Modernization Theory, Dependency Theory, the Resource Curse, & the International Context

Dependency Theory in LA

• Countries at the “core” of the world order have always exploited LA for profit and resources, causing repeated political turmoil in the region

  • LA relies on core countries for massive amounts of private investment and shares of their GDP, and can only get them to stay with attractions of low wages, taxes, and lack of regulation

    • between 1916 and 1934, 16% of the IPC’s (Peru gas company) value of sales actually stayed in Peru

  • Political repression of the opposition was used frequently and supported by private countries based in the core

    • the democratic government or Peru’s failure to appease tensions from IPC between Peru and the US caused a coup in 1968

  • LA has the highest GINI coefficient of any continent

• in the modern day non-exploitive economy, LA countries are seeking more FDI, but do not want to fall victim to a race towards the bottom

The Resource Curse in LA

• While dependency theory blames international actors for problems, the resource curse blames the LA countries’ state actors

  • abundance of natural resources means you don’t have to diversify your economy

    • resource prices can be very volatile

    • resource harvesting is usually awful for environment

    • state revenues from resource extraction are often kept secret and are a breeding ground for corruption

• Resource exportation can be done right

  • Chile set up the Copper Stabilization Fund in 1985 to help ease the damages of sudden drops in the price of copper

The International community’s role in shaping LA governments

• when the world powers are democratic, the percentage of democracies in the world is greater, and the same is true of the opposite

• The Cold War changed the course of democratization in LA as the US fought communism

  • The US supported many LA rightist dictatorships like Batista in Cuba and Somoza in Nicaragua

  • The US overthrew many democratically elected leftists governments such as Guatemala in 1954, Brazil in 1964, DR in 1965, Chile in 1973

  • When the US and Europe won the Cold War, democracy flowed into LA

• The US remained involved greatly in LA governments into the 90s

  • interventions in El Salvador, Nicaragua, Panama, DR, Paraguay, and Ecuador

• Regional relationships between LA and the US have stabilized since the introduction of the OAS

Changes in the International Community in 21st Century

• By 2020, China was the largest trading partner for South America, but not LA as a whole

• LA trust in the US fell below China during Trump, but surpassed it once again when Biden was elected