Table of Contents
Economic Geography: A Global Study
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.
I. 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
Mixed Economic System
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.
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 include: initial periods of inflation, unemployment and a less equal distribution of income.
Because of these problems, structural adjustment policies have become quite controversial.
II. Free Trade
Benefits of Free Trade
Criticisms of Free Trade
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.
Why do most economists support free trade?
Measures of 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.
Measures of Economic Development
o literacy rate
o life expectancy
o health care
o caloric intake
o infant mortality
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 Sector Activities: Extraction or Growth
1. hunting and gathering
2. agriculture and herding
a. environmental issues (Green Revolution)
o groundwater depletion
o genetic losses
3. gathering (forestry, fishing)
B. Secondary Sector Activities: Manufacturing and Processing, also construction and power production (value-added)
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 Sector Activities: Services (quaternary, quinary)
1. low level: local services
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
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
4. normal individual and country changes
o improvements in technology allow for mechanization ... particularly important in agriculture
o raw materials run out or become too expensive to mine
o workers prefer well paid, less “dirty” tertiary jobs to primary jobs
o increased tertiary employment results from improvements in technology
o secondary industries decline in MDCs because of competition from NICs that have cheaper labor costs
E. Working in LDCs vs MDCx
Most people in MDCs have formal jobs in which they have regular hours, a weekly set wage, reasonable working conditions and pay taxes.
In LDCs, while many people do have formal jobs many have Informal jobs. These
jobs don't involve the payment of taxes, are often unskilled and labor
intensive, require little money to set up and offer no protection to the worker
if they are sick or fall on hard times. Examples of informal jobs include shoe
shining, beach vendors and small shanty town businesses. All rob governments of
valuable tax money but provide an income for people with next to nothing.
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 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 control supply and prices.
Very few people in the world are exclusively members of one of these systems. 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:
Location of Economic Activities
The following factors can effect the location of secondary economic activities:
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.
Energy: often needed in manufacture of goods
Capital: businesses need money in order to get started
Land: for secondary industry, large areas of flat cheap land are often needed and room to expand is preferred
Transport: roads, rivers and rail offer ways for businesses to move inputs and finished products
Government policy: the British government used to give money to companies to locate in depressed areas
Some industries engage in weight reduction to minimize transportation costs.
Some industries operate on a weight gaining production to minimize costs.
Finished goods and raw materials can be moved several ways including:
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
These may be the most prominent areas right now but some of the secondary areas are becoming more and more important.
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.
The Costs of Development
Development comes at a cost.
Industrialization: Environmental degradation and safety
Large development projects (dams)
Barriers to Development
Natural resources must be used more efficiently and their supplies expanded. Resource distribution is very uneven as is evidenced by the wealth of the OPEC countries. Often ownership of natural resources is an issue if they belong to corporations in industrially advanced countries. However, weak resource bases are not necessarily impossible to overcome as Switzerland, Israel and Japan have shown.
Overpopulation is the rule. An annual population growth of approximately 1.8 percent in these countries means that their populations double approximately every 35 years. This compares to an average 0.7 percent rate of population growth in advanced countries. It means that economic growth must be very rapid to make any gain on population.
Population growth accelerates with economic growth as better living conditions extend life.
Birth rates remain high as medical care and sanitation cut infant mortality.
Population growth hinders development because large families create obstacles to development. They reduce the ability of households to save, more investment is required to keep up with increases in the labor force, an overuse of agricultural land may occur and massive urban problems are generated.
High unemployment and underemployment are characteristics of developing countries with rates in the vicinity of 15 to 20 percent. This may become worse as rural populations migrate to cities in the hope of finding jobs that are not there. Underemployment occurs when workers are employed less time than desired or at jobs that do not fully utilize their skills.
Low labor productivity occurs because there has not been enough investment in physical or human capital. Furthermore, often there is no entrepreneurial class. Higher education is often oriented toward the humanities rather than technical areas, and some of the best workers have migrated from their home countries, causing what is called the "brain drain."
Capital accumulation is an important focus. All developing countries suffer from a lack of capital goods — factories, machinery and equipment, public utilities, etc. Better equipped workers would improve productivity. Increasing the stock of capital goods is crucial because of the very limited possibility of increasing the supply of arable land. Once begun, the accumulation of capital may be cumulative if it can raise output faster than the population grows. Domestic capital formation must come as a result of domestic saving. A nation cannot consume everything it produces if it wants to invest in the future. Savings potential is not promising in the poorest countries and may require foreign investment in these countries. Another concern has been capital flight, which occurs when citizens who have been able to save transfer their savings to developed countries for safety and higher returns. This is a significant problem. Obstacles to investment include the lack of investors but also the lack of incentive to invest. Education and skilled workers as well as an adequate infrastructure are needed to encourage private investment. One potential bright spot is in-kind or nonfinancial investment in the form of surplus labor working on the improvement of the infrastructure and other capital improvements.
Technological advance is a somewhat separate process from capital formation. In some cases developing countries are able to transfer new technologies that are capital-saving. Technological borrowing has aided the rapid growth of the Pacific Rim region. OPEC nations have benefited in similar ways and the former Soviet bloc countries and republics are seeking western technology. On the other hand, developing countries often require technology appropriate to their resource mixes and must develop their own.
Sociocultural and institutional factors: One intangible ingredient is the "will to develop." Tribal allegiances may take precedence over national identity. Religious beliefs and observances may restrict the length of the productive workday. A caste system may allocate labor inefficiently. The lack of land reform is an obstacle in predominantly agricultural countries.
Between 1965 and 1995 significant economic progress was made in both the developed and underdeveloped countries of the world.
Most developed 3.5%
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.
Explanations of Underdevelopment
There are several geographic and demographic factors that can be used to explain the underdevelopment of a place including:
Characteristics of the Population
In many cases these explanations may be valid, but there are always exceptions.
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
Fully integrated economy
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.
More Developed vs. Less Developed
We often divide the world into two broad categories of countries:
Such a broad regionalization scheme is likely to be overly simplistic, yet it is commonly used and can be quite helpful. Often we use different terms to describe each region.
The IMF uses slightly different terms as you can see on the map above: advanced economies, in transition, less developed and least developed.
Another set of terms sometimes used is industrially advanced countries and developing countries.
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
1. GNP per capita
2. Population Growth
3. Occupational Structure of the Labor Force: MDCs tend to have very little primary industry, some secondary industry and the majority of people working in tertiary or service industries. LDCs tend to have most people working in primary industries and very few workers in the secondary and tertiary industries.
5. Consumption per capita
7. Social Conditions
o literacy rate
o life expectancy
o health care
o caloric intake
o infant mortality
Great disparities exist within realms and within individual countries. Nevertheless, the terms are commonly used and we should be familiar with their meanings.
One thing we do know in making comparisons: The absolute income gap between rich and poor nations has been widening. For example, if per capital income is $400 a year in a DVC, a 2% growth rate means an $8 increase in income. Where per capita income is $20,000 per year in an IAC, the same 2% growth rate translates into a $400 increase in income.
Definitions of the Measures of Economic Development
GDP per capita
Which country produces more (has a higher GDP), India or Switzerland? Which is more "developed"?
The GDP of India is $336 billion and the GDP 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 GDP PER CAPITA. To calculate GDP per capita (or income per person) we divide the GDP by the population. The GDP per capita of Switzerland is $40,630 and the GDP per capita of India is $ 340.
Remember, always use GDP PER CAPITA when comparing the economic conditions of different countries.
Other Ways of Measuring Wealth
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: the percentage of a country's population who live in urban areas
Note the high urbanization found in the more developed countries and in South America.
Similar maps could be made for televisions per capita or cars per capita.
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
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.
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.)
CIESIN has a similar classification: The Wellbeing of Nations.
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
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
4. Australia / New Zealand
Developing Country Policies for Promoting Growth
Developed Country Policies for Fostering Developing Country Growth