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The structure of Third World economic interdependence

Published online by Cambridge University Press:  22 May 2009

Mark J. Gasiorowski
Assistant Professor of Political Science at Louisiana State University, Baton Rouge.
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Empirical studies of interdependence have mainly focused on whether interdependence has been increasing or declining on a world scale. In this research note I examine the nature of economic interdependence in the less developed countries (LDCs). The main question that I address is whether LDCs are more economically dependent, in the sense of being more deeply involved in economic interdependence relationships, than developed countries (DCs). Richard Cooper and Edward Morse have argued that economic interdependence is associated with increased industrialization and modernization—implying that LDCs are less involved than DCs in interdependence relationships. Empirical evidence presented here suggests that LDCs are, in fact, more dependent than DCs.

Research Note
Copyright © The IO Foundation 1985

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1. The most important works are Rosecrance, Richard and Stein, Arthur, “Interdependence: Myth or Reality?World Politics 26 (10 1973), pp. 127CrossRefGoogle Scholar; Katzenstein, Peter J., “International Interdependence: Some Long-Term Trends and Recent Changes,” International Organization 29 (Autumn 1975) pp. 1021–34CrossRefGoogle Scholar; Krasner, Stephen D., “State Power and the Structure of International Trade,” World Politics 28 (04 1976), pp. 317–47CrossRefGoogle Scholar; and Rosecrance, Richard et al. , “Whither Interdependence?International Organization 31 (Summer 1977), pp. 425–71CrossRefGoogle Scholar.

2. “Dependence” is used in this way to distinguish the magnitude of one country's involvement in an interdependence relationship from the magnitude of the relationship itself. This use of the term differs both from the dependencia tradition and from the usage adopted in Caporaso's, James A. influential article, “Dependence, Dependency, and Power in the Global System: A Structural and Behavioral Analysis,” International Organization 32 (Winter 1978), pp. 1343CrossRefGoogle Scholar. For a useful attempt to clarify the meaning of dependence and other related concepts, see Baldwin, David A., “Interdependence and Power: A Conceptual Analysis,” International Organization 34 (Autumn 1980), pp. 471506CrossRefGoogle Scholar.

3. Cooper, Richard N., “Economic Interdependence and Foreign Policy in the Seventies,” World Politics 24 (01 1972), p. 163CrossRefGoogle Scholar; Morse, Edward L., Modernization and the Transformation of International Relations (New York: Free Press, 1976), pp. 910Google Scholar.

4. These themes are raised by Knorr, Klaus, “Economic Interdependence and National Security,” in Knorr, and Trager, Frank N., eds., Economic Issues and National Security (Lawrence, Kans.: Allen Press, 1977), pp. 118Google Scholar; Waltz, Kenneth, “The Myth of National Independence,” in Kindleberger, Charles P., ed., The International Corporation (Cambridge: MIT Press, 1970), pp. 205–23Google Scholar; and Cooper, Richard N., The Economics of Interdependence: Economic Policy in the Atlantic Community (New York: McGraw-Hill, 1968)Google Scholar.

5. This point is made by Tollison, Robert D. and Willett, Thomas D., “International Integration and the Interdependence of Economic Variables,” International Organization 27 (Spring 1973), pp. 255–71CrossRefGoogle Scholar.

6. These definitions are adapted from Keohane, Robert O. and Nye, Joseph S., Power and Interdependence (Boston: Little, Brown, 1977), pp. 813Google Scholar.

7. Trade-partner concentration measures are used in a similar context by Hirschman, Albert O., National Power and the Structure of Foreign Trade (Berkeley: University of California Press, 1945)Google Scholar.

8. Similar findings are reported in Michaely, Michael, Concentration in International Trade (Amsterdam: North-Holland, 1962), chap. 2Google Scholar.

9. This is the example of sensitivity referred to most commonly in the interdependence literature. On price elasticities as measures of sensitivity, see Tollison, and Willett, , “International Integration,” p. 261Google Scholar.

10. For a good discussion of the interdependencies associated with capital flows, see Cooper, Economics of Interdependence, chaps. 4–5.

11. Unfortunately, only data on net flows are available in this form. Since outflows of aid and direct investment from LDCs inevitably are much smaller than outflows of finance capital, the actual (rather than net) flows of finance capital into and out of LDCs are probably much larger compared to flows of aid and direct investment than this table indicates. Consequently, the results given here on interdependencies associated with finance-capital flows should probably be given greater emphasis than those on aid and direct investment.

12. For example, from 1953 through 1979 only 5.8 percent of U.S. foreign economic aid (loans and grants) went to European countries. See Agency for International Development, U.S. Overseas Loans and Grants (Washington D.C., 1980), pp. 6, 143Google Scholar.

13. Whitman, , “Economic Openness and International Financial Flows,” Journal of Money, Credit, and Banking 1 (11 1969), pp. 727–49CrossRefGoogle Scholar. One of the measures used in Whitman's study included foreign-aid flows.

14. United Nations, Yearbook of International Trade Statistics, 1982, vol. 1 (New York, 1984)Google Scholar, Special Table B. More detailed breakdowns for the categories of LDCs used above are not available. Similar findings are discussed in Stewart, Frances, “The Direction of International Trade: Gains and Losses for the Third World,” in Helleiner, G. K., ed., A World Divided: The Less Developed Countries in the World Economy (Cambridge: Cambridge University Press, 1976), pp. 9697Google Scholar.

15. The major world banks are, of course, located primarily in DCs, so most flows of finance capital to and from LDCs are vertical. It makes little difference, however, where LDC creditors are located. The most serious aspect of the current Third World debt crisis is the volume of debt rather than the location of creditors. On the distinction between systemic and bilateral interdependence, see Tetreault, Mary Ann, “Measuring Interdependence,” International Organization 34 (Summer 1980), pp. 429–43CrossRefGoogle Scholar.

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