Development Theory - Structuralism

Structuralism

Structuralism is a development theory which focuses on structural aspects which impede the economic growth of developing countries. The unit of analysis is the transformation of a country’s economy from, mainly, a subsistence agriculture to a modern, urbanized manufacturing and service economy. Policy prescriptions resulting from structuralist thinking include major government intervention in the economy to fuel the industrial sector, known as Import Substitution Industrialization (ISI). This structural transformation of the developing country is pursued in order to create an economy which in the end enjoys self-sustaining growth. This can only be reached by ending the reliance of the underdeveloped country on exports of primary goods (agricultural and mining products), and pursuing inward-oriented development by shielding the domestic economy from that of the developed economies. Trade with advanced economies is minimized through the erection of all kinds of trade barriers and an overvaluation of the domestic exchange rate; in this way the production of domestic substitutes of formerly imported industrial products is encouraged. The logic of the strategy rests on the Infant industry argument, which states that young industries initially do not have the economies of scale and experience to be able to compete with foreign competitors and thus need to be protected until they are able to compete in the free market. The ISI strategy is supported by the Prebisch-Singer thesis, which states that over time, the terms of trade for commodities deteriorate compared to manufactured goods. This is because of the observation that the income elasticity of demand is greater for manufactured goods than that for primary products.

Structuralists argue that the only way Third World countries can develop is through action by the state. Third world countries have to push industrialization and have to reduce their dependency on trade with the First World, and trade among themselves.

The roots of structuralism lie in South America, and particularly Chile. In 1950, Raul Prebisch went to Chile to become the first director of the Economic Commission for Latin America (ECLA). In Chile, he cooperated with Celso Furtado, Anibal Pinto, Osvaldo Sunkel and Dudley Seers, which all became influential structuralists.