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Dependency Theory and Global Trade
hard

According to Dependency Theory, how do trade imbalances contribute to the perpetuation of underdevelopment in less developed countries?

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Choose the Best Answer

A

They lead to economic independence.

B

They create a cycle of dependency on developed nations.

C

They promote industrial growth in underdeveloped countries.

D

They reduce foreign investment in local economies.

Understanding the Answer

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Answer

Dependency Theory suggests that less developed countries (LDCs) often remain poor because they rely heavily on wealthier nations for trade. When LDCs export raw materials and import finished goods, they create a trade imbalance that keeps them dependent on richer countries. This means LDCs earn less money from their exports than they spend on imports, which limits their ability to invest in local industries and improve their economies. For example, if a country produces coffee but has to buy expensive machines from richer countries, it cannot grow its economy effectively. As a result, the cycle of dependency continues, preventing these countries from developing and becoming self-sufficient.

Detailed Explanation

Trade imbalances mean that poorer countries rely on richer ones for goods. Other options are incorrect because Some might think trade imbalances make countries independent; It's a common belief that trade helps poorer countries grow.

Key Concepts

Dependency Theory
underdevelopment
trade imbalances
Topic

Dependency Theory and Global Trade

Difficulty

hard level question

Cognitive Level

understand

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