This study attempts to determine the factors that affect a Third World country's role in the international division of labor, as measured by the degree of processing of its exports in 1980. Competing hypotheses arising from the classical and neoclassical economic, neo-Marxist, and modernization literatures are tested by using a cross-sectional design in which the units of analysis are Third World states for which comprehensive data could be collected. The findings suggest that a number of states have ascended the hierarchy of the international division of labor through a process of indebted industrialization. The present study provides empirical support for Frieden's (1981) contention that international banking capital (rather than direct transnational investment) has been relied upon by proactive Third World states in their effort to diversify their exports by developing more advanced production processes.
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