The political economy of the uncertainty of capital flows: A historical reappraisal from Prebisch to Neo-Dependentists

Abstract

The transformation of developing economies, particularly South American, triggered by the post-2008 reversal of international capital flows and the subsequent expansion of their financial sectors has implied a resurgence in the popularity of what we might call a neo-dependentist approach, focusing on the concept of financial subordination. This approach, while convincing on the theoretical and analytical planes, has revealed some controversial implications. By emphasising the role of external constraints on developing economies, the pivotal role of financial subordination implicitly limits the space for possible reforms at regional, subregional, and national levels to mitigate the effects of the uncertainty associated with international capital flows. Drawing from the history of economic thought, we consider the numerous analogies between the financial subordination approach and Latin American Structuralism and Raul Prebisch, particularly in the field of political economy. A careful reappraisal of Prebisch’s (self-critical) last book can provide interesting insights into the current problems.