Wibbels: Dependency Revisited

Wibbels, E. 2006. Dependency Revisited: International Markets, Business Cycles, and Social Spending in the Developing World. International Organization 60, no. 02: 433-468.

"While increased exposure to the global economy is associated with increased welfare effort in the OECD, the opposite holds in the developing world. These differences are typically explained with reference to domestic politics. Tradables, unions, and the like in the developing world are assumed to have less power or interests divergent to those in the OECD-interests that militate against social spending. I argue that such arguments can be complemented with a recognition that developed and developing nations have distinct patterns of integration into global markets. While income shocks associated with international markets are quite modest in OECD, they are profound in developing nations. In the OECD, governments can respond to those shocks by borrowing on capital markets and spending counter-cyclically on social programs. No such opportunity exists for most governments in the developing world...Thus, while internationally-inspired volatility and income shocks seem not to threaten the underpinnings of the welfare state in rich nations, it undercuts the capacity of governments in the developing world to smooth consumption (and particularly consumption by the poor) across the business cycle" (1; from abstract).

"More specifically, I argue that exposure to international markets affects social spending in developing nations through two steps: first, by increasing the volatility of domestic economies and exposing them to severe business cycles; second, by inspiring pro-cyclical fiscal responses to downturns that imply cuts in social spending" (3).