NEOCLASSICAL THEORY AND INTERNATIONAL DEPENDENCE THEORY

Neoclassical Theory
□ (Neoclasscial Growth Theory) an economic theory that outlines how a steady economic growth
rate results from a combination of three driving forces: labor, capital, and technology
□ (Neoclassical economics) a broad theory that focuses on supply and demand as the driving
forces behind the production, pricing, and consumption of goods and services
□ Neoclassical economists argue that the consumer's perception of a product's value is the driving
factor in its price.
□ Neoclassical economists believe that a consumer's first concern is to maximize personal
satisfaction. Therefore, they make purchasing decisions based on their evaluations of the utility
of a product or service. This theory coincides with rational behavior theory, which states that
people act rationally when making economic decisions.
□ It was expressed by E. Roy Weintraub that neoclassical economics rests on three assumptions,
although certain branches of neoclassical theory may have different approaches:
 People have rational preferences between outcomes that can be identified and associated
with values.
 Individuals maximize utility and firms maximize profits.
 People act independently on the basis of full and relevant information.

International Dependence Theory

□ seeks to analyze international politics by concerning itself with the existing unequal relationship
among nation-states i.e. between Developed Countries (Centre/Core) and Underdeveloped
Countries (Periphery)
□ the notion that resources flow from a "periphery" of poor and underdeveloped states to a "core"
of wealthy states, enriching the latter at the expense of the former
□ According to dependency theory, underdevelopment is mainly caused by the peripheral position
of affected countries in the world economy. Typically, underdeveloped countries offer cheap
labour and raw materials on the world market. These resources are sold to advanced
economies, which have the means to transform them into finished goods. Underdeveloped
countries end up purchasing the finished products at high prices, depleting the capital they
might otherwise devote to upgrading their own productive capacity. The result is a vicious cycle
that perpetuates the division of the world economy between a rich core and a poor periphery.
□ Although still a popular theory in history and sociology, dependency theory has disappeared
from the mainstream of economic theory since the collapse of Communism in the early 1990s.