Economic Models and Sustainable Development
Mainly Latin American economists developed the traditional Dependency Theory during the second half of the 20th century. Within this school of thought, recognized Chilean economists argue that, even in a globalized economy in which emerging countries develop a domestic manufacturing base, the increasingly multinational nature of companies would lead to a perpetuation of the dependence on Western capital and technology. This Dependency was due to the peripheral nature of developing economies in terms of their ability to produce high value goods for both domestic and international markets. This line of thought proved profoundly useful and even prophetic when it came to explaining economic dynamics in Latin America throughout most of the 20th century.
Economic Models and Sustainable Development
As a region, Latin America struggled to develop a robust manufacturing base geared towards international export as the so-called Asian Tigers managed to do. It was not until the signature of the NAFTA that Mexico managed to fully insert itself into the North American value-added supply chain. Meanwhile, in the case of most South American economies, only a select number of high-value manufacturing sectors, such as Embraer airplanes in Brazil, managed to gain a foothold in the global market. In short, given the incapacity of South American manufacturing industry to compete with Asian, North American, and European industries, the economies of South America have been dependent on the cyclical commodity booms of goods such as petroleum, copper, and soy.
Throughout the 20th century, in spite of repeated efforts by policymakers throughout Latin America to transition towards manufacturing and high-value export economies, the market’s patent system and capital markets gave an advantage to multinational companies that would dominate regional markets through imports, brown field investment or green field investment. Today, the dynamic has somewhat changed because the interests seeking to capitalize from South American markets are not necessarily private, but also state-managed. This is the case with Chinese State-Owned Enterprises (SOE), whose presence in South America can be characterized as both economic and political given their mandate to assist in maintaining China’s energy security and project global influence.
What is different with Chinese capital and SOE in terms of the Dependency Theory articulated during the 20th century is that, due to the higher efficiency in transportation brought about by technology and the low production costs already available in China, foreign companies no longer need to setup manufacturing centers in the target country or market. Chinese producers can play a key role within South American economies and gain market share by just importing goods, which subsequently creates a center-periphery dynamic with the target region. However, what China and its economic interests do need is to secure a supply of natural resources and commodities, which, by their very nature, are only finitely available within China itself.