Economic geography is the study of how people earn their living, how economic systems vary by area, and how economic activities are spatially interrelated and linked. We cannot evaluate the infinite variety of all the people of the earth and how they make their living. Economic geographers seek consistencies and attempt to develop generalizations to understand the variations. All over the world, economies are undergoing an economic adjustment process. This process is described by many different names like structural adjustment, globalization, export oriented industrialization and sometimes simply economic development. Generally these changes involve a movement from more government involvement in the economy to less government involvement or from command economies to capitalist economies. 1. GLOBAL TRENDS A. A Move toward Capitalism CAPITALISM - An economy where economic resources are privately owned and economic decisions are answered by the marketplace with a limited role for government COMMAND ECONOMY - An economic system where economic resources are owned by the government and the government makes all economic decisions
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CHARACTERISTIC |
COMMAND ECONOMY |
MARKET ECONOMY |
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ownership of resources |
government ownership |
private ownership |
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decision making |
centrally planned |
by the market |
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motivation |
social good |
self interest and profit |
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prices and wages |
set by the government
often distorted |
set by the market
change with market |
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result |
inefficient
full employment
low inflation
low standard of living
shortages
more equal distribution |
economic efficiency
periods of unemployment
periods of inflation
high standard of living
wide range available
less equal distribution |
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problems |
corruption=self interest
lack of incentives
distorted prices
inefficiency |
monopoly= inefficiency
inequality
changing prices
instability
pollution |
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OVERALL |
LESS FOR MORE
(INEFFICIENT) |
MORE FOR LESS
(EFFICIENT) | MIXED ECONOMIC SYSTEM ALL economic systems are mixed systems containing features of both command economies and capitalist economies. PURE capitalism and PURE command economies do not exist. Economies vary along a continuum between pure capitalism and pure command economies.
Structural Adjustment - A series of economic policies designed to reduce the role of government in the economy by replacing government control with market incentives. The goal is to promote private initiative and private investment, thereby creating jobs and economic growth. Policies 1. Privatization (selling government owned assets to private owners) 2. Promotion of Competition 3. Limited and Reoriented Role for Government 4. Price Reform - removing government price controls, letting the market set prices 5. Joining the World Economy through freer trade 6. Macroeconomic Stability - lower government budget deficits and less government spending to reduce inflation and promote private investment Benefits - A market-based economic system achieves efficiency. Fewer resources are wasted. Problems - Common problems associated with structural adjustment programs include: initial periods of inflation, unemployment & a less equal distribution of income.
Because of these problems, structural adjustment policies have become quite controversial.
B. Free Trade
BENEFITS OF FREE TRADE Scores of studies have shown that lowering trade barriers makes everyone better off. Citizens in countries that have an average tariff rate of 4% or less have an average per-capita income of $17,000 compared to only about $2,000 for those in countries where tariff rates are 20% or more. Countries with open trade policies register economic growth at an average rate of 4.5% annually -- compared to only 1% among those with closed borders. GDP among countries with open policies has grown an average of 2.3% annually -- contrasted to growth of only 0.7% annually among those with restrictive policies. Protectionism costs the world economy upward of $450 billion a year. Numerous free-trade pacts signed over the past ten years have contributed mightily to the US economy. Trade accounts for almost 25% of US GDP. More than 12 million US workers owe their jobs directly to exports. The goal of economic activity is to produce more products for us, NOT to make us work more. Free trade leads to a more efficient use of resources (productive efficiency) and higher standards of living. Free trade changes the jobs in a formerly closed economy but it has little effect on the unemployment rate. Free trade is morally good. In fact it is great, because it has integrated previously marginalized, poor people into the world economy and provided them with higher standards of living. Free trade is better and more powerful than bureaucratic elites and their “North-South dialogues”. Free trade is real, powerful and beneficial because it will transfer power from developed countries to developing ones. Leftist critics of free trade (the anti-globalization movement) are in fact conservative, they want to retain the status quo. Free trade refers to the lowering of trade barriers and the liberalization of economic policies and labor laws. Free trade creates losers, but it creates more winners than losers. Free trade creates jobs. Millions of jobs. Maybe not great jobs, but a job in a factory is better than no job at all. Free trade can be stopped, but this requires a more powerful state that can repress individual rights and freedoms. This is undemocratic. Free trade is associated with democracy. Where we have free trade, we will generally have democracy and more freedoms.
CRITICISMS OF FREE TRADE Free trade increases inequality in the world. Free trade increases poverty in the world. Or at least, it does not decrease it. Free trade creates a “race to the bottom” in terms of workers’ rights, wages, environmental standards and child labor as states, regions and even towns compete to attract mobile business. Free trade is un- or anti-democratic. Transnational corporations are immune from voters. Free trade strips power away from democratic institutions. Free trade is racist and/or sexist. Free trade generally privileges white male executives. Free trade generally punishes people of color and women. Advocates of free trade are mostly white men. Critic of free trade are often people of color, people from poorer countries, women. Free trade is basically a new form of colonialism and exploitation. Free trade destroys traditional cultures that have developed over millennia.
OPTIONAL
RESOURCES Crossing Borders: The Globalization Debate www.ncpa.org/pub/ba552/ www.ncpa.org/pub/ba553/ www.usatoday.com/news/opinion/editorials/2004-02-24-our-view_x.htm www.cato.org/pub_display.php?pub_id=3149 http://online.wsj.com/article/SB115154575286293835.html www.ibdeditorials.com/IBDArticles.aspx?id=267058785139593 www.investors.com/editorial/editorialcontent.asp?secid=1501&status=article&id=243039096248967
All recent US presidents, a majority of the US Congress and a majority of the US public support the removal of trade barriers.
Some very vocal groups do often argue that free trade will hurt the US, but they are definitely in the minority. Countries around the world are lowering their trade barriers. Many are signing bilateral and multilateral free trade agreements with their neighbors.
C. Economic Development Economic
development is a difficult concept to define and to achieve. Economists often use an increase in GDP per capita as the measure of economic development.
The present trend in economic development aid is often stated as TRADE, NOT AID, which favors the removal of restrictions on trade with poorer countries (LDCs) rather than increased financial aid. (As a percent of GNP, the US is NOT a leader in foreign aid donations.)
EXPORT ORIENTED INDUSTRIALIZATION - an economic development strategy which emphasizes production for export and few restrictions on imports … the leading development strategy today … South Korea
IMPORT SUBSTITUTION INDUSTRIALIZATION
- an economic development strategy which restricts imports to generate a domestic market for the country's products … common in the past, less common today … India, Sri Lanka
MEASURES OF ECONOMIC DEVELOPMENT
1.
GNP per capita -
the total market value of all final goods and services produced by a country in one year. It is a measure of economic activity, or how much is produced in a country. The more that a country produces per person, the more "developed" it is assumed to be.
2.
Population Growth
3.
Occupational Structure of the Labor Force - Economic geographers divide economic activities into primary activities, secondary activities, and tertiary activities. (Some add quaternary activities and quinary activities.)
o
PRIMARY ACTIVITIES are those that directly remove resources from the earth. Generally they include agriculture, mining, fishing and lumbering.
o
SECONDARY ACTIVITIES involve converting resources into finished products. These are the MANUFACTURING activities.
o
TERTIARY ACTIVITIES comprise the service sector of the economy. The tertiary activities include retailing, transportation, education, banking, etc.
4.
Urbanization - Urbanization is the percentage of a country's population who live in urban areas. Urban areas generally means in towns and cities of 2,500 or more people. Currently just less than half of the world’s population lives in urban areas. Generally as countries develop urbanization increases.
5.
Consumption per capita -
Consumption per person is a good indicator of development. The richer a country is, the more its citizens consume.
6.
Infrastructure -
the foundations of a society: urban centers, transport networks, communications, energy distribution systems, farms, factories, mines, and such facilities as schools, hospitals, postal services, and police and armed forces.
7.
Social Conditions
o
literacy rate
o
life expectancy
o
health care
o
caloric intake
o
infant mortality
o
other
ECONOMIC ACTIVITIES
One way to view economic activity is along a continuum of both increasing complexity of product or service and increasing distance from the natural environment.
In general more money/profit is made the higher the activity.
Primary industries are tied to the natural resources they gather or exploit. Location is determined on the availability of these resources.
The other activities -
secondary, tertiary, quaternary - are increasingly divorced from the condition of the physical environment. Location is less and less important and these activities are movable.
A.
Primary activities- extraction or growth
1.
hunting and gathering
2.
agriculture (and herding)
a.
environmental issues (Green Revolution)
§
salinity
§
groundwater depletion
§
genetic losses
§
pollution
§
deforestation
b.
sustainability
3.
Gathering (forestry, fishing)
Tragedy of the commons
4.
extraction
a.
mining
b.
oil
B.
Secondary activities - manufacturing and processing, also construction and power production (value-added)
1.
traditional
a.
fixed costs (supplies, minimum wage)
b.
location factors (land, labor, transportation, taxes, interdependence)
c.
outsourcing (competitive advantage)
d.
transnational corporations
2.
high tech
a.
regionally concentrated
b.
specialized by area
C.
Tertiary activities - services (quaternary, quinary)
1.
low level – local services
2.
tourism
3.
high level – skill based, spatially dispersed
D.
Patterns of change
1.
dependency theory - development in one place requires under-development somewhere else
2.
cumulative causation - buildup of advantages from an initial advantage
o
self-propelling process
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agglomeration
o
attraction to core
o
depletes periphery
3.
spread effects
o
positive impact of growth in core
o
lower costs in periphery provide goods and services to core
o
may start own cumulative causation cycle
Economic Systems
For the most part, national economies fall into one of three major types of system:
In a
subsistence economy, goods and services are created for the use of the producers and their kinship groups; there is a limited cash economy.
In the
commercial / market economies, producers or their agents freely market their goods and services - supply and demand.
In
planned economies, which are associated with communist-controlled societies, government agencies controlled supply and prices.
Very few people in the world are exclusively members of one of these systems. But in a given country one of these three economic systems are dominant, but also changing.
The Flow of Goods
The flow of goods is the response to the uneven distribution of resources.
Edward Ullman observed that spatial interaction is effectively controlled by three flow-determining factors:
Complementarity
Transferability
Intervening Opportunities
Complementarity - For two places to interact one place must have a
supply of a product for which there is an effective demand in another place. Keep in mind the buyer must desire the product
and have the ability to pay.
Transferability - an expression of the mobility of a product and is a function of:
The value of the product
The distance measured in time and money
The ability of the commodity to bear the costs of movement
Transferability is not a constant condition.
Intervening Opportunity - Goods will move only in the absence of a more attractive alternative which may be closer or cheaper. Examples: Sand, Fruit in California, Job Opportunities
Location of Economic Activities
The following factors can effect the location of economic activities (industries):
Raw materials
Power supply
Labor
Market
Raw Materials - The processing of raw materials tends to take place near where the material is found.
Material orientation
- the tendency of an economic activity to locate near or at its source of raw materials.
Power Supply - Some power supplies are not mobile. Such was the case in the early part of the Industrial Revolution when water power sites localized textile works. Fuel supplies (initially charcoal, later coking coal) drew the iron and steel industries to where fuel supplies are plentiful.
Labor - Labor is also a spatial variable affecting location decisions and industrial development. Some activities require cheap unskilled labor and others demand highly trained/educated labor.
Market - Goods are produced to supply a market demand. Therefore, the size, nature and distribution of markets may be as important in industrial location decisions as are raw materials, energy, labor or other factors. When the transportation charges for sending finished goods to market and are a relatively high proportion of the total value of the good, then the attraction of location near to the consumer is obvious and
market orientation results.
Transportation
Some industries engage in
weight reduction to minimize transportation costs.
Copper smelting
Some industries operate on a
weight gaining production to minimize costs.
Soft drinks
Finished goods and raw materials can be moved several ways including:
Water transportation
Railroads
Trucks
Airways
Pipelines
The transportation method used will be dependent on the value and the physical form the product.
Major Manufacturing Regions of the World
There are four commonly recognized major manufacturing regions of the world including:
Eastern Anglo America
Western and Central Europe
Eastern Europe
Eastern Asia
These may be the most prominent areas right now but some of the secondary areas are becoming more and more important.
Anglo-American Manufacturing Belt
Although declining in importance, the Anglo-American industrial belt is still a major force in world industrial production. The beginnings of the Anglo American manufacturing belt first emerged in New England in the early 19th century where water was used to power the industries and later to the cities on the East Coast. The core of development was across the Appalachians into the interior along the Ohio River Valley and the Great Lakes.
This area peaked in the 1950s and 1960s and has been declining as an industrial area (Rust Belt).
La Frontera
North America’s fastest growing industrial region lies along the US-Mexican border. This area is called La Frontera by the Mexicans that are employed there. This is a product of NAFTA and outsourcing by US and foreign firms who piece together products for duty-free import to the US. These industrial plants are called
maquiladoras.
Western Europe
Western Europe is where the Industrial Revolution began and this area has been a source area for the diffusion of industrialization across the globe. By 1900, Europe accounted for 90% of the world’s industrial output. This has dropped significantly especially after World War II. Like the US, much of this industrialization was fueled by good transportation network, abundant amounts of coal and iron ore deposits.
Eastern Europe
The industrial areas of Eastern Europe were under Communist control from World War II to 1990, with an emphasis on heavy industry. This industry was for the most part, poorly planned, technologically antiquated and had poor waste disposal and handling practices, which resulted an industry that poisoned many areas and is not competitive in a global economy.
Eastern Asia
The Eastern Asia sphere is rapidly becoming the most productive of the world’s industrial districts.
Japan - second ranked in the world
China - has a rich resource base, massive labor force and a nearly insatiable market-demand … is industrializing rapidly and ranks among the top ten of industrial products produced
Four smaller Asian economies - Hong Kong, Taiwan, South Korea and Singapore … have become major manufacturing and trading forces in the world market
High Tech Activities
High tech industries include:
Research
Information packaging/manipulation (software)
Electronics, computers (hardware)
Biotechnologies
Medical technologies (pharmaceuticals)
Location of High Tech Activities
At least five location tendencies of high tech industry have been recognized:
Availability of first quality communication and transportation facilities
Proximity to major universities and research facilities
Avoiding areas with unionized labor
Locally available venture capital
Location in regions of major metropolitan areas with favorable quality of life
DEVELOPMENT
Development can be defined as the extent to which the resources of an area or country have been brought into full productive use. Development may also imply the degree of modernization or how economically advanced a place is; what is the dominant way that people make a living.
Geographers attempt to classify and group countries along the development continuum in ways that are spatially informative. In the broadest sense the most developed countries stand in easy contrast to the least developed, but there are many countries that fall somewhere in-between these two extremes.
Third World Countries
The term third world is used many times to describe underdeveloped countries. This term was first used to describe a political situation, but has changed meaning and is used now to describe the least developed parts of the world.
First World
Second World
Third World
The Costs of Development
Development comes at a cost.
Industrialization - Environmental degradation and safety
Large development projects (dams)
Measuring Development
Between 1965 and 1995 significant economic progress was made in both the developed and underdeveloped countries of the world.
Most developed - 3.5%
Developing - 5.3%
The most developed countries still account for 75% of the world’s exports and dominate the international financial markets.
There are several ways to measure development including:
Economics
Energy consumption
Workforce engaged in agriculture
Non-economic measures
Gross National Product
The gross national product (GNP) measures the total market value of goods and services produced in an economy within a given year. The GNP is a fairly accurate way to measure wealth in commercial (cash) economies.
Purchasing Power Parity
The GNP is not the best way to measure development in subsistence economies; the GNP systematically understates the real value of goods and services in a non-cash economy. A different index has been developed called the purchasing power parity (PPP) which takes into account the wealth of economies where goods and services are not cash exchanges.
Energy Consumption
Per capita energy consumption is a common measure of technologically advanced nations. Industrialized countries use about ten times more energy than lesser developed countries. The cost of energy makes it prohibitive for lesser developed countries to purchase.
Workforce Engaged in Agriculture
The percentage of the workforce engaged in agriculture is almost invariably associated with economic development. The higher the percentage; the lesser developed. The lower the percentage; the more developed.
Non-Economic Measures
Development can be measured by other indices including education, public services and health. Wealth brings many services to an economy (education and health care) and it is hard to separate these indices and the wealth of a place. Therefore the patterns of underdevelopment remain the same even when non-economic indices are used to measure development.
Explanations of Underdevelopment
There are several geographic and demographic factors that can be used to explain the underdevelopment of a place including:
Location (Climate)
Accessibility
Resource poverty
Characteristics of the Population
In many cases these explanations may be valid, but there are always exceptions.
Location
Does location matter? It appears that tropical areas of the world are underdeveloped and that mid-latitude areas are developed, but there are exceptions.
Afghanistan, North Korea, Mongolia
Singapore and Malaysia
Accessibility
Accessibility is a prerequisite for development. No advanced economy can flourish without a well-connected transport network and the least developed countries of the world are many times characterized by their isolation from regional and world route ways.
Countries that are landlocked (without access to the ocean) are particularly susceptible to underdevelopment. It is this isolation, not the culture that restricts the progression to more technologically advanced forms of economic structure.
Resource Poverty
Resource poverty is also used to explain underdevelopment, but there are exceptions.
Japan
Iraq
Some economists maintain that reliance on natural resource wealth by lesser developed countries undermines growth by interfering with the development of industry.
Ivory Coast
Population Characteristics
Characteristics of the population that may impede development include:
Age (Population Pyramids)
Fertility Rates
Overpopulation
Ethnic Groups
Languages
Geography & Development
There is no single or simple explanation of underdevelopment that accounts for any one place in the world. Development may be impeded when a country has many of the geographic and/or demographic characteristics that have been described. The history of a place can also be a factor. Keep in mind that these are obstacles to development, but it does not mean that these places will not develop.
The Core-Periphery Argument
One way to look at development is to look at the history of a place.
Core-periphery models are based on the observation that within many spatial systems sharp territorial contrasts exist in wealth, economic advancement and growth between economic heartlands (urban cores) and outlying subordinate zones (periphery).
The growth of the core is at the expense of the periphery. In the most optimistic view of development the core-periphery model has four stages:
A pre-industrial society
The core-periphery stage
Spread effects
Fully integrated economy
Core-Periphery - Circular & Cumulative Causation
During stage 2 as innovations are developed and the core area becomes more and more prosperous a cycle of
Circular and Cumulative Causation gets set in motion which polarizes development in the core while the periphery is milked of surplus labor, raw materials and profits. The growth of the core is at the expense of the periphery.
Core-Periphery - Global Scale
On the international scene, core-periphery contrasts are discerned between prosperous core areas (US, Western Europe and Japan) and the underdeveloped (Third World) periphery. The least developed areas provide the raw materials and the core areas produce the finished goods which have much higher profit margins. This is an example of
circular and cumulative causation on a global scale.
Neocolonialism
In many cases the least developed countries of the world are former colonies which were used to extract raw materials for the industrialized countries of the world while under the rule of the colonial power. While almost all of these former colonies are now self ruled they still provide the raw materials to the developed part of the world … thus the term
neocolonialism.
The Core-Periphery - National Scale
This idea can also be seen within countries where the urban-core will take in the raw materials (labor, energy, food) from the periphery and produce the finished goods which are sold to the periphery and have much higher profit margins than the raw materials.
East Coast of US and the interior
Trickle-Down or Spread Effects
Stage 3 is called the trickle-down
or spread effect stage. As regions reach higher levels of economic development the benefits (innovations, capital) of the core spread out (trickle-down) or diffuse into the periphery. Sometimes the spread of benefits is based on location decisions that will earn more money for the core.
The Four Stages of Core-Periphery
A pre-industrial society - Hunting and Gathering
The core-periphery stage - Agriculture and CCC
The Least Developed Countries
Spread effects - Technology and Capital
The Developing Countries of the World
Fully integrated economy
The Most Developed Countries of the World
MEASURES OF DEVELOPMENT
We often divide the world into two broad categories of countries:
1.
the More Developed Countries (MDCs) and
2.
the Less Developed Countries (LDCs)
Such a broad regionalization scheme is likely to be overly simplistic, yet it
is commonly used and can be quite useful. Often we use different terms to describe each region.
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More Developed Countries (MDC)
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Less Developed Countries (LDC)
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Developed Countries
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Underdeveloped Countries
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Industrialized Countries
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Agricultural Countries
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First World
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Third World
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Haves
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Have Nots
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Rich Countries
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Poor Countries
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The North
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The South
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Industrially Advanced Countries (IACs)
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Less Industrialized Countries
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A new term that is being used a lot now is:
THE GLOBAL SOUTH
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One set of terms that we use less and less is: First World Countries and Third World Countries - Why? Well, what is the Second World? How can you have a first and a third without a second? The Second World used to be the command economy (communist) countries of the Soviet Union, Eastern Europe, China, North Korea, Cuba, Vietnam, and a few other countries. With the collapse of communism in most of these countries the "Second World" no longer exists.
What criteria do we commonly use to divide the world into the MDCs and the LDCs?
Some of the most commonly used Measures of Economic Development are:
1.
GNP per capita
2.
Population Growth
3.
Occupational Structure of the Labor Force
4.
Urbanization
5.
Consumption per capita
6.
Infrastructure
7.
Social Conditions
o
literacy rate
o
life expectancy
o
health care
o
caloric intake
o
infant mortality
o
other
Great disparities exist within realms and within individual countries. Nevertheless, the terms are commonly used and we should be familiar with their meanings.
Definitions of the Measures of Economic Development
1. GNP per capita -
the total market value of all final goods and services produced by a country in one year. It is a measure of economic activity, or how much is produced in a country. The more that a country produces per person , the more "developed" it is assumed to be.
2.
Population Growth
3. Occupational Structure of Labor Force - geographers divide economic activities into primary, secondary
& tertiary activities. (Some add quaternary & quinary activities.)
o
PRIMARY ACTIVITIES are those that directly remove resources from the earth. Generally they include agriculture, mining, fishing & lumbering.
o
SECONDARY ACTIVITIES involve converting resources into finished products. These are the MANUFACTURING activities.
o
TERTIARY ACTIVITIES comprise the service sector of the economy. Include retailing, transportation, education, banking, etc.
4.
Urbanization - the percentage of a country's population who live in urban areas. Urban areas generally mean in towns / cities of 2,500 or more people. Currently just under half of the world’s population lives in urban areas. Generally as countries develop urbanization increases.
5.
 Consumption per capita - Consumption per person is a good indicator of development. The richer a country is, the more its citizens consume.
6.
Infrastructure -
the foundations of a society: urban centers, transport networks, communications, energy distribution systems, farms, factories, mines, and such facilities as schools, hospitals, postal services, and police and armed forces.
7.
Social Conditions
literacy rate caloric intake
life expectancy infant mortality
health care other
Key Development Data & Statistics -
http://go.worldbank.org/1SF48T40L0
GNP per capita
Which country produces more (has a higher GNP), India or Switzerland? Which is more "developed"? The GNP of India is $336 billion and the GNP of Switzerland is $288 billion. India produces more than does Switzerland, but everybody would agree that Switzerland is more economically advanced. Why? The answer is population. The population of India is 988 million and the population of Switzerland is 7 million. Therefore we must compare GNP PER CAPITA. To calculate GNP per capita (or income per person) we divide the GNP by the population. The GNP per capita of Switzerland is $40,630 and the GNP per capita of India is $ 340. Remember, always use GNP PER CAPITA when comparing the economic conditions of different countries.  Occupational Structure of the Labor Force
As countries develop the occupational structure of the labor force changes. In LDCs most people are engaged in primary activities. In high income countries like the United states most people are involved with the tertiary sector. Urbanization 
Note the high urbanization found in the more developed countries and in South America. Consumption per capita
Similar maps could be made for televisions per capita or cars per capita.
Infrastructure  This map shows the state of development of the transportation system as a measure of its length per area of land. The darker the color the more developed is the transportation system and hence, a greater the degree of economic development is assumed. Social Conditions There are other measures of economic development. Many refer to the social conditions of a country.   Human Development Index GNP per capita is the most used indicator of development yet there are some significant problems with it. Therefore, the United Nations Development Program (UNDP) computes a Human Development Index for each country each year. The human development index (HDI), is composed of three indicators: life expectancy, education (adult literacy and combined secondary and tertiary school enrollment) and real GDP per capita. (Note: for our purposes, GNP and GDP mean the same thing and they are synonymous with income.) Is it appropriate to divide the world into the More Developed Countries (MDCs) and the Less Developed Countries (LDCs)? Generally, most people would classify the following realms as LDC's: 1. Sub-Saharan Africa 2. South Asia 3. Southeast Asia 4. China 5. North Africa and Southwest Asia 6. Middle America 7. South America 8. the Pacific Realm The more developed realms generally include: 1. North America 2. Japan 3. Europe 4. Australia / New Zealand 5. Russia
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