Global Development Theories and Economic Policies: Modernization, Dependency, and Washington Consensus

Global Poverty Line

Around ~$2-3/day (PPP). Used to measure extreme poverty globally.

GDP (Gross Domestic Product)

Total value of goods/services produced in a country in a year.

PPP (Purchasing Power Parity)

Adjusts income based on cost of living across countries.

Global North vs Global South

North = wealthy, developed; South = poorer, developing.

Modernization Theory

Poor countries develop by becoming like rich countries.

Key ideas of Modernization Theory

Traditional → Modern; Industrialization = progress; Often technocratic (experts decide).

Criticism of Modernization Theory

Ignores inequality + colonial history.

Dependency Theory

Poor countries stay poor because rich countries exploit them.

Core vs Periphery

Core = rich countries; Periphery = poor countries supplying raw materials.

Declining Terms of Trade

Raw materials lose value over time compared to manufactured goods.

Commodity Chain

Value is uneven (most profit at final stages, not raw production).

Mutual Gains critique

Trade is NOT equal benefit (opposite of modernization).

Import Substitution Industrialization (ISI)

Policy from dependency theory aimed at building local industries instead of importing.

Problems of ISI

Inefficient; No competition; Hard to sustain.

Fordist-Keynesianism

Strong government + mass production.

Key ideas of Fordist-Keynesianism

Government spending; Job creation; Regulation; Stability.

Neoliberalism (Washington Consensus)

Less government, more market.

Three Key Words of Neoliberalism

Stabilize; Privatize; Liberalize.

Washington Consensus

Set of 10 policies pushed by IMF/World Bank.

Examples of Washington Consensus Policies

Reduce deficits; Lower tariffs; Privatize; Deregulate.

Rodrik's Critique of Washington Consensus

Not tailored to countries; No implementation plan; Ignored institutions.

Developmental State

Government focused on economic growth + transformation.

Systemic Vulnerability

Pressure (internal + external + low resources) forces development.

Resource Curse

Countries with lots of natural resources grow slower.

Triple Alliance in Development

NGOs → local knowledge + participation; Government → support + scale; Market → efficiency + demand signals.

Capabilities Approach (Sen)

Development = what people are able to do, NOT just income.

Capabilities vs Assets

Assets = money/resources; Capabilities = what you can actually DO.

Capability Traps

Copying 'best practices' without adapting leads to failure and no learning.

PDIA (Problem-Driven Iterative Adaptation)

Solve problems step-by-step locally.

Quick Comparison: Modernization vs Dependency

Modernization → trade helps everyone; Dependency → trade exploits poor countries.

Quick Comparison: Keynesian vs Neoliberal

Keynesian → strong state; Neoliberal → free market.

Quick Comparison: East Asia vs Latin America

East Asia → strong state + industry; Latin America → elites + inequality.

East Asia

Disciplined + strong government

Latin America

Elites + inequality

Success/Failure Factors

East Asia: strong state, industry; Latin America: elites, dependency

Capabilities (Sen)

Development = freedom, not money

Examples of Capabilities

Can you live long? Can you be educated? Can you participate in society?

Capability Trap

Copying stuff blindly

PDIA

Solve problems step by step locally

Shortcut for Capability Trap

Trap = fake progress; PDIA = real progress

ISI

What is ISI?

PDIA Definition

What is PDIA? → local problem-solving, iteration

Modernization vs Dependency

Compare: Modernization vs Dependency

Keynesian vs Neoliberal

Compare: Keynesian vs Neoliberal

Goals of the Washington Consensus

What are the 3 goals of the Washington Consensus? → SPL

East Asia Development Speed

Why did East Asia develop faster? → strong state, industrial policy

Capabilities Approach

What is the capabilities approach? → freedom, not just income

Night Before Strategy

1. Read notes once (10-15 min); 2. Active recall (30-40 min); 3. Go over weak spots (15 min); 4. Sleep

Final Exam Tip

If you don't know the answer, think: Is this about markets vs government? Is this about inequality/global power? Is this about local vs one-size-fits-all?

GDP

Total value of goods and services produced in a country in a year

GDP Limitations

Does not measure inequality, well-being, informal work, or sustainability

Global North

Wealthy, developed countries

Global South

Poorer, developing countries

Modernization Key Idea

Transition from 'traditional' to 'modern' societies

Modernization Focus

Industrialization, technology, education

Technocracy

Experts guiding development decisions

Rostow Stages of Growth

Countries develop through stages toward modernization

Arthur Lewis Model

Shift workers from agriculture to industry

Core

Wealthy countries that dominate global economy

Periphery

Poor countries that supply raw materials

Mutual Gains (Modernization idea)

Trade benefits both sides (Dependency rejects this)

Linkages

Connections between stages of production

ISI Goal

Build local industry and reduce dependence

ISI Problems

Inefficiency, lack of competition, hard to sustain

Fordism

Mass production + mass consumption

Keynesianism

Government intervention to stabilize economy

Keynesian Policy

Government spending to boost demand and employment

New Deal Example

Government creates jobs and regulates economy

Neoliberalism

Belief that free markets lead to development

Washington Consensus 3 Goals

Stabilize, Privatize, Liberalize

Stabilize

Control inflation, reduce government deficits

Privatize

Sell state-owned businesses to private sector

Liberalize

Open markets to trade and foreign investment

Washington Consensus Critique

'One size fits all' approach

Rodrik Critique

Policies not tailored, ignored institutions, caused instability

Industrial Policy

Government policies to develop industries and economy

East Asian Development

Rapid growth due to strong state, education, and industry

Latin American Development

Slower growth due to inequality and elite control

Hierarchical Market Economy (HME)

System with powerful elites, low worker investment, and inequality

Reason for Resource Curse

Over-reliance on resources, weak diversification, corruption

Authoritarian Bargain

Government provides jobs/welfare in exchange for political control

NGOs

Organizations that provide local support and services

Triple Alliance

Cooperation between NGOs, government, and markets

NGOs Role

Provide local knowledge and participation

Government Role

Provide support, funding, and scale

Market Role

Provide efficiency and respond to demand

Amartya Sen

Economist who created the capabilities approach

Capabilities

Real opportunities people have (health, education, participation)

Assets vs Capabilities

Assets = resources; Capabilities = what you can actually do

Human Development Index (HDI)

Measures development using health, education, income

Why Traps Happen

External solutions imposed, no local learning

PDIA Key Idea

Learn, adapt, and improve step-by-step

Rapid Results Initiatives (RRI)

Small, quick projects to test solutions

East Asia vs Latin America

East Asia = strong state + growth; Latin America = inequality + elites