Transcript Analyzing Economical Geography

Analyzing Economical Geography
Parts taken from the 2012 AP
Princeton Review Human Geography
Sectors of Production
• The economy can be divided into several
different categories known as sectors
– Can be grouped by its stage in the production
process, from primary production onwards
• Three to five categories
– Can be grouped by the types of products or
services they create
Sector Categories by Stage of Production
• Primary production
– Agriculture, mining, energy, forestry, and fisheries
– Extraction of natural resources from the earth
• Secondary production
– The processing of raw materials drawn from the primary sector
– Secondary productions reflect all forms of manufacturing
• Tertiary production
– Transportation, wholesaling, and retailing of finished goods to
consumers
– Can include other types of services that could be categorized as
quaternary or quinary
– Quaternary and quinary are categorized as services in the tertiary sector
• Quaternary production
– Wholesaling, finance, banking, insurance, real estate, advertising, and marketing
– “business services”
• Quinary production
– Retailing, tourism, entertainment, communications, government, or semi-public services
such as health, education, and utilities
– “Consumer services”
Agriculture
• Economically, the combined cash value of
what is produced is measured
– Not the volume or weight of the goods
• In less developed portions of the world,
subsistence agriculture is very common, with
agriculture supporting the family and local
people
• In more developed countries, farming is most
commonly done on a commercial basis
Commodity Chain
• Exist from the small-scale, family-based
producers selling directly from the farm or
through farmers’ markets to transnational
supply networks selling to an international
base
Natural Resources
• Mining and energy extraction can be valuable
depending on the global commodity prices
• Oil based economies can rise and crash with radical
price changes
– Price volatility is difficult for both producers and
consumers
• Fisheries and timber markets are not as volatile, but
have increased in price and value over the years to
reduced supply
– Due to increasingly protected natural resources,
companies must use more technology and larger
processing facilities to remain profitable and meet growing
consumer demand
Renewability
• Resources can be classified by their renewability
• Minerals and fossil fuels are nonrenewable
– The earth cannot reproduce them
– Some mineral products can be recycled
• In some cases, it is cheaper to buy scrap metal to recycle than to
mine new metal
• With the exception of hydroelectricity, alternative
energy sources as often much more expensive to
harness than fossil fuels
– This makes them less common
• Alternative energy is used to shift energy usage away
from nonrenewable resources
Sustainability
• Fisheries and forestry involve renewable
resources
– We rely on the sustainable use of the resource
– Fish cannot be overfished, and forests cannot be
cut without replanting
– Using large nets for fishing and clear cutting of
forests are not sustainable practices
Manufacturing
• Factory-made products far out-value agricultural based products
– Manufactured goods are farm products and natural resources that have been taken
through value-added processing
• The more complex and technology-driven the manufacturing is, the more expensive the final product
is
– The utility and demand of the product can influence value
• Manufacturing can be divided into several groups
– Durable- goods that are intended for use of more than a year
• Greater value and represent a more lucrative form of production
– Nondurable- goods that are intended for use of less than a year
• Can also be divided by product type
– Resource processing- oil refineries, metals, plastics, chemicals, lumber, paper, food and
beverage, concrete and cement, glass
– Textiles- clothing, shoes and leather products, artificial fibers and thread
– Furniture- home, office, bedding
– Appliances- home appliances, commercial equipment, power tools, lighting
– Transport- automotive, rail, aerospace, shipbuilding, recreational vehicles,
– Health- pharmaceuticals, medical devices, personal care products
– Technology- computers and laptops, servers, industrial control devices, phones,
television and audio entertainment
Services
• Intangible products
• Most valuable form of economic production
– Not all services are valued equally
• Low-benefit services are sectors where the labor force tends to be
hourly employees who receive few if any additional work benefits
– EX: hotel and food services, retail, customer services, contract
agricultural labor, and construction
• High-benefit services are sectors in which pay tends to be salaried
and include additional work benefits including health, dental,
vision, vacation, sick days, etc…
– Benefits are provided by other high-benefit service industries such as
insurance companies
– EX: business services, health care, government, and education
• Service sectors organized by type of firm
– Retailing, labor and workforce services, hospitality, government,
education, transportation and delivery services, environmental,
construction, engineering, utilities, media, advertising and marketing,
medical and health care, finance and banking, insurance, real estate,
accounting, legal services, computer, and research and development
Deindustrialization
• The shifting away from manufacturing as the main source of
economic production
• In the 1970s and ’80s, when deindustrialization was occurring
across North America and West Europe, millions of factory workers
lost jobs and many old industrial cities suffered from the economic
downturn
– Workforce had to adjust to new service sector employment that paid
less and had fewer benefits compared to factory jobs
– Manufacturing had to focus on highly priced goods to keep profits and
investments up amid foreign competition and to keep the remaining
First World manufacturing labor force paid and employed
• Services became important as investors in new businesses are
looking to maximize their returns on investment
– Services are the most valuable investments
Levels of Development
• Countries can be categorized based on their
level of economic development
• First World
– Industrialized or service based
– Free market, high level of productivity value per
person and a high quality of life
– EX: U.S., Canada, Norway, Switzerland, Iceland,
Israel, Australia, New Zealand, Japan, South Korea,
Singapore, Taiwan, Saudi Arabia, Kuwait, United
Arab Emirates, Oman, and Bahrain
Levels of Development
• Second World
– Describes Communist countries
• Cuba and North Korea
– Still have centrally planned economies
– Former Communist states that are restructuring
their economy to free-market systems
– Newly industrialized countries that are still
controlled by Communist parties, but have
adapted free-market reforms
• China and Vietnam
Levels of Development
• Third World
– Mainly agricultural and resource-based economies
that have low levels of productivity and a low quality
of life
– Some Third World countries
• Made an economic shift towards industrialization and
urbanization
• Remain firmly in a rural, agricultural economy
– The poorest Third World countries
• Haiti, Niger, Malawi, Tanzania, Madagascar, Nepal,
Kyrgyzstan, and Tajikistan
Levels of Development
• Fourth World
– Experienced an economic crisis that has
immobilized the national economy
• Crash in banking system, devaluation of currency, failed
taxation system, or events that have disrupted the
economy such as warfare or natural disasters
– Sierra Leone and Liberia
• Civil wars
– Myanmar
• Cyclone
Levels of Development
• Fifth World
– Lack both a functioning economy and have no
formal national government
• Somalia and the West Sahara
More Developed Countries(MDCs) and Less Developed Countries(LDCs)
• First and Second World are considered MDCs
• Third, Fourth, and Fifth World are considered
LDCs
– Even if they are NICs
• Dividing Line
– $10,000 GNP per capita
• Above- MDCs
• Below- LDCs
Newly Industrialized Countries
• Third World states that have economics that have
made a distinct shift away from agriculture and
towards manufacturing
– Industrialization is a long-term process that can last longer
in larger countries
• Constant process of building infrastructure that
facilitate the construction and operation of factories
• Rapid population growth and are located on the border
of stage two and three on the Demographic Transition
Model
• Industrialization and Urbanization
A list of NICs
NIC
Important Sector(s)
Mexico
Manufacturing, oil, tourism
Brazil
Manufacturing, services
Dominican Republic
Manufacturing, tourism
Nigeria
Oil, chemicals
Gabon
Oil
Indonesia
Manufacturing, oil, tourism
Vietnam
Manufacturing
China
Manufacturing, technology, industry,
finance, transport
India
Manufacturing, pharmaceuticals,
technology, computing services
Thailand
Manufacturing, medical services
Malaysia
Manufacturing, technology
Philippines
Manufacturing
NIC Development Funding
• Funding to develop infrastructure and factories
can come from
– Internal sources
– Foreign aid
• Provided by donor states in First World Economies; do not
expect money to be returned
• Donations rarely go to building for-profit businesses
– Instead, it provides the means to create schools, nutrition, health
programs, etc…
• Can also be a technology transfer
– Technical knowledge, training, and equipment is provided to NIC
governments to increase business efficiency
– Foreign direct investment(FDI)
Foreign Direct Investment(FDI)
• Money from private investors or investment
firms that are looking to earn a profit
– Use money to start a new business or build a new
factory in a NIC
– Over time, investors are paid back plus a portion
of the profits
• If unprofitable, investor may gain less money back, or
nothing at all
– In cases of high demand, investors can have
returns of 10 to 15 percent within a few years
Development Loans
• To attract FDI, some NICs seek international
development loans from organizations such as
the World Bank
– Loans are most often given to advance infrastructure
• These new services can charge fees(trains, toll roads, etc…)
that will be used to pay back the loan
• Criticism
– The loans don’t make the positive impact on the
economy as intended
– Costly and significant environmental problems
India, a Growing NIC
• Until the 1990s, India’s exports have been focused on manufactured
goods such as textiles and steel
– During the 1990s, high-tech markets in software development and
computing services began to open in India because of India’s
comparative advances
• A country has the ability or resources to produce a good or service at less cost
and more efficiently than other states
– India’s colonial history with Britain gives India several advantages
against other competitors
• Access to the American technology markets
– High amount of English speakers in India
• Large number of educated workers
– Dell and Microsoft have opened factories and customer service
centers in India recently
• These are examples of off-shoring of computer services from the United States
to NICs
China’s Demand for Energy
• Industrial development and the newly earned wealth
of Chinese citizens have combined to create a large
demand for energy in industry and transportation
– Coal is the primary source for electric production
– High oil demand; fuels cars and trucks
• China does not have much oil and has invested in oil
exploration and production in Third World countries
• Problems
– Pollution
• Acid rain, smog
– Greenhouse gas emissions
North versus South analogy
• Used to describe the developed world(North)
and the less developed countries(South)
– Inaccurate because Australia and New Zealand are
First World countries that are in the Southern
Hemisphere
– Most of the world’s LDCs are on or north of the
equator
The Old Asian Tigers
• The term “Asian Tiger” is used to describe the industrial economies
of Asia that have been aggressive in terms of economic growth
rates and their ability to compete with consumers
• The Old Asian Tigers were seen as free-market bastions against the
spread of Communism
– The U.S. and Britain had no choice but to give foreign aid money to
support democracy in the region
• By the 1970s, the Asian countries had become competitive with the
United States and Britain for global markets in manufacturing goods
• By the 1980s, efficient factories and a focus on product quality in
Japan and Korea created significant market share in the American
auto and electronics markets
– Foreign competition and the oil shocks of the 1970s have caused the
deindustrialization in the United States, Canada, and Western Europe
The Old Asian Tigers
Old Asian Tigers
Source of Development
Funding
Manufacturing
Redevelopment Period
Foreign aid programs such
as the Macarthur Plan
1950s-1970s
Japan
South Korea
Taiwan
Hong Kong
Singapore
The New Asian Tigers
• Manufacturing development was mainly funded
through FDI that came from the United States and
Britain as well as from the Old Asian Tigers
– Profitable investments
• The New Asian Tigers offered
– Cheap labor
– Low-cost land and resources
– Little labor and environmental regulations
• In low-end product lines, such as clothing or shoes, the
New Asian Tigers proved to be the only profitable
manufacturing locations
– China had the lowest costs and a large labor force
The New Asian Tigers
New Asian Tigers
Source of Development Funding
Manufacturing Development Period
Foreign direct investment(FDI)
1980s-1997
China
India
Indonesia
Malaysia
Thailand
Vietnam
The Asian Economic Crisis(1997)
• A banking crash in South Korea resulted in a credit
crisis
– Because of banks and investors holding back on industrial
loans and investment
– Money to develop new factories and infrastructure
disappeared
• Prompted the deindustrialization of the Old Asian
Tigers
– Payrolls were cut and workers were laid off by the
hundreds of thousands
• Like First World economies, the Old Asian Tigers now
focus on services rather than manufacturing
– Manufacturing still exists, but only for high profit
manufactured goods such as cars and medical devices
Measures of Development
• Help us to understand the levels of
development and measure uneven
development in various countries
Gross Domestic Product(GDP)
• The dollar value of all goods and services
produced in a country in one year
– Measures the total volume of a country’s
economy
• Formula
– Goods + Services
Gross National Income(GNI)
• The dollar value of all goods and services
produced in a country plus the dollar value of
exports minus imports in the same year
– Adjusts for national wealth lost when imported goods
are purchased from abroad
• In countries where export value exceeds import value, there
is a trade surplus
• In countries where import value exceeds export value, there
is a trade deficit
• Formula
– Goods + Services + (Exports – Imports)
Per Capita
• Means “for every head” in Latin; for every person
• Calculated by dividing the volume of the
economy by the population
– GDP per capita- (Goods + Services) / Population
– GNI per capita- [(Goods + Services) + (Exports –
Imports)] / Population
• Answer calculated is not an indicator of the
average salary of each worker
– Answer calculated is a measure of the country’s
collective wealth or productivity and indicates a
relative standard of living
Gross National Income Purchasing
Power Parity(GNI PPP)
• An estimate that takes into account the
differences in prices for countries
– Gross National Income per capita can make First
World countries seem more prosperous and can
make Third World countries seem less prosperous
• Doesn’t factor the cost of living in each country
Human Development Index(HDI)
• Designed by the United Nations to measure
the level of development of states based on
social indicators and economic productivity
• Indexed score ranges from 0.00 to 1.00 by
combining GDP per capita, the average
literacy rate, average level of education, and
total life expectancy
Economic Indicator Data for Selected Countries
State
GNI per capita GNI PPP
HDI
Categories
United States
46,040
45,580
.950
First World, MDC
Canada
39,420
35,310
.967
First World, MDC
United Kingdom
42,740
33,800
.942
First World, MDC
Russia
7,560
16,085
.806
Second World, MDC
China
2,360
5,370
.762
Second World, NIC
India
950
2,740
.609
Third World, NIC
Kenya
680
1,540
.532
Third World, LDC
Haiti
560
1,150
.521
Third World, LDC
Nepal
340
1,040
.530
Third World, LDC
•Recommended to know more than three of the above countries’ statistics
•At minimum, one MDC, one NIC, and one LDC
The Gini Coefficient
• Measures the level of income disparity
between the country’s richest and poorest
population groups on a scale from 0 to 100
– High numbers indicate a wide gap between the
rich and the poor and suggest problems with
wealth distribution
– Low numbers indicate a large middle class
population where wealth is more equally divided
The Gender-Related Development Index(GDI)
• Uses same indicators that calculate HDI,
except it replaces GDP per capita with income
– The male and female data is compared by dividing
the female score by the male score
• The closer the result is to 1.00, the role of women in
society is greater
• The closer the result is to 0.00, the role of women in
society is minimal
• Can be an effective indicator of social
development
Women in Development
• Women work more hours/day than men in every country in
the world except in Anglo America and Australia
• Women in the paid workforce are also growing in numbers
across the world in both developed and developing
countries and regions
– Role in society is improving as opportunities for education,
childcare, and maternity benefits increase
• In Third World countries, access to microcredit give women
the chance to start their own business and provide for their
families
• The UN developed a mandate called the Millennium
Development Goals(MDGs) designed to erase poverty by
2015
– These eight development goals promote gender equality and an
empowering of women in the work force
Rostow’s Stages of Growth
• Developed by Walter Rostow in the 1950s
– Proposed that countries went through five stages
of growth between agricultural and service-based
economies
– Assumed that each country had some form of a
comparative advantage that could be utilized in
international trade and fund the economy
• There are five stages
Rostow’s Stages of Growth
1.
Traditional society
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–
–
2.
Economy is focused on primary production
Limited wealth is spent internally on items that do not promote economic development
Low technical knowledge
Preconditions for takeoff
–
–
3.
The country’s leadership begins to invest the country’s wealth in infrastructure that
promotes economic development and international trade relations
More technical knowledge; helps to stimulate the economy
Takeoff
–
–
–
4.
Economy begins to shift focus onto a limited number of industrial exports
Labor force begins to switch from agriculture to manufacturing
Technical knowledge is gained through industrial production and business management
Drive to maturity
–
–
–
5.
Technical advancements diffuse throughout the country
Advancements in industrial production
Workers become increasingly skilled and educated, and fewer people are engaged in
primary production
Age of mass consumption
–
–
–
Industrial trade economy develops where highly specialized production has a major role in
the economy
Technical knowledge and education is high
Agriculture is mechanized, thus employing a smaller work force
Criticism of Rostow’s Stages of Growth
• Based on the historical development of many
First World, industrialized countries
– Not all countries have had the ability to utilize
comparative advantages
• Colonial legacy, government corruption, and
other factors are not included in Rostow’s theory
– He assumed that all countries could progress through
the stages
• However, the world economy leaves many countries behind
as foreign aid mostly goes to only the most developed of the
NICs
Dependency Theory
• States that most LDCs(including all NICs) are dependent on trade
owned factories, foreign direct investment, and technology from
MDCs to provide employment and infrastructure
– A continuous cycle of dependency would continue, giving no real gains
to the LDCs
• Concerns were first raised by economist Raul Prebisch in 1950
– Stated that money made by LDCs from the sale of manufactured goods
and natural resources is used to pay off loans and to buy
manufactured products
• In the end, LDCs are left with little money, MDCs, richer
– Thus continuing the cycle of dependency
• Dependency creates additional economic risks, as Third World
economies are also subject to the levels of demand for LDC-made
products and the global economy staggers
– If demand and investment decline, LDCs suffer job layoffs, and loan
payments are not able to be made
• Risk is magnified if the LDC is a one-commodity nation
– Can be catastrophic for economy and harm the quality of life
Breaking the Cycle of Dependency
• Various methods, the purpose of these methods is to gain
national wealth that is recycled in the country’s economy to
help local businesses and improve the quality of life
through funding for public services and utility infrastructure
• Internalization of economic capital
– Requires companies to deposit profits from factories in LDC
banks and invest locally
• Used to prevent capital flight
– When earnings are sent to banks in First World countries where they cannot
be used to advance local development
• Wealthier citizens may be required to keep their money in national
banks instead of off-shore banks
• Import Substitution
– Instead of buying products from First World countries, LDCs
would produce these products where profits would then be put
into local economy
Breaking the Cycle of Dependency
• Nationalization of natural resource-based industries
– International mining companies take away minerals and oil
that could be sold by local companies
• With the expelling of such companies, profit made from the local
companies can be used for local economic development
• Profit-sharing agreements
– In China and Vietnam(and a few other countries), foreign
companies are given permission to build new factories on
land leased to them by the government
• In exchange, foreign companies share a portion of the profit
• Technology development programs
– Using funds to invest in technological equipment and
employee training for local manufacturers
• These companies can then compete globally for contracts to
produce goods as sub-contractors to First World corporations
– Factory profits stay with the local companies
Tourism
• Countries can gain large inputs of wealth from
foreign countries without having to export
manufactured goods
– Tourism countries must have hospitality and be
viewed as safe from crime and warfare
– To attract tourists, the country must have some
degree of historical value, natural beauty, sport
recreation centers, or combinations of these
• In the past 20 years, ecotourism has become
popular
– Rainforests, marine reef, savannah grassland, and
polar habitats have became prime tourist locations
Free-Trade Agreements
• Free-trade zones have made regional economies of
multiple states stronger and have lead to the
development of their less developed neighbors
– Helped former Communist states develop their freemarket economies faster
• NAFTA Treaty
– Signed in 1991; full effect in 2001
– Full removal of tariffs between Mexico, United States, and
Canada
– Benefitted Mexico
• Allowed several hundred firms to build factories and contract with
local firms in Mexico to produce goods
• Maquiladoras, northern factory cities, have grown rapidly in terms
of population and manufacturing
– Tijuana, Mexicali, Ciudad Juarez, etc…
• Helped to improve quality of life
Free-Market Reforms
• In the 1980s, Communist states began to reform
the command economy
• Reforms
– Allowed farmers to sell surplus agricultural goods in
local and regional markets for profit
– Allowed people to open privately owned businesses
– Free movement of labor
– The ability to purchase private real estate
– Allowing foreign companies the option of opening
factories and retail services in these countries
China and Vietnam
• China established the first special economic zones(SEZs) in 1980
– Foreign companies were allowed to build factories in coastal port
cities
– SEZs are a type of export processing zone, port locations where foreign
firms are given tax privileges to provide incentives for trade
• By the late 1990s, all the coastal provinces in China and Vietnam
had been opened to foreign manufacturing firms
– Labor, land, and utilities were in large demand by transnational
corporations wanting to maximize profits, which would be shared with
the Chinese and Vietnamese government
• China has been able to integrate itself into the global economy
through their corporations that have purchased Western product
lines, such as Whirlpool
• Chinese banking and financial firms increase trade integration with
export markets
– Especially in the US; US sells some of its treasury bonds to China
Location Theory
• Devised by Alfred Weber
– Theory of Industrial Location, 1909
• Stated that the location of factories is related to the minimization of
land, labor, resource, and transportation cost
– Manufactured goods have a variable-cost framework that affects the
location of factories
• Stated that in terms of location, manufactured goods can be
classified into two categories based on the relation of inputs to
product output
– Weight-losing(bulk-reducing)
• A large amount of inputs are reduced to a product that weighs less or has less
volume than the inputs
• Factories are generally located nearest to the input that loses the most bulk in
the manufacturing process
– Weight-gaining(bulk-gaining)
• Inputs are combined to make a product with more weight or volume
• Factories are located closer to consumers to aid with transportation costs
Supply Chains
• Parts are assembled into components that are then assembled
together to create larger products
– EX: Automobiles, computers, etc…
• As price and corporate profit benefits have increased over time,
supply chains have expanded
• Fordist production(Fordism) relied on a single company owning all
aspects of production
– In 1903, when Henry Ford opened his River Rouge plant in Detroit,
every part(except tires) was made in the factory and assembled in an
assembly line
• In the Post-Fordist era, car companies changed and became
dependent on large networks of regional supply chains that stretch
throughout the United States with some specialized parts coming
from overseas
• To minimize inventory costs and keep factories efficient, car
companies utilize just-in-time production methods, where items are
sent to the factories on an as-needed basis
Retail Location Theory
• States that market area of a city varies depending on two
factors
– Threshold
• The minimum number of people required to support a business
– Range
• The maximum distance people are willing to travel to buy a product
• The location of retail services is spatially dependent on the
relationship between variable cost and revenue surfaces
based on local geography
– Business owners try to find the location that will maximize profit
• The spatial margin of profitability is the area where local
demand for a service creates revenues higher that the cost
of business
Service Location Theory
• A footloose industry is a business whose location is not tied to
resources, transportation, or consumer locations
– EX: Customer-Service Call Centers, Research and Development
Centers, Software Development Centers, etc…
• There are a number of factors that influence placement of serviceindustry offices
• Richard Florida has proposed that there is a creative class of highbenefit service industry firms and workers
– Economic development has become focused on attracting
• Creative firms
• Creative class employees
– Factors include
•
•
•
•
•
Language of the workforce
Education level of the workforce
Climate and natural environment
Entertainment venues
Tolerant community
Agglomeration and Deglomeration
• Agglomeration
– The concentration of human activities around a
central location
– Agglomeration economies
• Firms with related products located together in a region
• Advantages
– Shared skilled labor pool
– Specialized suppliers
– Service providers
• Deglomeration
– A location is overloaded with similar firms and
services
• Some firms may seek a change in location to expand, or
move entirely
– EX: Auto production in Detroit
Economics of Scale
• Producers expand their operations but incur
lower per unit costs in the process
– When a company increases production of a
product, it can save money by buying in bulk,
managing more workers under a single
management staff, financing larger sums of credit
at lower interest rates, and negotiate discounts for
transportation costs
– More goods are sold without increasing
advertising, accounting, research, etc…
Economics of Scope
• Companies benefit from the increase of
products under a single brand name
– Products can be produced by the same work force
in the same factories, etc…
• Larger economics of scope are useful when
one product is at the end of its product cycle
and is replaced by a new/alternative device