Dependency theory assumes that export industries in a poor country have small multiplier effects throughout the rest of the economy. Which of the following is a policy implication of this assumption?
A) Trade based on comparative advantage cannot benefit poor nations.
B) Governments of poor nations should take whatever steps are necessary to prevent the repatriation of profits earned by multinational corporations operating in their countries.
C) Production should be undertaken by the public sector and not the private sector.
D) These countries should pursue policies of self-reliance such as import-substitution policies rather than export-led policies.

Question

Quizplus · Accepted Answer

The assumption of dependency theory suggests that export industries in poor countries do not have significant multiplier effects throughout the rest of the economy, which implies that these countries should not rely on export-led growth. Instead, they should pursue policies of self-reliance, such as import-substitution policies, to promote domestic production and reduce reliance on foreign exports. Choice A is incorrect because trade based on comparative advantage can still benefit poor nations, even though it may not lead to significant multiplier effects. Choice B is too extreme and does not necessarily follow from the assumption of dependency theory. Choice C is not necessarily a policy implication of this assumption, as the public sector can also be subject to the same limitations as the private sector in terms of multiplier effects.

Dependency Theory Assumes That Export Industries in a Poor Country