34 Over-
all, it is known that Asia and Latin America differ structurally, geo-
graphically, and culturally as well as in terms of policy, and the region
variables are supposed to account for these variations.
The second test regresses economic growth, which is measured
using the average annual growth rate of per capita GNP during 1973-82
(GNPPC), on foreign investment from 1970 to 1973 (FORINV). The
measure of foreign investment is standardized on GDP in the same
way as above. This adjusts the foreign investment to the size of each
country's economy. The ratio of foreign investment to GDP is multi-
plied by 1,000 in order to move the decimal place of the coefficients
for easier analysis of the regressions. The point here is to see if the
lagged effect of foreign investment on per capita GNP growth is posi-
tive. Dependency theory explicitly states that foreign investment, in-
cluding loans and officially sponsored aid programs, while initially
stimulating to the domestic economy, produces negative effects on per
capita GNP growth only in the long run. Economic growth is regressed
on policy in order to determine if the latter has an indirect effect apart
from foreign investment. The policy was coded for 1973-85, which
corresponds to the years in which economic growth was measured. In
this test Hong Kong, the Republic of Korea, Singapore, and Taiwan
are strongly outward-oriented (OUTWARD85); strongly inward-
oriented (INWARD85) nations are Argentina, Bolivia, the Dominican
Republic, Nigeria, Peru, and Zambia.
Additionally, per capita GNP in 1973 (GNPPC73) is included as a
Simeon Hein
507
control for the initial levels of economic development. The population
growth rate for 1965-73 (POPGR73) is used to test if economic growth
is related to population growth. Middle-income countries with higher
rates of population growth might be expected to sustain slower eco-
nomic growth in the short run. Also, the measure of political instability
for 1963-73 (COUPS) is included to test for its effect on economic
growth.
The regression analyses are divided into two samples: one in-
cludes the larger world sample and the other consists of only Asian
and Latin American countries. The point of this study is to compare
Asia and Latin America; however, the world sample is included as
well in order to determine if the same relationships between variables
apply in other regions. Questions regarding the role of policy have
focused mainly on Asia and Latin America because of the apparent
contrasts between them. However, the role of foreign investment in
economic growth, as well as population growth and political instability,
is relevant in all countries, which justifies a world sample.
The regression analyses themselves are done using weighted least
squares procedures. Because the residuals for foreign investment and
gross domestic product are dependent on the size of the country, the
variances of the error terms are unequal due to heteroskedasticity.35
Each case is weighted by the inverse of the difference between the
predicted value in ordinary least squares (Appendix B) and the ob-
served value. This has the effect of reducing the weight of those cases
that have the greatest error terms. Another problem with the distribu-
tion of foreign investment is that it is positively skewed as a result of
the relatively small inflows to Latin America compared to Asia;
weighting serves to correct this problem as well. The OLS and GLS
regressions are both included for comparison. The t-tests are per-
formed with only one tail because the expected direction of the beta
coefficients is in one direction. Where p < .1, the test is considered
significant.
The point of this analysis is, first, to determine whether nations'
policies affect the amount of foreign investment they receive. This is
useful in understanding the extent to which internal political and eco-
nomic processes and structural arrangements affect external phenom-
ena such as decisions made by multinational firms. Are developing
nations vulnerable to the effects of foreign capital, or do their own
decisions have an impact on the activities of multinationals? Second,
does foreign investment have uniform and predictable effects on devel-
oping economies as dependency theorists claim? Many other variables,
such as the initial level of modernization or the culture of the region,
may have an important impact on how an economy develops. If policy
has a significant impact, then it shows that underdevelopment is not
solely due to interference by outside economic powers. Rather, it
508
Economic Development and Cultural Change
could be produced by the interaction between policies and investment,
both foreign and domestic.
Results
Table 1 shows the means and variances of the variables in total sample
and for each region. The table shows that the Asian countries receive
more than 26 times the amount of foreign investment, relative to the
size of their economies, as do the Latin American countries. It also
appears that the mean level of foreign investment in Latin America is
far lower than that of the total sample. The mean per capita GNP
growth rate is more than twice as high in Asia as in Latin America and
nearly four times that of the 21 middle-income countries in the "other"
region category. The average annual population growth rate, 1965-73,
for Asia and Latin America is slightly higher than the total sample.
Latin America has had more political instability than Asia as measured
by the number of coups d'etat between 1963 and 1973. The regressions
in table 2 are arranged with foreign investment and per capita GNP
growth as dependent variables. The eight regression equations are de-
signed to test, first, the hypothesis that the effects of policy, political
instability, and the level of development are in fact the explanation for
different levels of foreign investment. Second, that policy, political
instability, foreign investment, and population growth explain per cap-
ita GNP growth.
In the first regression, the region variables for both Asia and Latin
America are highly significant with opposite signs. This shows that
Asian countries inherently attract more foreign investment than Latin
American countries. The omitted category contains those middle-
income countries in the Caribbean, Central America, and Africa. In the
second regression, the magnitude and significance of the Asia region
dummy disappears while the Latin region dummy coefficient decreases
slightly and becomes less statistically significant. This shows that some
of the region effects on foreign investment are partly a result of other
variables, particularly outward-oriented trade policy. The level of de-
velopment, as measured inversely by the population growth rate, has
a negative effect on foreign investment but is not significant. Political
instability has a negative effect on the dependent variable but is only
marginally significant (p < .13).
In regression (3), the smaller Asia/Latin America sample, region
again has a large, significant effect on foreign investment. The omitted
category is Latin America, and the Asia coefficient shows a strong
positive effect. When the other variables are included in the full regres-
sion (4), the effect of the region dummy variable decreases and is no
longer statistically significant. As in regression (2), outward-oriented
policy has a large significant, positive effect. Inward-oriented policy
has a smaller negative effect on foreign investment but is not signifi-
Simeon Hein
509
TABLE 1
MEANS AND VARIANCES
N
Means
SD
Total sample:
Foreign investment
41
13.47
24.99
Per capita GNP
41
2.12
2.55
POPGR73
41
2.34
.86
COUPS
41
.44
.81
Asia:
Foreign investment
9
24.76
24.10
Per capita GNP
9
4.30
2.29
POPGR73
9
2.40
.41
COUPS
9
.00
.00
Latin America:
Foreign investment
11
.93
8.59
Per capita GNP
11
2.15
2.34
POPGR73
11
2.45
.85
COUPS
11
1.00
1.10
Other:
Foreign investment
21
15.19
28.86
Per capita GNP
21
1.17
2.26
POPGR73
21
2.25
1.01
COUPS
21
.33
.66
cant. This supports that part of the policy-development model trying
to explain differential levels of foreign investment in Asia and Latin
America and indicates that protectionism and import substitution
might be inimical to foreign capital. Also, political instability has a
positive but marginally significant effect (p < .13). Overall, these four
regressions show that policy affects foreign investment and that politi-
cal instability may also have effects.
The next set of regressions looks for effects of the independent
variables on economic growth. In the world sample, regression (5), the
Asian region, has a significant, positive effect; however, Latin America
also has a less significant, smaller, positive effect with respect to the
omitted region. This means that middle-income countries in Asia and
Latin America enjoy higher rates of economic growth than those in
the other areas of the world. The effect of Asia on economic growth
decreases in the full regression (6), while Latin America increases
slightly and becomes more significant, which indicates unexplained
region effects on economic growth. Outward-oriented policy, how-
ever, has a significant, positive effect on economic growth, while the
inward-oriented policy dummy has an equally large negative effect.
Given the range of the dependent variable, per capita GNP growth
rate, the effects of policy here can be considered large. Therefore,
Latin American countries do not necessarily experience slower eco-
nomic growth per se-the Latin region coefficient is positive-but
TABLE 2
WEIGHTED LEAST SQUARES, DETERMINANTS OF FOREIGN INVESTMENT, 1970-73 AND PER C
FOREIGN INVESTMENT
Total Sample
(1)
(2)
(3)
p
SE(P)
P
SE()
P
ASIA
9.574
3.406**
.353
6.956
22.443
3
LATIN
- 12.868
2.502**
-7.201
3.455*
OTHER..
......
OUTWARD73
...
14.750
8.054*
...
INWARD73
..
-7.931
6.660
...
NEUTRAL73
...
POPGR70
.
...
-3.732
3.788
...
COUPS
..
.. .
-4.439
2.845
...
CONSTANT
13.620
1.866**
25.501
11.842*
. ...
Adjusted R'
.5719**
.3732**
.7407**
N = 41
t-A
PER CAPITA GNP GROWTH
Total Sample
(5)
(6)
(7)
3
SE(3)
P
SE(3)
P
S
ASIA
3.102
.475**
1.741
.455**
1.930
LATIN
1.171
.490*
1.874
.388**
............
OTHER..
.......
OUTWARD85
. . ....
2.480
.840**
......
INWARD85
...
...
-2.321
.553**
...
NEUTRAL85
...
...
FORINV
...
..
.007
.012
...
GNPPC73
...
...
- .000
.000
.....
POPGR73
.....
- .588
.280*
...
COUPS
...
...
- .505
.273*
. . .
CONSTANT
1.279
.253**
3.079
.875**
2.450
Adjusted R2
.5252**
.7129**
.3503*
N = 41
*
p < .10; one-tailed significance test.
** p < .02; one-tailed significance test.
t.m
512
Economic Development and Cultural Change
those attempting autonomous development do. This is clear evidence
that economic performance is partially contingent on official policy.
The population growth rate has a smaller, significant negative effect
on economic growth. Political instability also has a small, significant
negative effect. This indicates that factors independent of official pol-
icy, region, or position in the world system are important-and this
lends some support to the theory presented in this article. Most impor-
tant, foreign investment has no effect on medium-term economic
growth, which is inconsistent with the conclusions derived from both
the policy model and the dependency hypothesis. Here, policy, region,
demographic, and, possibly, political factors are more important than
economic dependency.
The smaller Asia/Latin sample, regressions (7) and (8), shows dif-
ferent results with respect to region. The effect of Asia is significant
in the restricted regression and smaller and insignificant when added
to the full regression. The policy variables for the outward-oriented,
and especially for the inward-oriented, economies have large, statisti-
cally significant effects in regression (8). The control variable, per cap-
ita GNP 1973, is also significant but the beta coefficient is very small.
When per capita GNP 1973 is removed from the regression, the statisti-
cal significance of outward-oriented policies increases. Therefore,
some of the apparent effects of outward-oriented policy on economic
growth might in fact be due to a greater initial amount of per capita
wealth in these East Asian countries in 1973 compared to the others.
The effects of region in the restricted regression (7) appear to be caused
by economic policy and the initial level of development. The popula-
tion growth rate and political instability are negatively correlated with
economic growth in regression (8) but are very small and statistically
insignificant. Overall, these results imply that economic growth in Asia
and Latin America is a function of policy rather than foreign in-
vestment.
The above results are not consistent with predictions of the depen-
dency theory and lend some support for the policy-development model
specified in this article. Outward-oriented economies, while more de-
pendent on foreign capital, have faster economic growth than both the
neutral and inward-oriented, less dependent nations. Most important,
however, and contrary to earlier studies, foreign investment has no
appreciable effect on economic growth using a lag of approximately 1
decade. That political instability and the population growth rate may
have a negative effect on both foreign investment and economic growth
reveals another aspect of the development process that should be ex-
amined.
It is apparent that official policy has an effect on economic growth
which is not related to foreign investment and cannot be totally ex-
plained by the variables used in this regression analysis. The exact
Simeon Hein
513
mechanisms by which policy affects economic growth is likely to be
related to other macroeconomic factors that link domestic and interna-
tional markets such as exchange rates, price controls, and fiscal incen-
tives.36
Another result of this regression analysis is that region, in the
world sample as a whole, has an independent, unexplained effect on
economic growth and possibly on foreign investment. Specifically, the
Latin American countries attract a significantly lower level of foreign
investment than those in other regions. This regional difference is
partly explained by policy and political instability, as shown by regres-
sion (2), but cannot be fully explained solely with the variables used
here. Asian and Latin American regions also experience greater eco-
nomic growth relative to middle-income countries in other parts of the
world (regression [6]). V. Bornschier and C. Chase-Dunn attribute
these regional differences to prior levels of development, outliers, mar-
ket size, or spuriousness.37 Throughout dependency research, region
has been an important unexplained variable and the results of the pre-
vious tests show that regional effects are only partly explained by
political and demographic factors.38
Conclusion
In this study I have attempted to test two opposing models of develop-
ment in order to determine their usefulness in evaluating the recent
experience of developing nations. I have shown that the inflow of
foreign capital is affected by many factors, including regional effects,
economic policy, and possibly political instability, which previously
have been assigned a secondary role in dependency research. Other
variables, which were not tested here, such as the quality of the labor
force, labor costs, union organization, the size of the domestic market,
and consumer purchasing power, could also affect where foreign capi-
tal is invested. Most important, official economic policies within Asia
and Latin America were shown to be highly relevant factors in the
explanation of foreign investment and economic growth.
Medium-term economic growth appears to have little to do with
foreign investment and is most strongly correlated with regions and
economic policies and to a lesser extent with demographic variables
and political instability. Among other things, this suggests that states
play a significant role in the development process. Unstable govern-
ments are as detrimental to growth as coherently formulated policies
are beneficial.
The role of the state in the regulation of the economic environment
is likely to be a variable rather than a constant. For instance, in the
1980s the economic policies of the Asian countries have converged
with those of Latin America to the point where they are now very
similar. South Korea and Brazil are now considered to have equally
514
Economic Development and Cultural Change
stringent regulations on foreign investment.39 Therefore, the exact na-
ture of the relationship between policies and foreign capital is a com-
plex one and not easily reduced to one theory or model. Specifically,
although it can be shown that the outward-oriented countries have
faster growth rates, this does not mean that all countries could easily
adopt these strategies.40
From this research, however, both the large and small samples
demonstrate that the best predictors of foreign investment are region
and policy. Outward-oriented economies encourage foreign investment
while inward-looking policies may have the opposite effect. Second,
economic growth is clearly related to region, policy, population growth
rate, and political instability in the world sample, and to policy in the
smaller sample. The effect of official policy on economic growth is
considered indirect because the nature of the interaction remains theo-
retically unspecified once flows of foreign investment are removed
as an intervening variable. Therefore, the policy-development model
presented in this article can be substantiated but not wholly confirmed
with the methods and variables used here; state policies affect eco-
nomic growth but not via foreign investment.
Empirically, this study does not find support for the dependency
theory. Foreign investment does not have an effect on middle-term
growth in middle-income countries within the time frame used here.
Nonetheless, some disproof for the theory is found in the fact that
East Asia currently has faster growth rates than less dependent areas
despite large inflows of foreign capital. Therefore, dependency theory
appears underdeveloped specifically with respect to the role of the
state in shaping the economic conditions of developing nations. If pol-
icy can be used to foster autonomous development, then the prospect
that the state can deliberately encourage other types of development
deserves further investigation.
Simeon Hein
515
Appendix A
List of Lower- and Upper-Middle-Income Countries41
Asia
Hong Kong
Indonesia
Korea
Malaysia
Papua New Guinea42
Philippines
Taiwan
Thailand
Singapore
Latin America
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador
Mexico
Paraguay
Peru
Venezuela
Uruguay
Other
Algeria
Cameroon
Costa Rica
Dominican Republic
El Salvador
Guatemala
Greece
Honduras
Israel
Jamaica
Mauritania
Mauritius
Morocco
Panama
Portugal
South Africa
Trinidad/Tobago
Tunisia
Turkey
Zambia
Appendix B
Ordinary Least Squares
TABLE BI
DETERMINANTS OF FOREIGN INVESTMENT, 1970-73 AND PER CAPITA GNP GR
FOREIGN INVESTMENT
Total Sample
(1)
(2)
(3)
SE(3)
P
SE(3)
P
ASIA
9.572
9.596
-.147
12.107
23.832
LATIN
- 14.259
8.965
-7.549
10.058
OTHER....
OUTWARD73
...
...
12.200
16.018
...
INWARD73
..
...
- 17.716
11.799
...
NEUTRAL73
...
..
.
...
POPGR70
....
-8.556
6.286
...
COUPS
. ..
...
-6.864
6.111
...
CONSTANT
15.62
5.256**
42.211
18.456*
.931
Adjusted R2
.0712*
.0887
.3066**
N =41
?A 0--L
C7.1
PER CAPITA GNP GROWTH
Total Sample
(5)
(6)
(7)
SSE(P)
P
SE(P)
P
ASIA
3.129
.911**
1.585
1.056
2.1455
LATIN
.983
.851
1.987
.849*
........
OTHER.
...
....
OUTWARD85
. .
...
2.547
1.423*.
INWARD85
...
...
-2.364
.975**
..
NEUTRAL85
......
FORINV
...
...
- .007
.016
...
GNPPC73
...
...
- .000
.001
..
POPGR73
...
...
- .717
.501
..
COUPS
. ..
...
- .676
.552
. . .
CONSTANT
1.171
.490*
3.565
1.567*
2.1545
Adjusted R2
.1968**
.3515**
.1459*
N = 41
*
p < .10; one-tailed significance test.
** p < .02; one-tailed significance test.
(-A
518
Economic Development and Cultural Change
Appendix C
Description of Variables Used in the Analysis
Dependent variable: Foreign investment flows, 1970-73, standardized on gross
domestic product
Source: International Financial Statistics (International Monetary Fund)
Independent Variables
Description
Source
ASIA, LATIN, and
Region dummies
By region
OTHER
OUTWARD73,
Trade policy dum-
World Development
INWARD73, and
mies, 1963-73
Report (1987)
NEUTRAL73
POPGR70
Average annual popu-
World Bank Atlas
lation growth rate,
(1972)
1960-70
COUPS
Irregular executive
World Handbook of
transfers, 1963-73
Political and Social
Indicators (1983)
Dependent variable: Average annual per capita economic growth, 1973-82
Source: World Development Report (1983)
Independent Variables
Description
Source
ASIA, LATIN, and
Region dummies
By region
OTHER
OUTWARD85,
Trade policy dum-
World Development
INWARD85, and
mies, 1973-85
Report (1987)
NEUTRAL85
FORINV
Foreign investment,
International Finan-
1970-73 (standard-
cial Statistics
ized on GDP)
(1976-85)
GNPPC73
Per capita GNP, 1973
World Bank Atlas
(1974)
POPGR73
Average annual popu-
World Development
lation growth rate,
Report (1987)
1965-73
COUPS
Irregular executive
World Handbook of
transfers, 1963-73
Political and Social
Indicators (1983)
Notes
* I began this article at the University of Arizona and completed it at
Washington State University. Thanks to Albert Bergeson, David Chang, Ro-
berto Fernandez, Neil Fligstein, and Ray Jussaume for help with its various
stages. D. Gale Johnson and an anonymous reviewer also provided valuable
criticism and pointed out aspects that needed clarification. I assume responsi-
bility for any remaining shortcomings.
Simeon Hein
519
1. Walt W. Rostow, The Stages of Economic Growth (Cambridge: Cam-
bridge University Press, 1965).
2. Andre Gunder Frank, Capitalism and Underdevelopment in Latin
America (New York: Monthly Review Press, 1967), and "The Development
of Underdevelopment," in Dependence and Underdevelopment, ed. James
Cockcroft, Andre Gunder Frank, and Dale J. Johnson (Garden City, N.Y.:
Anchor, 1972), pp. 3-17; Samir Amin, Accumulation on a World Scale (New
York: Monthly Review Press, 1974); Volker Bornschier, Christopher Chase-
Dunn, and Richard Rubinson, "Cross-national Evidence of the Effects of For-
eign Investment and Aid on Economic Growth and Inequality: A Survey of
Findings and a Reanalysis," in The Gap between Rich and Poor, ed. A. Selig-
son (Boulder, Colo.: Westview, 1984), pp. 187-210; Volker Bornschier and
Christopher Chase-Dunn, Transnational Corporations and Underdevelopment
(New York: Praeger, 1985); F. H. Cardoso and E. Faletto, Dependency and
Development in Latin America (Mexico City: Siglo Veintiuno Editores, 1971;
first version, 1967) (English translation, Berkeley: University of California
Press, 1979); Raul Prebisch, The Economic Development of Latin America
and Its Principal Problems (New York: United Nations, 1950).
3. Christopher Chase-Dunn, "The Effects of International Economic De-
pendence on Development and Inequality: A Cross-national Study," American
Sociological Review 40, no. 6 (1975): 720-38; Peter Evans, "Inequality, Struc-
tural Mobility, and Dependency Reversal in the Capitalist World Economy,"
in North/South Relations; Studies of Dependency Reversal, ed. C. F. Doran,
G. Modelski, and C. Clark (New York: Praeger, 1983), and Dependent Devel-
opment: The Alliance of Multinational, State and Local Capital in Brazil
(Princeton, N.J.: Princeton University Press, 1979).
4. Helen Hughes, Policy Lessons of the Development Experience (New
York: The Group of Thirty, 1985); Jeffrey D. Sachs, "External Debt and
Macroeconomic Performance in Latin America and East Asia," Brookings'
Papers on Economic Activity, no. 2 (1985), pp. 523-64.
5. Evans, Dependent Development: The Alliance of Multinational, State
and Local Capital in Brazil.
6. Richard E. Barrett and Martin King Whyte, "Dependency Theory and
Taiwan: Analysis of a Deviant Case," American Journal of Sociology 87
(1982): 1064-89; Daniel Chirot, "Changing Fashions in the Study of the Social
Causes of Economic and Political Change," in The State of Sociology: Prob-
lems and Prospects, ed. James F. Short, Jr. (Beverly Hills, Calif.: Sage, 1987),
pp. 259-82.
7. Stephen Haggard and Tun-jen Chang, "State and Capitalism in the
East Asian NICs," in The Political Economy of the New Asian Industrialism,
ed. Frederick C. Deyo (Ithaca, N.Y.: Cornell University Press, 1987), pp.
84-135.
8. Peter Evans, "Class, State, and Dependence in East Asia: Lessons for
Latin America," in Deyo, ed., pp. 203-26.
9. Immanuel Wallerstein, The Modern World-System Capitalist Agricul-
ture and the Origins of the European World-Economy in the Sixteenth Century
(New York: Academic Press, 1974).
10. Hollis B. Chenery and Peter Eckstein, "Development Alternatives
for Latin America," Journal of Political Economy 78 (1970): 966-1006.
11. Tain Jy Chen and De-piao Tang, "Export Performance and Productiv-
ity Growth: The Case of Taiwan," Economic Development and Cultural
Change 38, no. 3 (1990): 577-85.
12. Richard Leudde-Neurath, Export-led Industrialization and Import
Controls: The Case of South Korea (Boulder, Colo.: Westview, 1986).
520
Economic Development and Cultural Change
13. Sarath Rajapatirana, "Industrialization and Foreign Trade," in Fi-
nance and Development, International Monetary Fund and the World Bank,
(Lancaster, Pa.: Lancaster Press, 1987), pp. 2-5.
14. Barrett and Whyte.
15. Frederic C. Deyo, "Coalitions, Institutions, and Linkage Sequences:
Toward an East Asian Development Model," in The Political Economy of
the New Asian Industrialism, ed. Frederick C. Deyo (Ithaca, N.Y.: Cornell
University Press, 1987), pp. 227-47.
16. Richard Grabowski, "Taiwanese Economic Development: An Alter-
native Interpretation," Development and Change 19 (1988): 53-67; Heather-Jo
Hammer, "Comment on 'Dependency Theory and Taiwan: Analysis of a Devi-
ant Case,' " American Journal of Sociology 89, no. 4 (1984): 932-36.
17. Deyo.
18. Haggard and Chang (n. 7 above).
19. Colin Stoneman, "Foreign Capital and Economic Growth," World
Development 3, no. 1 (1975): 11-26; Bornschier and Chase-Dunn (n. 2 above).
20. R. Kaufman, D. S. Geller, and H. T. Chernotsky, "A Preliminary
Test of the Theory of Dependency," Comparative Politics 7 (1975): 303-30;
Michael B. Dolan and Brian W. Tomlin, "First World-Third World Linkages:
External Relations and Economic Development," International Organization
34, no. 1 (1980): 41-63; Jeanne G. Gobalet and Larry J. Diamond, "Effects of
Investment Dependency on Economic Growth: The Role of Internal Structural
Characteristics and Periods of the World Economy," International Studies
Quarterly 23 (1979): 412-44; Albert Szymanski, "Dependence, Exploitation,
and Development," Journal of Military and Political Sociology 4, no. 2 (1976):
53-65; James Lee Ray and Thomas Webster, "Dependency and Economic
Performance in Latin America," International Studies Quarterly 22 (1978):
409-34.
21. Peter Evans and Michael Timberlake, "Dependence, Inequality, and
the Growth of the Tertiary: A Comparative Analysis of Less Developed Coun-
tries," American Sociological Review 45, no. 3 (1980): 531-52.
22. Dolan and Tomlin.
23. Sachs (n. 4 above).
24. Bornschier and Chase-Dunn (n. 2 above).
25. Robert W. Jackman, "Dependence on Foreign Investment and Eco-
nomic Growth in the Third World," World Politics 34, no. 2 (1982): 175-96.
26. Geofrey McNicoll, "Consequences of Rapid Population Growth: An
Overview and Assessment," Population and Development Review 10, no. 2
(1984): 177-240; Robert M. Solow, Growth Theory: An Exposition (New York:
Oxford University Press, 1970).
27. See population growth rate summary table, in World Bank Atlas
(Washington, D.C.: World Bank, 1988), pp. 12-13.
28. Jacques Delacroix and Charles Ragin, "Structural Blockage: A
Cross-national Study of Economic Dependency, State Efficacy, and Underde-
velopment," American Journal of Sociology 86, no. 6 (1981): 1311-47.
29. Patrick McGowan and Dale Smith, "Economic Dependency in Black
Africa: A Causal Analysis of Competing Theories," International Organiza-
tion 32, no. 1 (1978): 179-235; Dolan and Tomlin.
30. Bornschier and Chase-Dunn (n. 2 above); Ray and Webster (n. 20
above).
31. The bulk of these data comes from the World Development Report
(World Bank, 1985), and the International Financial Statistics (International
Monetary Fund, 1976-85). For some countries, such as Taiwan and Hong
Kong, other reference sources had to be consulted in order to find the neces-
Simeon Hein
521
sary data. For Hong Kong, Argentina, and Uruguay, estimates were made
where data are missing. Also see the Organization for Economic Cooperation
and Development's Geographical Distribution of Financial Flows to Devel-
oping Countries (Paris, 1983); United Nations, National Legislation and Regu-
lations Relating to Transnational Corporations (New York: United Nations
Center on Transnational Corporations, 1978, 1980, 1986), vols. 2, 3, 4; United
Nations, Salient Features and Trends in Foreign Direct Investment (New
York: United Nations Center on Transnational Corporations, 1983); Council
for Economic Planning and Development, Taiwan Statistical Data Book (Tai-
pei, 1983).
32. Another source is the United Nations' National Legislation and Reg-
ulations Relating to Transnational Corporations (n. 31 above), which has data
about membership in trade pacts and general laws regarding foreign invest-
ment. Furthermore, other economic literature contains information about
which countries pursue specific strategies such as the Economist Intelligence
Unit's The ASEAN, Hong Kong, South Korea and Taiwan Economies (Lon-
don, 1980).
33. This information was collected from the World Bank Atlas (1972) and
the World Handbook of Political and Social Indicators (1983), respectively.
Data for political instability are from Charles Lewis Taylor and David A.
Jodice, World Handbook of Political and Social Indicators (New Haven,
Conn.: Yale University Press, 1983).
34. Bornschier and Chase-Dunn (n. 2 above), p. 96.
35. Eric A. Hanushek and John E. Jackson, Statistics for Social Scientists
(New York: Academic Press, 1977), pp. 150-53.
36. Rajapatirana (n. 13 above).
37. Bornschier and Chase-Dunn; see McGowan and Smith; and Dolan
and Tomlin (n. 20 above).
38. See McGowan and Smith; and Dolan and Tomlin.
39. The Economist 286 (February 19, 1983): 86-87; 298 (March 15,
1986): 67.
40. H. G. Preusse, "The Indirect Approach to Trade Liberalization: Dy-
namic Consideration of Liberalization-cum-Stabilization Policies in Latin
America," World Development 16, no. 8 (1988): 883-97; World Bank, The
World Bank Atlas (New York: Oxford University Press, 1972); The World
Development Report (New York: Oxford University Press, 1985, 1987).
41. The source of the data is the World Development Report (n. 31 above).
42. According to the World Development Report 1990, Papua New
Guinea is considered an Asian country; see statistical appendix tables A 11
and A 12.
