LOCATION LOCATION. Economic Geography: Industries, Services and Development. World Economic Activity ECONOMIC GEOGRAPHY ECONOMIC GEOGRAPHY 4/30/2015

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1 GEOG 247 World Economic Activity Economic Geography: Industries, Services and Development Prof. Anthony Grande Hunter College CUNY AFG ECONOMIC GEOGRAPHY LOCATION LOCATION LOCATION ECONOMIC GEOGRAPHY The application of geographic principles and tools to business and government. The spatial study of activities related to production, exchange and consumption of goods and services. It examines how people earn their living, how livelihood systems vary by area, and how economic activities are spatially interrelated and linked. It relies heavily on maps, analytical methods and models in search for explanations. 3 4 The economic culture of an area is a result of assessment of physical conditions and social factors including history, traditions, beliefs, and perceptions (qualitative vs. quantitative) as: Physical environment Cultural considerations (social, religious, customs) Level of technological development Political decisions Economic factors of demand (market conditions) and expendable money and time (leisure) Cultural production: The story behind commercial agriculture, industrialization, and the service trades and the production of commodities. Commodity chains trace the path of a product from conception and design through production, retailing and consumption. (Where and why did the idea emerge? How is it produced, distributed and sold? Who uses it and where?) Commodity systems is a process to map production by looking at all component parts, as suppliers and support industries, factors behind production, labor. (What is needed to manufacture an automobile?) Commodity circuits looks at the ever-changing and evolving practices associated with commodity use. (telegraph to cell phones; mainframes to tablets) 5 6 1

2 Comparative Advantage: Best suited Areas tend to specialize in the production of items for which they have the greatest relative advantage over other areas and then trade for the rest. Agglomeration: Clustering Concentration for mutual benefit. Transportation Systems and Networks: Connectivity. Composed of nodes and linkages Points (sites) are nodes; routes are linkages Network: More than one route System: Ability to go from point A to point B by 1 or more routes. Pattern of movement facilitates diffusion and interaction. 7 Cultural production analysis starts with existing conditions: 1. Location a. Site b. Situation c. Focal points (nodes) d. Hierarchy (levels of activity) 2. Transportation a. Linkages (network) b. Time-Distance factors 3. Spatial Patterns a. Where (distribution) b. Why (land use) c. Relationships (patterns of interaction) 4. Economic Factors a. Supply and demand b. Resources c. Environmental issues d. Political issues 8 Cultural production also involves the decision-making process, including: 1. Comparative Advantage (best suited) 2. Human Elements - the people factor (cultural, social, political, historical, economic, technological ability) 3. Agglomeration (clustering for mutual benefit) 4. Transportation Characteristics (existing routes and equipment, reliability, performance, cost of change) 5. Time-Distance Variables (spatial interaction at minimum cost) 6. Environmental Concerns (care about environment, perception, compliance, sustainable development) 9 Five Classes of Economic Activity 1. Primary activities Harvest or extract something from the earth Hunting and gathering, grazing, agriculture, fishing, forestry, mining 2. Secondary activities Add value to materials by changing their form or combining them into more useful and more valuable commodities (form utility) Manufacturing, processing, power generation, construction 3. Tertiary activities Provide services to the primary and secondary sectors and goods and services to the community and individuals Professional, clerical, and personal services Wholesale and retail trade 10 Five Classes of Economic Activity 4. Quaternary activities Processing and dissemination of information and administration of enterprises Education, government, management, information processing, research 5. Quinary activities High-level decision-making jobs in all types of large organizations, public or private Transportation and communication services cut across all five activity levels 11 Economic Development Economic development is: 1. The level of a country s growth or maturity, often stated in GDP (Gross Domestic Product = measurement of all goods and services produced in an area over a set time period). 2. The process by which an agricultural society moves toward industrialization and (usually) higher patterns of income and away from subsistence. 3. Related to changes in population growth rates and in chief occupations of its residents as illustrated in the Demographic Transition Model. 4. Evident in all aspects of a national/regional economy and affects all groups of people and their culture. 12 2

3 Demographic Transition Model Economics + Culture = Potato Chip 1. Agrarian 2. Industrialization 3.Urban/ 4.Highly 5. Old 13 society established economic developed population An example of socio-economic cycle of culture across several activities: Wealth + Labor + Entrepreneurism + Retailing + Food-likes = More Wealth. 1. Financial institution loans money to a potato farmer. 2. The farmer buys machinery to plant and harvest potatoes. 3. Harvested potatoes are sold to a co-operative which in turn sells to a potato chip manufacturer. 4. Chips are distributed to wholesalers then to retailers. 5. Chips are bought by consumers who like the taste and convenience and have expendable income to buy it. 6. Profit is deposited in a financial institution which now has money to make another loan. 14 Gross Domestic Product Regional Share of World GDP Regions with high GDP are considered developed. Those with low GDPs were first termed undeveloped then underdeveloped and now developing Assessing Development The term economic development came about in the Post-WW II era when the standards of living (including education, mortality rates, poverty) of world regions were being evaluated and being compared to that of the US and Western Europe. Was this a fair cultural criteria? It is also a result of rehabilitation and reconstruction of war-torn areas: get them functioning again and not depend on foreign aid. Led to efforts to modernize areas (i.e., change them) by introducing new technologies in hope of creating more local income. (Alter traditions and customs; acculturation; assimilation; globalization) Indicators of Development 1. Economic indicators of development Gross domestic product per capita Types of jobs Raw materials Consumer goods 2. Social indicators of development Education and literacy Health and welfare 3. Demographic indicators of development Death rates: life expectancy and infant mortality Rates of natural increase and live births

4 Two Development Indicators Components of the Human Development Index Household Wealth Internet and Economic Development The HDI is a measure used by social scientists including geographers to assess both social and economic development in a study area. It focuses on the human dimension rather than just income generated by economic activities Human Development Index UN Economic Indicators of Development The United Nation s HDI includes one economic indicator of development: gross domestic product per capita. Four other economic indicators distinguish more developed from less developed countries: a. economic structure b. worker productivity c. access to raw materials d. social aspects Developed by the United Nations, the HDI combines several measures of development: life expectancy at birth, adjusted GDP per capita, and knowledge (schooling and literacy). 21 When viewing the numbers we also need to take an area s cultural situation into consideration. Increasing a development level may involve or necessitate a change of culture. 22 Social Indicators Development Strategies INFRASTRUCTURE More developed countries use part of their greater wealth to provide schools, hospitals, and welfare services. This well-educated, healthy, and secure population can be more economically productive. CONSUMER GOODS Part of the wealth generated in more developed countries goes for essential goods and services (food, clothing, and shelter). The rest is available for consumer goods and services. The wealth used to buy nonessentials promotes expansion. Among the thousands of things that consumers buy, three are particularly good indicators of a society s development: motor vehicles telephones televisions 23 Three approaches to development have been identified. 1. Development through self-sufficiency 2. Development through international trade 3. Development through foreign assistance In part they are a reflection of a cultural attitude with regard to receiving foreign assistance: national pride, commodity leverage, memories of colonialism, political alignments, great need. 24 4

5 Development through Self-Sufficiency In the 20 th cent., self-sufficiency (balanced growth) was the more popular of the development alternatives. China and India, adopted this strategy, as did most African and Eastern European countries. According to the balanced growth approach, a country should spread investment as equally as possible across all sectors of its economy, and in all regions. Reducing poverty takes precedence. Businesses are protected from competition of large international corporations. Countries promote selfsufficiency by setting barriers that limit the import of goods from other places. Also they control exports to other countries. 25 Problems with the Self-Sufficiency Alternative Inefficiency: Self-sufficiency protects inefficient industries. Companies protected from local and international competition do not feel pressure to keep up with rapid technological changes. Quality of the final product may be wanting. May not be linked to an efficient marketing system. Large bureaucracy: A large bureaucracy needed to administer the controls. A complex administrative system encouraged abuse and corruption. Approval process is slow, cumbersome, maybe out-dated and subject to corruption 26 Development through International Trade The international trade model of development calls for a country to identify its distinctive or unique economic assets (comparative advantage). According to the international trade approach, a country can develop economically by concentrating scarce resources on expansion of its distinctive local industries. Profit from its unique product can be used to buy other products at less cost then home-made products. PROBLEM: Dependency on the world market Potential for coercive tactics by other countries. Development through Foreign Aid Direct Foreign Investment Accept monetary, equipment and/or expertise handouts from foreign countries. Allow foreign companies to initiate, build, run and control development. Long-term agreements to develop resources and industry. Problems: Lack of control of own destiny Profits are not kept local; little reinvestment Indebted to outsiders: loan repayments; political stance Threat of economic ruin if donor pulls out Foreigners may clash with locals Loss of cultural uniqueness (acculturation) Productivity Productivity is the value of a particular product compared to the amount of labor needed to make it. Workers in more developed countries produce more with less effort because they have access to more machines, tools, and equipment to perform much of the work. Productivity can be measured by the value added per worker, the gross value of the product minus the costs of raw materials and energy. Productivity Any analysis of productivity also includes: Consumption the need or appetite for resources, goods and services to produce a product. Income profit realized from being productive Spatial interaction quality of transportation and communication systems that reduces overhead Division of labor structure of the work force and their skill levels

6 Calories per Capita World Manufacturing Patterns In MDCs, the average person consumes one-third or more over the required average minimum, while in LDCs, the average person gets only the minimum requirement or less. There is a direct relationship between daily nutrient levels and productivity. 31 Major manufacturing regions Eastern North America Western and Central Europe Eastern Europe and Russia Eastern Asia (China, Japan, South Korea) Account for about three-fifths of world s manufacturing output by volume and value Newly Industrializing Countries Contribution to world manufacturing activity has been growing significantly 32 Industrial and Service Regions Primary Economic Activities Areas of the world and their regions exhibit concentrations of economic activities that generate income. Primary industries: process of extracting products from nature as agriculture, fishing, forestry and mining. We already looked at commercial agriculture as an income generator. The quaternary and quinary sectors occupy the tip of the triangle. Secondary industries: transform raw materials into finished products. Tertiary industries: provide services for people, industry and other service providers World Industrial Regions Major Industrial Regions in the US and Canada

7 Origins of the Industrial Revolution Before the industrial revolution: Cottage Industry: A traditional type of manufacturing, practiced on a small scale in individual rural households as a part-time occupation; goods were made by hand for local consumption. Guild Industry: A traditional type of manufacturing involving handmade goods of high quality manufactured by high skilled artisans who resided in towns and cities. Industrial Revolution Began in England in the 1700s in the textile industry Machines replaced human hands Human power replaced by other power: water, fossil fuels Movement from rural areas to cities Coal and steel industries revolutionized New forms of transportation developed: railroads, steam engines Diffusion of the Railroad in Europe Rail transportation is linked to manufacturing, especially heavy industry, because of the need to bring in tons of raw materials and to move out finished products. Diffusion of the Industrial Revolution from Great Britain Deindustrialization Developed countries Moving away from manufacturing and toward service economies - U.S., Europe, Japan Developing nations: Still industrializing - South Korea, Taiwan, Singapore, Mexico, China, Brazil Newly developed nations: Starting to industrialize Vietnam, Bangladesh, Nicaragua Have benefited from globalization as industries seek to lower labor and ancillary costs. 41 7