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According to mainstream economic theory, the basis for international trade is the existence of inter-regional differences in endowments of natural resources (and therefore raw materials), technology and climatic conditions. Hence, trade widens the growth potential of nations by making resources available that are not locally based and making produce marketable for which local demand would be too low.

According to classical understanding, trade would lead to a situation in which all economies will finally gain advantages. By the 1950s and 1960s, however, economists had begun to identify diverging national pathways to industrialisation, even amongst countries with similar starting points, and new theories emerged as to why this should be the case (Eisenmenger et al., 2007). These theories drew upon new applications of theoretical concepts of ‘imperialism’, ‘dependency theory’ and the ‘world-system perspective’. According to these approaches, in the existing world system, peripheral countries specialise in the production of primary commodities such as raw minerals and agricultural products that are less technologically sophisticated and more labour intensive. Primary products from these extractive peripheries are then exported to industrialised cores, which are characterised by a high level of capital accumulation and complex production activities. Here, production is based on advanced technologies, highly mechanised production structures and higher wages. Industrial cores then sell their high-tech and capital-intensive products to the peripheral countries (Eisenmenger et al., 2007).

This exchange on world markets leads to an outflow of surplus from the periphery to the core due to the following facts. Firstly, peripheral countries specialise in exports of raw materials where they are confronted with increasing competition from other developing countries, which forces them to reduce prices to maintain export revenues. This leads to a worsening in the terms of trade, as these countries have to export ever more goods in order to obtain the same revenues to support the imports needed. Secondly, low salaries are found in the periphery due to the massive ‘reserve army’ of labour generated, among other things, by technological progress in agriculture. Revenues from increased efficiency thus result in lower prices of exports instead of increased income for workers (Emmanuel, 1972). Economic development in the periphery is therefore instrumental to economic development in the centre. Specialisation in exports of raw materials, in the medium and long run, supports underdevelopment in the periphery and development in the centre. Even worse, the specialisation in exporting raw materials leads to a depletion of domestic natural resources by selling out the domestic resource base (Eisenmenger et al., 2007).

References

Eisenmenger, N., Ramos Martin, J. and Schandl, H. (2007) Transition in a contemporary context: patterns of development in a globalizing world, in M. Fischer-Kowalski and H. Haberl (eds). Socioecological Transitions and Global Change: Trajectories of Social Metabolism and Land Use, Cheltenham: Edward Elgar.

Emmanuel, A. (1972) Unequal Exchange: A Study of the Imperialism of Trade, London and New York: Monthly Review Press.

This glossary entry is based on contributions by Willi Haas, Simron Jit Singh and Annabella Musel

EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos