Modernization and dependency revisited: U.S. direct investment, development, and polity in Latin America, 1950–1998*

An earlier version of this paper was presented at the Annual Meeting of the International Studies Association, February 20–24, 2001, Chicago, IL. We would like to thank Howard Handelman, Will Moore, and Glen Biglaiser for helpful comments and suggestions.

Abstract

Since World War II, the modernization model has been the mainstream paradigm for economic development. Modernization assumes that foreign capital is a necessary catalyst for transforming societies from traditional to modem. Challenges to the modernization paradigm culminated in dependency theory. Dependency theorists point to detrimental effects of foreign capital and domination (e.g., income inequality, authoritarianism, and inappropriate consumption). Despite the charge by many scholars that this debate has subsided, basic but important questions remain to be answered. This paper assesses the role of U.S. direct investment (USDI) on the major economies of Latin America over time (1950–1998). Using Vector Autoregression, we look at the long‐term political relationships between USDI, economic development, and the degree of authoritarianism in the host country's government. We treat these variables as endogenous as both dependency and modernization hypothesize relationships among them. We find that there are only weak long‐term relationships between polity, development, and USDI. These results fully support neither the modernization nor the dependency model.

Notes

An earlier version of this paper was presented at the Annual Meeting of the International Studies Association, February 20–24, 2001, Chicago, IL. We would like to thank Howard Handelman, Will Moore, and Glen Biglaiser for helpful comments and suggestions.

Authors made an equal contribution and are listed in reverse alphabetical order. Contact information: Uk Heo, Department of Political Science, University of Wisconsin‐Milwaukee, P.O.Box 413, Milwaukee, WI 53201, U.S.A., Email: [email protected]; Karl De Rouen, Jr., Department of Political Science, University of Canterbury, Private Bag 4800, Christchurch, New Zealand, Email: [email protected].