Effects of Investment Dependence on Economic Growth: The Role of Internal Structural Characteristics and Periods in the World Economy

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Abstract
Dependency theorists have hypothesized negative effects of international economic dependence on economic growth, and recent analyses have demonstrated such negative effects for investment dependence. This research tests the effects on economic growth of the interaction between investment dependence and various forms of internal structural weakness, and it also explores the role of cycles in the world political economy. Highly significant interactive effects are found for national wealth: Poor nations (as measured by per capita GNP) experience significantly larger negative effects of investment dependence on economic growth than do rich nations. Three other structural measures do not show significant effects, but there does appear to be a significant combined interaction effect for national wealth and market size: Those nations which rank both among the poorest in our sample in per capita GNP and among the smallest in size of domestic market (raw GNP) are the most adversely affected by investment dependence. This is seen as further evidence for the general proposition that features of a nation's internal strength mediate the relationship between foreign investment and economic growth. The comparative effects of investment dependence in a period of rapid world economic expansion and in one of relative contraction vary according to the control variable used in the analysis. Overall, the results indicate that the effects of investment dependence may be less uniform than dependency theorists assert.

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