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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.

Global Trends: 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

o   ALL economic systems are mixed systems containing features of both command economies and capitalist economies.

o   PURE capitalism and PURE command economies do not exist.

o   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 include: initial periods of inflation, unemployment and a less equal distribution of income.

    Because of these problems, structural adjustment policies have become quite controversial.

Optional Resources

Comparing the Broad Social Goals of Command and Market Economies

 

Global Trends: Free Trade

Benefits of Free Trade

o   Scores of studies have shown that lowering trade barriers makes everyone better off.

o   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.

o   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.

o   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.

o   Protectionism costs the world economy upward of $450 billion a year.

o   Numerous free-trade pacts signed over the past ten years have contributed mightily to the US economy.

o   Trade accounts for almost 25% of US GDP.

o   More than 12 million US workers owe their jobs directly to exports.

o   The goal of economic activity is to produce more products for us, NOT to make us work more.

o   Free trade leads to a more efficient use of resources (productive efficiency) and higher standards of living.

o   Free trade changes the jobs in a formerly closed economy but it has little effect on the unemployment rate.

o   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.

o   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.

o   Leftist critics of free trade (the anti-globalization movement) are in fact conservative, they want to retain the status quo.

o   Free trade refers to the lowering of trade barriers and the liberalization of economic policies and labor laws.

o   Free trade creates losers, but it creates more winners than losers.

o   Free trade creates jobs. Millions of jobs. Maybe not great jobs, but a job in a factory is better than no job at all.

o   Free trade can be stopped, but this requires a more powerful state that can repress individual rights and freedoms. This is undemocratic.

o   Free trade is associated with democracy. Where we have free trade, we will generally have democracy and more freedoms.

Criticisms of Free Trade

o   Free trade increases inequality in the world.

o   Free trade increases poverty in the world. Or at least, it does not decrease it.

o   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.

o   Free trade is un- or anti-democratic. Transnational corporations are immune from voters. Free trade strips power away from democratic institutions.

o   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.

o   Free trade is basically a new form of colonialism and exploitation.

o   Free trade destroys traditional cultures that have developed over millennia.

    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?

Do you think like an economist? Take this Quiz.

Most economists would answer "A" to all questions on the quiz. 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.

Optional Resources

Crossing Borders: The Globalization Debate

Geography and Economic Growth from Marginal Revolution University (2:32)

Puzzle of Growth: Rich Countries and Poor Countries from Marginal Revolution University (8:32)

Trade and Economic Growth Part I

Trade and Economic Growth Part II

Job Losses Unfairly Tarnish Benefits of Free Trade

NAFTA Benefits Arizona

More Trade, Less Poverty

Costs and Benefits of Globalization (PDF)

The Three Faces of Globalization (PDF)

Gap between Economic Elite and General Public Created Not by Differences in Expertise but in Priorities

We, the Economy Films: Chapter 4: What is globalization?

o   What is the global trade system? What does it mean to have a globalized economy? And is it good for us? Seven experts break it all down as a troupe of comedic actors enliven the commentary.

o   What happens when jobs disappear? Detroit has been the poster child for the loss of well-paid manufacturing jobs, but this trend impacts communities all over the country. How does a great American city bounce back?

o   Is China's boom good for our economy? China is often portrayed as America’s greatest economic competitor and even accused of not playing fair. But is it possible they could be a key ally in US economic development?

o   What do human rights have to do with the economy? As consumers in a rapidly growing world economy, we have an insatiable appetite for the next greatest electronic gadget, like smart phones and TVs. But can we consume cheap imported products without exploiting someone in the supply chain?

For some excellent discussions about globalization and many related topics, try SUNY’s site Globalization101.org.

The Rise and Fall of Neoliberalism

The Economic Losers in the New World Order: Many nimble economies that were on the rise during decades of free trade are at a disadvantage in a new era of aggressive industrial policy.

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, or the dominant way that people make a living. As you will see below, there are a number of ways to classify the world's countries in terms of development. For now, however, we'll use a simple dichotomy: developed countries (countries that are richer and have more industry and service jobs) and developing/undeveloped/underdeveloped countries (those that are poorer and have more jobs in farming and mining).

Between 1950 and 1975, the GNP per capita of the developing countries as a group grew at an average rate of 3.4% a year. This was faster than either the developing countries or the developed countries had grown in any comparable period before 1950 and exceeded both official goals and private expectations. In one group of countries (China, Hong Kong, South Korea, Singapore, Taiwan and a number of the OPEC countries) average per capita income roughly trebled between 1950 and 1975, with the increase spread widely throughout society in most cases. In a second set of countries (Pakistan, Philippines, Thailand, Turkey, some OPEC countries, much of Latin America and incorporating about 25% of the developing world's population) economic growth was moderate to rapid but there was an unequal (and in some cases increasingly unequal) distribution of the benefits of growth. Finally, a third set of countries (much of South Asia and some of the poorer parts of Africa, including about 40% of the developing world's people) experienced slow growth and a relatively unequal distribution of income. Many of the poorest people in these countries (and some of those in the second group as well) improved their economic situation very little during 1950-1975, and significant numbers may even have become worse off in absolute terms. Economic growth can be a force for reducing absolute and relative poverty but it also can contribute to a widening gap between those at the top and the rest of a society.

Many of the countries that experienced rapid, equitably distributed growth between 1950-1975 began the period with relatively equal distributions of assets and incomes. Many of those which experienced rapid, inequitably distributed growth started out with sharply unequal distributions. This suggests that the initial distribution of assets and incomes may be an important determinant of the trend in inequality. During the 1950-1975 period, growth in GNP per capita was affected by growth in population. Between 1950 and 1975 the population of the developing countries increased by 70% (more than 80% if China is excluded). The historical experience also suggests that political stability, of whatever kind, and stability of the economic "rules of the game" were an important and underrated determinant of economic growth. Most of the countries that grew fastest during the period had such stability;

The disparity between richer and poorer countries also increased significantly during that period. Although during 1950-1975 the per capita incomes of the developing countries were growing faster than ever before, so too were those of the developed countries. As a result, the gap between the rich and the poor countries, which had been increasing for 100-150 years, continued to widen.

Between 1965 and 1995 significant economic progress was made in both the developed and developing countries of the world. Developed countries grew by 3.5%, while developing countries grew by 5.3%. But the gap between developed and developing countries continued to widen. The most developed countries still accounted for 75% of the world’s exports and dominated the international financial markets. One thing we do know in making comparisons: The absolute income gap between rich and poor countries has been widening. For example, if per capital income is $400 a year in a developing country, a 2% growth rate means an $8 increase in income. If per capita income is $20,000 per year in an industrially advanced country, the same 2% growth rate translates into a $400 increase in income.

Living conditions and prospects for growth in developing countries deteriorated and their position in international trade and finance weakened substantially. Toward the end of the 1990s, developing countries had taken steps to liberalize their national economies and integrate them into the world economy. Against that backdrop, international attention focused on the benefits of globalization and the growing interdependence in the world economy. Economic growth, by itself, was no longer a sufficient factor of development. The focus shifted to a number of institutional preconditions for development, including good governance, transparency and accountability, decentralization and participation, and social security.

Benefits of Development

Development usually equates to economic growth, an increase in real incomes. Economic growth makes it possible for people to enjoy higher living standards.

better health care due to more doctors, hospitals, medicines

better nutrition with plentiful and quality food, and fewer people suffering from malnutrition and hunger

better housing, sanitation, heating, power supply, water, communication, transportation

better education since nearly everyone gets an education to secondary level and many go on to higher education

higher levels of consumption, with more holidays, entertainment, consumer durables

government benefits such as pensions, disability, unemployment, etc from increased taxation

better health and longer life expectancy

Costs of Development

Development comes at a cost. Development usually equates to economic growth, an increase in real incomes. This is usually considered beneficial, but there are also potential costs of economic growth.

Industrialization can lead to environmental degradation and safety concerns.

increased output and consumption

climate change, pollution, and other environmental issues

resulting health problems (asthma) and a reduced quality of life

increased waste and congestion (for example, more people can afford to buy a car but it's hard to increase the supply of roads to meet demand)

increased safety concerns

greater use of raw materials, speeding up the depletion of non-renewable resources and the risk of the unsustainable extraction of finite resources

financial instability

boom and bust economic cycles

inflation

debt and current account deficits

increased and widening inequality

benefits from growth may go to only a few people in a society (for example, those with assets and wealth will see a proportionally bigger rise in the value of their wealth while the unskilled without wealth may benefit much less or not at all)

increase in relative poverty (even when there is a decrease in absolute poverty)

social divisions and conflict (sometimes armed conflict)

growth in unemployment as new markets require workers with new skills

decline in fertility and depopulation

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.

Geographic and Demographic 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 (Afghanistan, North Korea, Mongolia) and that mid-latitude areas are developed, but there are exceptions (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 and 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: pre-industrial society (hunting and gathering), the core-periphery stage, the trickle-down or spread effects stage and a fully integrated economy.

 

Core-Periphery Stage: Circular and 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 (CCC) is set in motion. This 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 (the least developed countries).

Core-Periphery Stage: Global Scale

On the international scene, core-periphery contrasts are discerned between prosperous core areas (US, Western Europe, Japan) and the underdeveloped periphery (Bangladesh, Chad, Malawi, Honduras). 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.

Core-Periphery Stage: 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.

Core-Periphery Stage: 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 (US east coast and interior).

 

Trickle-Down or Spread Effects Stage

As regions reach higher levels of economic development the benefits (innovations, technology, capital) of the core spread/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.

 

Fully Integrated Economy

Economic integration is an arrangement among countries, typically the most developed countries, that includes the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. Global economic integration removes all or part of the trade barriers between nations for economic, social and political stability. It enables global markets to operate more consistently with less intervention, allowing countries to make the most of their resources. Economic integration is widely thought to improve the allocation of resources, promote technology transfer and enhance living standards. At the same time, economic integration has frequently been blamed for growing trade imbalances, increased financial market volatility and less effective domestic economic policies.

Strategies for Development

Based on experiences throughout the world, several basic principles seem to underpin greater prosperity. These include investment (particularly foreign direct investment), the spread of technology, strong institutions, sound macroeconomic policies, an educated workforce and the existence of a market economy. Furthermore, a common denominator which appears to link nearly all high-growth countries together is their participation in, and integration with, the global economy. There is substantial evidence, from countries of different sizes and different regions, that as countries globalize their citizens benefit, in the form of access to a wider variety of goods and services, lower prices, more and better-paying jobs, improved health and higher overall living standards.

Industrial development had an important role in the economic growth of countries like China, South Korea, Taiwan and Indonesia. Along with accelerated growth, poverty rates declined in many countries. Some countries managed to achieve growth with equity, whereas in others inequality remained high.

What can underdeveloped (and developed) countries do to aid in development?

Clearly, there is more than one feasible route to growth and development. In the past, some countries succeeded by pursuing market-oriented, outward-looking strategies, relying on entrepreneurial skills (Taiwan, South Korea, Hong Kong) or physical resources (oil exporters) as the keys to growth.

By contrast, China followed a socialist, inward-looking strategy based on considerable natural resources, ideology and highly effective social organization. Does this mean that a country can select its own socioeconomic system from a full menu of choices? Or do large, poor countries that wish to eradicate poverty necessarily have to follow a route such as China's?

What about small trade-dependent economies: do they have any realistic option other than to follow the Taiwan-South Korea route? A number of smaller countries (Burma, Cuba, North Korea, Sri Lanka, Tanzania) tried to follow basic-needs-oriented paths. In general, is it possible to follow a strategy oriented to equality and basic needs without closing off the economy as China and some of the smaller socialist countries did? If the economy is not closed off, how can talented people be prevented from leaving and how can the generation and local adaptation of technology be fostered?

Despite their obvious differences, the Taiwan-South Korea group of countries and China shared significant similarities. In particular, although the national governments played an important role in establishing an overall policy framework for lower-level decision makers, the bulk of the day-to-day economic decisions were made at a decentralized local level without a great deal of interference from the central government. This division of functions by level seems to have been logical and effective. By contrast, in a number of countries in which the central government got itself involved in detailed decision making at a lower level, the result was often a combination of red tape, bureaucratic delay and arbitrary decisions that stifled initiative.

 

Industrialization

Industrial development has been an important basis for economic growth. Countries may choose to build their industrial capabilities through domestic research and development as Taiwan and South Korea did to a considerable extent. A more common approach has been to plug into global value chains and become a supplier of labor-intensive products, gradually upgrading technological capabilities through foreign investments. This was the strategy used by Mexico and to a somewhat lesser extent by Brazil. The two approaches are not mutually exclusive, and many countries rely on a mix of (1) technology imports and (2) development of domestic technologies and technological capabilities, with the balance tending to shift towards the latter as economic development proceeds. Governments have a significant role in capability-building as well as in attracting foreign investments.

 

Trade, Not Aid

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 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

Taiwan and especially South Korea are examples of export-manufacturing-oriented countries which successfully used government intervention and import protection in the early phases of development of their manufacturing sectors.

 

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 and Sri Lanka are examples.

 

Development with Equity

Since poverty in many developing countries is a predominantly rural problem, increased agricultural productivity was often a key to poverty reduction at the outset of economic development. However, after the early stages of economic development, growth in the industrial sector was essential for sustained growth and poverty reduction. Growth of the manufacturing sector created employment opportunities outside agriculture and, as manufacturing in many of these countries was intensive in unskilled labor, the poor benefited.

Governments still have a primary role in promoting sustainable economic growth and especially poverty-reducing growth. In addition to ensuring stability, well-functioning institutions and appropriate legislation, other essential government actions are related to skills formation, technology support, innovation financing, infrastructure development and provision of a variety of public goods. All these have an impact on the growth and trade performance of a country. Rapid economic growth tends to decrease poverty. Rapid growth may increase income inequality, but this is not inevitable. Inequality can be decreased by subsidized access to education, subsidized housing, progressive taxation or economic asset redistribution like land reforms. Investment in human capital and technological upgrading are essential if a country wishes to remain internationally competitive and sustain economic prosperity.

And this is an on-going problem ... of which the US is an example. Even after a country has achieved development, economic growth continues. So does the potential for widening inequality unless a country's government remains vigilant.

There is more than one feasible route to growth and development but, today, the degree of policy freedom left to developing countries is narrower than it was some decades ago.

Optional Resources

Wallerstein's World Systems Theory

Economic Development

Change in China's Growth-at-Any-Cost Model

Poor, Poorer, Poorest

What Could You Buy With $241 Trillion?

More Developed vs. Less Developed

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.

Geographers have tried for a long time to classify or group countries around the globe with similar characteristics. This has been particularly relevant to development but the characteristics used have changed over time.

One of the earliest classifications - used by the United Nations for the first time in 1945 - was a 3-group division - first (capitalist economies), second (command/communist economies) and third worlds. The term third world 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. We now seldom use the terms first world and second world. The second world used to be the communist countries of the Soviet Union, Eastern Europe, China, North Korea, Cuba, Vietnam and a few others. With the collapse of communism in most of these countries the Second World no longer exists.

The North-South Divide was a division that existed between the wealthy developed countries, known collectively as the North, and the poorer developing and least developed countries, or the South. The divide was part of a report by Willy Brandt on the state of world development in 1971 and classified countries broadly as economically wealthy manufacturing countries (the North) or agricultural countries (the South).

Sorting countries by different stages of development was a more recent classification that grouped countries into: MEDCs - more economically developed countries that were richer and had a lot of industry and service jobs (UK, US, Japan, France), NICs - newly industrialized countries that profited from globalization and technology transfer and developed fastest over the latter part of the 20th century (Taiwan, Singapore, India), and LEDCs - less economically developed countries with primary sector jobs such as farming and mining (Bangladesh, Mali).

A more recent method designed to try and classify countries and their level of development was a five-group division based on wealth: rich industrialized countries (UK, US, Japan, Australia, etc), oil-exporting countries (UAE, Saudi Arabia, Nigeria), new industrializing countries (India, China), former centrally-planned economies (previous communist systems, Russia), and heavily indebted poor countries (Chad, Congo).

It made a better distinction between countries of lower levels of development and accounted for different reasons for wealth. It also took into account the variable success of the formally centrally planned economies such as Russia. The UN also has a program for LDCs, the least developed 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: advanced economies, in transition, less developed and least developed.

Another set of terms sometimes used is industrially advanced countries and developing countries.

1. Industrially advanced countries (IACs) include the US, Canada, Australia, New Zealand, Japan, and most of western Europe. They have developed market economies based on large stocks of capital goods, advanced technologies and a well-educated labor force. They have a high per capita output.

2. Developing countries (DVCs) are 107 unindustrialized nations heavily committed to agriculture. They have low rates of literacy, high unemployment, rapid population growth and their exports are largely agricultural or raw materials. Capital equipment is scarce, production technologies are primitive, and productivity is low. More than 60% of the world’s population lives in these nations, which can be divided into two groups.

1. The first group consists of middle-income DVCs with an average annual per capita output in 1999 of $2,000, but with a range from $756 to $9,265 per capita.

2. The low-income DVCs are the poorest with an average output per capita of only $410 and a range to $755. Dominating this group are India, China and the sub-Saharan African nations.

3. DVCs such as China, Malaysia and Thailand have achieved high annual growth rates in their GDPs in recent decades. Several previous DVCs, such as South Korea, Singapore and Hong Kong have achieved IAC status. But many DVCs, such as those in sub-Saharan Africa, have experienced declining GDPs per capita.

Great disparities exist within realms and within individual countries. Nevertheless, these terms are commonly used and we should be familiar with their meanings.

Measures of Economic Development

Economic development is a difficult concept to define and to achieve. There are several ways to measure development.

Gross National Product (GNP) per capita

GNP is 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 a country produces per person, the more developed it is assumed to be. 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 since the GNP systematically understates the real value of goods and services in a non-cash economy. A different index has been developed called purchasing power parity (PPP) which takes into account the wealth of economies where goods and services are not cash exchanges.

Energy Consumption per capita

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 it.

Consumption per capita

Consumption per person is a good indicator of development. The richer a country is, the more its citizens consume.

Economic Activities

Economic geographers divide economic activities into primary activities, secondary activities and tertiary activities. (Some add quaternary activities and quinary activities.) Primary sector activities are those that directly remove resources from the earth. Generally they include agriculture, mining, fishing, forestry and etc. Secondary sector activities involve converting resources into finished products. These are manufacturing, construction and processing activities. Tertiary sector activities comprise the service sector of the economy. Tertiary activities include commerce, transportation, education, administration, entertainment, financial and real estate activities, business and personal services, health and social work, etc. Quaternary sector activities involve science and research, and include intellectual services such as technological advancement and innovation.

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. Primary industries are tied to the natural resources or raw materials 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.In general, the higher the activity, the more money/profit is made .

 

Primary Sector Activities: Extraction or Growth

1.  hunting

2.  agriculture and herding

3. gathering (forestry and fishing)

a.  environmental issues (Green Revolution)

o   salinity

o   groundwater depletion

o   genetic losses

o   pollution

o   deforestation

b.  sustainability

             

Agriculture around the World
Country	Food Production per capita, 2021 (all edible commodities with nutrients that originate in a country, excluding fish)	Food Production Index, 2021 2014-2016=100	Global Food Security Index, 2022 2012=100 (includes consumer ability to purchase food, agricultural production and distribution, food variety & nutritional quality & safety, climate change impacts)
US	3.03 metric tons	105.5	78.0
France (largest EU agricultural producer)	2.40 metric tons	96.2	80.2
Russian Federation	2.22 metric tons	111.5	69.1
China	1.92 metric tons	108.7	74.2
Sub Saharan Africa (average)	0.69 metric tons	113.7	47.0
Notes: Replacing cheap farm labor with capital intensive technology increases productivity and agricultural output in crops and livestock but, while food production per farmer increases, the share of population working in agriculture falls. 63% of food production relies on only five crops: sugar cane, maize, wheat, rice and potatoes. Globally, one-third of all food is lost or wasted, an amount that would feed approximately 2 billion people.

4.  extraction

a.  mining

b.  oil, gas, coal

 

Secondary Sector 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

 

Tertiary Sector Activities: Services (quaternary, quinary)

1.  low level: local services

2.  tourism

3.  high level: skill based, spatially dispersed

 

Patterns of Change

1. The basic structure of market sectors is used to define the performance of individual economies. They are used to describe the differences between developing and developed economies. As a general rule, the more advanced an economy, the smaller share of primary sector and the larger share of tertiary or quaternary sector, and vice versa.

2.  dependency theory: development in one place requires under-development somewhere else

3.  cumulative causation: buildup of advantages from an initial advantage

o  self-propelling process

o  agglomeration

o  attraction to core

o  depletes periphery

4.  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

5. 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

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 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:

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 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

 

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 Countries of the World

The world's top manufacturing countries in 2023 were:

China mainland (28.4%)

US (16.6%)

Japan (7.2%)

Germany (5.8%)

India (3.3%)

South Korea (3%)

Italy (2.3%)

France (1.9%)

UK (1.8%)

Brazil (1.5%)

Vietnam, Mexico, Malaysia, Indonesia and Singapore are making rapid advances.

Some of the most prominent regions In recent years have been:

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 19^th century where water was used to power the industries and later 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 was along the US-Mexican border. This area is called La Frontera by the Mexicans that are employed there. This was a product of NAFTA and outsourcing by US and foreign firms who pieced together products for duty-free import to the US. These industrial plants were called maquiladoras.

Western Europe

Western Europe was where the Industrial Revolution began and this area was a source area for the diffusion of industrialization across the globe. By 1900, Europe accounted for 90% of the world’s industrial output. That dropped significantly especially after World War II. Like the US, much of this industrialization was fueled by a good transportation network, and 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 was not competitive in a global economy.

Eastern Asia

The Eastern Asia sphere is rapidly becoming the most productive of the world’s industrial districts. China: has a rich resource base, a massive labor force and a nearly insatiable market-demand. It industrialized rapidly and ranks among the top ten of industrial products produced. Four smaller Asian economies - Hong Kong, Taiwan, South Korea and Singapore - became 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)

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

Occupational Structure of the Labor Force

More developed countries tend to have very little primary industry, some secondary industry and the majority of people working in tertiary or service industries. Less developed countries tend to have most people working in primary industries and very few workers in the secondary and tertiary industries.

Most people in more developed countries have formal jobs in which they have regular hours, a weekly set wage, reasonable working conditions and pay taxes.

In less developed countries, many people do have formal jobs but 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.

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

Lower rates of population growth are closely associated with development but development can be measured by other non-economic variables including:

education

literacy rate

life expectancy

health and health care

caloric intake

infant mortality

urbanization (generally towns and cities of 2,500 or more people)

infrastructure (the foundations of a society such as urban centers, transport networks, communications, energy distribution systems, schools, hospitals, postal services, police and armed forces, etc)

Wealth brings many services to an economy (education and health care) and it is hard to separate these and the wealth of a country. The patterns of underdevelopment remain the same even when non-economic variables are used to measure development.

One of the most useful things we can do to understand development and how it changes from place to place is to map it. There are many different variables that we could map to show how development varies from place to place, and we could map them at different scales.

The most common way to map data or information is to use a choropleth map, which is a colored map where the colors or shading represent certain values. We could map the number of people per doctor, the literacy level of a place, the number of calories consumed, the number of mobile phones in a population, the average wage, the number of AIDS sufferers, etc to see how these features of a population vary over space.

Optional Resources

Key Development Data and Statistics

How Long Do You Have To Work To Buy...

Extreme Energy Goes Global

GEOG 1303 Margin Notes: Primary Sector

Tragedy of the Commons

Create and use a choropleth map

 

 

Economic Measures

Non-Economic Measures

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.)

The International Institute for Applied Systems Analysis has a similar classification. IIASA researchers have introduced a new, simple measure for human wellbeing across countries, called the Human Life Indicator (HLI), that takes inequality into account. The Human Life Indicator expresses wellbeing in terms of years of life, similar to life expectancy at birth. However, unlike any other current measure, it uses not only the mean value but also the inequality in longevity.

Is it appropriate to divide the world into More Developed Countries (MDCs) and Less Developed Countries (LDCs)?

Generally, most people would classify the following realms as LDCs:

1.  Sub-Saharan Africa

2.  South Asia

3.  Southeast Asia

4.  North Africa and Southwest Asia

5.  Middle America

6.  South America

7.  the Pacific Realm

The more developed realms generally include:

1.  North America

2.  Japan

3.  Europe

4.  Australia / New Zealand

5.  Russia

6.  China

However, those classifications aren't always accurate and hide a wide range of differences between countries.

What now?

Developing Country Policies for Promoting Growth

Establish and strengthen the rule of law. Clearly defined and enforced property rights bolster economic growth by ensuring that individuals get and keep the fruits of their labor.

Open economies to international trade.

Control population growth.

Encourage foreign direct investment.

Build human capital. Programs which increase basic literacy, education and labor-market skills help enhance economic growth.

Make peace with neighboring countries.

Establish independent central banks.

Establish realistic international exchange rate policies.

Privatize state-run industries.

 

Developed Country Policies for Fostering Developing Country Growth

Direct foreign aid to the poorest developing countries. Much of foreign aid from developed countries is strongly influenced by potential and military considerations. Only ¼ of foreign aid goes to those 10 countries whose population constitutes 70% of the world’s poorest people.

Reduce tariffs and import quotas.

Provide debt relief to developing countries.

Admit temporary workers but discourage brain drains.

Discourage arms sales to developing countries.

 

Optional Resources

Geo Currents

Our World in Data

Worldometers

Population Reference Bureau

Visual Capitalist

UN Data Banks

Food and Agriculture Organization of the United Nations