Economic dependence

Economic dependence describes a situation in which a country, institution or sector relies significantly on resources, financing, markets, technologies or decisions controlled elsewhere.

Receiving external financing does not, by itself, constitute dependence. The main question is how far the recipient can continue to function if that external contribution falls, disappears or becomes subject to new conditions.

The capacity for replacement

Dependence can be assessed by asking what could replace the external resource.

If foreign financing stops, can domestic taxation take over? If an imported technology is no longer available, is there another supplier? If an export market closes, can production be redirected elsewhere? If a development partner withdraws, can the state finance the service itself or turn to another partner?

The fewer the alternatives, the greater the dependence.

Several forms of dependence

Dependence may concern financing, trade, technology, energy, food, defence or access to infrastructure.

A country may therefore be relatively autonomous in one field and highly dependent in another. An economy receiving little development aid overall may nevertheless rely heavily on external financing for a particular health programme or public service.

National averages can conceal these sectoral differences.

Aid and economic dependence

A high level of aid does not automatically establish dependence, just as a low level does not prove its absence.

Aid used to build infrastructure, train staff or develop productive capacity may reduce future dependence. Aid that finances an essential recurrent service for many years without a credible means of replacing that financing may create or maintain a more fragile situation.

The relevant question is therefore not simply whether aid exists, but what happens when it stops.

The limits of measurement

No single indicator measures economic dependence in all its forms.

ODA as a percentage of gross national income may indicate the relative weight of development aid. The share of a trading partner in exports or imports may reveal trade concentration. External debt, food imports, energy supplies or reliance on a particular technology provide other indicators.

Each measures a different relationship.

Economic dependence must therefore be identified in relation to a specific resource, sector or decision.

Related factsheets

Official development assistance — International co-operation — Conditionality — Exit from aid