Industrialization and
Economic Development
What is economics?
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Economics is the social science that analyzes the production,
distribution, and consumption of goods and services.
Economics actually includes a whole bunch of things that we
generally don’t think of.
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Micro-economics examines the behavior of basic elements in the
economy, including individual agents (such as households and firms
or as buyers and sellers) and markets, and their interactions. It thinks
a lot about why people do things.
Macro-economics analyzes the entire economy and issues affecting it,
including unemployment, inflation, economic growth, and monetary
and fiscal policy.
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This is what we’re going to be talking about, and what most people think of when
you say, “Economics.”
Economics
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Deals with issue of scarcity
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½ people in the world live on less than $2.00 a day, 20 % of worlds
population lives on less than $1.00 a day
Economic geographers study locations and reason for
economic patterns in world’s human landscape
Analyze patterns of economic wealth, poverty, growth and
decline
Industrialization key component to understanding economic
development level
Impact of industrialization on humans and environment
Basic Terms
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Opportunity Cost: when we make a choice to do one thing, something else
won’t get done so you do the most important thing
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Scarcity: resources are not unlimited so we develop a system to allocate all
resources
Marginal: additional costs and benefits
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Example: you need your car washed for $10 or it is $5 with 10 gallon gas
purchase-you need gas so the marginal cost is $5.00
A marginal benefit of working at FJH is I can get free candy.
Market: anywhere buyers (demand) and sellers (supply) meet
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This is very subjective and we make the choice in accordance with expected costs
and benefits
When exchanges are made under FREE CHOICE, they will benefit both parties
Externalities: additional costs or benefits imposed upon a non-consenting 3rd
party
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Negative externalities: costs imposed, spill over or third party effects
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Example: loud music, tobacco (health care) or pollution
Positive externalities: benefits imposed
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Examples: education, vaccines, bee keeper keeps bees for honey, but his plants
also get pollenated
Economic Systems
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Capitalism: process of letting competitive market determine
price of goods
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Socialism: when the government controls basic items in an
economy
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Supply and demand
Some argue that the competition inevitably creates winners and losers
and in a capitalistic society the losers are those in poverty
Government control of food prices, transportation and energy prices
to ensure that everyone can pay for essential services
Taxes usually higher to pay for services but services like health care
are usually free or are offered at minimal cost
Communism: total government control of all prices in society
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Former USSR tried this approach with some success (in military
sectors) but left people with limited services
China is still largely a communist country, but has been returning to
some capitalistic principles recently
Economic Classifications
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Economy defined: system of production, consumption and distribution
Primary Sector: most basic components of economy
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Secondary Sector: processing raw materials acquired through primary
activities into finished products of greater value
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Activities revolve around factories and manufacturing
Examples: baby food, cars
Tertiary Sector: focuses on moving, selling and trading products made in
primary and secondary levels
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Activities revolve around getting raw materials from earth
Examples: farming, fishing, raw mining
Activities involve professional and financial institutions and services
Examples: carpet cleaning business, restaurant, banks, grocery stores
Quaternary Sector: involves information creation and transfer
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Activities assemble, distribute and process information
Examples: research, universities or business operations
Subsector known as Quinary Economic Activities that involve highest level
of decision making like legislature or presidential cabinet
People working in service sector
Industrialization
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Defined: growth of manufacturing activity in the
economy or a region and usually occurs alongside a
decrease in number of primary activities within a
country
Industrial Revolution
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Began in England in 1760s when machines replaced
human labor and new sources of energy were tappedprimarily coal
Defined by assembly-line manufacturing that tended to be
located near coal fields and water sources
Allowing with manufacturing, transportation and shipping
infrastructure improved
Industrial Revolution, cont.
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By 1960s oil replaced coal as dominant source of industrial
energy
Before 1960s Russia, Venezuela and U.S were primary oil
suppliers-after 1960s Middle East moved to leader in oil
market
Diffusion of Industrialization
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By 1825, England’s technology began spreading to North America
and Western Europe
Areas with large coal deposits saw greatest amount of
industrialization
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Ohio and Pennsylvania in U.S., Ukraine in Russia and Ruhr region in
Germany
By 1920s U.S. automobile factories changed method of assembly
lines by building out not up allowing goods to move more easily
around factory (Fordist or Ford Production Method)
Weber’s Least Cost Theory of
Industrial Location
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Answers questions like where will factories
grow? What factors affect industrial location?
Alfred Weber studied locations of industrial
activities in the early 20th century-predicted
where industries would locate based on the
places that would be the lowest cost to themhence the name, least cost theory
Weber’s Assumptions
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The cost of transportation is determined by the weight of the
goods being shipped and the distance to the market
The heavier the good and/or the farther the distance, the more
expensive it is to ship
Industries are competitive and aim to minimize their costs
and maximize their profits
Markets are fixed location
Labor exists only in certain places and is not mobile
Physical geography (land quality) and political-cultural
landscape are uniform across the model’s space (no
mountains, lakes or rivers would get in way of transportation)
Location of industry is driven by four factors; transportation,
labor, agglomeration and deglomeration
Transportation and Distance
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Industries want to locate where transportation costs are minimized and must
consider two factors
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Distance to market and weight of goods
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Spatially variable costs: costs that vary or change depending on the space in which
it is located
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Material orientation: when weight losing industries locate near the raw resource supply
Weight-gaining processes: take raw materials and create a heavier final productexample beverage companies
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Example: companies using perishable raw materials may want to locate near
perishables to limit loss and minimize transportation costs
Weight-losing processes: manufacturing processes that create a product lighter
and the raw materials going into it-example paper plant
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Early factories located near energy resources but electricity enable factories to locate far
from energy sources without incurring high costs
Market orientation: when weight gaining industries locate near the place where heavier
product will be sold to limit transportation costs
Spatially fixed costs: when costs remain the same no matter where a company
chooses to locate-example computer chips
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Can also be known as Footloose industries because they are not bound to locational
constraints
Other transportation issues
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Space-time compression: effort to increase efficiency of time in delivery
process by diminishing distance obstacles
Most effective way to do this is with modern technologies
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Truck: very mobile and efficient but weather, slower traffic, use of fossil
fuels and maintenance costs are all disadvantages
Trains: most efficient and most cost-effective but can’t cross oceans and have
high start up costs
Airplanes: fastest way to get products to market, can access isolated areas and
have high flexibility in route but are most expensive and experience weather
delays
Pipelines: highly efficient but can only move liquid or gas and are very
expensive to create and many fear spills harming the environment
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Most famous in U.S. is Alaskan Pipeline
Ships: most energy efficient transportation but are slowest, can’t take
perishable goods, have high terminal costs with port facilities and are weather
dependent
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Panama and Suez canal have increase efficiency of ships
Agglomeration
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Defined: advantages and savings made when industries clump together for
mutual advantages
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Example: factories in the same area share costs associated with resources
such as electrical lines, roads, pollution control, etc.
Agglomeration economy: when agglomeration has positive effects for
both the clustered industries and consumers of their products
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Example: high-tech corridor (place where technology and computer
industries agglomerate) in California’s Silicon Valley-companies located here
to benefit from shared resources like highly trained workforce, similar
support businesses
Negative consequence of agglomeration is called backwash effect
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Example: out-migration of talented computer engineers and other skilled workers
who migrated to Silicon Valley
Locational interdependence: states that industries choose locations based
on where their competitors are located to maximize their dominance in the
market
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Example: large numbers of gas stations near a freeway exit
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Agglomeration
of major
shopping areas
Deglomeration
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Defined: the “unclumping” of factories because of the
negative effects of higher costs associated with industrial
overcrowding
Happens when a region becomes too clustered or too
crowded-can cause excessive pollution, traffic congestion,
lack of resources and labor, etc
Criticism of Weber
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Doesn’t identify the fact that markets and labor are often mobile
Doesn’t address labor variations in age, skill sets, gender, language
and other traits
Doesn’t address some transportation costs not being directly
proportional to distance
Other things businesses look at…
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Situation: relationship a location has with locations
around it
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Creates basic industries (focal point of a cities economy)
and nonbasic industries (secondary businesses that sprout
after the city has already established its basic industry)
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Multiplier effect: expansion of the economic base of a city as a
result of nonbasic and basic activities located there
Industrial Cost: costs of doing business
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Fixed costs: do not fluctuate based on quantity ordered
Variable costs: fluctuate based on the volume of orders
Globalization
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Spatial interaction has occurred throughout history at
many different levels
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Tribe to tribe; village to village; empire to empire
Globalization defined: increasing sense of
interconnectedness and spatial interaction among
governments, cultures and economies
Example: Starbucks or McDonalds
Many countries see this as the “Americanization” of
world culture with some areas seeking to “purify”
this new culture
Multinational Corporations (MNC)
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Defined: businesses with headquarters in one country and production
facilities in one or more other countries
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Usually they are conglomerate corporations where one massive
corporation owns and operates a collection of smaller companies that
provide it with specific services in its production process
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Example: owning a bottling company and a food-coloring company
MNC can also include companies that own completely unrelated
businesses
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Sometimes referred to as transnational corporations – but more often TNCs
are countries that are from a country but emphasize a global perspective
Example: owning a movie studio, TV production and a bottling company
Usually locate headquarters in core countries and build production
facilities in peripheral countries
Outsourcing: practice of MNCs to relocate a piece (or all) of its
manufacturing operations to factories in other countries
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Companies outsource to take advantage of lower labor costs, lower tax rates
and cheaper land prices in countries outside the United States
What brings economic success?
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Environmentally friendly activities: really becoming
more of an issue that in past
Political support: local politicians zone areas
allowing factories and businesses to be created
Societal acceptance: companies must sell product
people want that doesn’t violate cultural standards
Economic support base: worker training and
experience
New Industrial Countries
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New Industrial Countries (NIC) are states that have climbed
the economic ladder and established and industrialized
economy based on manufacturing and global trade
Traditional MNCs were found in U.S., Canada, Germany,
U.K., France and Japan
Asian Tigers
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Four countries that became NICs in late 20th Century
Taiwan, South Korea, Hong Kong and Singapore
These four countries with China make up the core of Asian economic
growth
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Also known as the Pacific Rim economic region
Other Global Industrial Zones
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NE U.S. and SE Canada
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Russia and Ukraine
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Britain, Germany, France and Ireland
China
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Ukraine is agricultural, Russia is industrial on the European side
Central and Western Europe
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Sub regions include New England, Mid-Atlantic, Eastern Great
Lakes, Western Great Lakes and the South
Beijing (majority of natural resources), Hong Kong (trading; one of
Asian Tigers) and Shanghai (largest city, Yangtze River, massive
industrial parks)
Japan
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Technological leader with highly educated work force
The Rust Belt
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Greatest amount of
industrial area in the
United States
Has seen huge factories
shut down within last two
or three decades creating
the name
Has created crumbling
infrastructure and
environmental problems
Russia and Ukraine
China’s economic zones
Four Tigers
Foreign Direct Investment
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Defined: Less-developed countries actively solicited foreign
corporations’ investment in their countries to improve
economic development
Countries can provide Special Economic Zones: regions
offering special tax breaks, eased environmental restrictions
and other incentives to attract businesses-China is great
example
Export-processing zones: regions that offer tax breaks and
loosened labor restrictions to attract export-driven production
processes like factories producing goods for foreign markets
Free-trade zones: regions where duties and tariffs are waived
by governments wanting to encourage MNCs to invest in
their countries
In 1982, global total of foreign direct investment flows was
nearly $57 billion. By 2000, number had grown to $1.3
trillion (20 times larger than 1982)
Maquiladoras
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Established in Mexico
Special economic zones on its northern boarder with the U.S.
where MNCs can outsource labor to take advantage of labor
costs in Mexico that are far below those required for U.S.
workers to manufacture the same products-tax breaks also
provided
Created program to create jobs for Mexican farmers no longer
able to make a living
Today nearly 500,000 Mexicans work in maquiladoras
creating overpopulation and pollution problems
Program supposed to be phased out as part of NAFTA
Maquiladoras and Economic Growth
International Division of Labor
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Defined as the material production of a society – in other
words, what type of jobs to people have and what sector are
they in
Happened with the rise of globalization and assembly-line
concept developed during Industrial Revolution
Breaks up the manufacturing process by having various
pieces in another country
In some cases, MNCs have a total yearly sales larger than the
GNP of the countries they are in
Many MNCs have considerable power in less-developed
countries because of economic importance
Free trade vs. Fair trade
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Currently, there is a large debate over whether foreign direct investment is
helping increase economic development or is causing exploitation by
profit-driven MNCs
Many human right advocacy groups claim MNCs are not paying workers
in the periphery a living wage
Free trade: idea of allowing MNCs to outsource without any regulation
except for basic forces of market capitalism
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Critics argue free trade only protects interests of MNCs and does nothing to
protect workers rights
Fair Trade: idea of creating policies that favor oversight of foreign direct
investment and outsourcing to ensure workers throughout the world are
guaranteed a living wage for their work
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Currently women’s rights is big topic in this issue because many believe that
women typically work in sweatshop-like conditions of outsourced factories
Privatization
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Defined: selling of publicly operated industries to marketdriven corporations
Proposed as solution to increasing economic efficiency in
less-developed countries
Problem is privatization can cause social hardship for families
that once depended on government-owned and operated
resources being sold off to profit-driven corporations
Many fear the movement of foreign companies into local
economies threatens survival of local businesses driven out of
the market by larger MNCs
Advocates of structural adjustment believe idea that longterm economic benefits to countries will outweigh the
immediate and often difficult side effects of making the
economic changes
Nongovernmental Organizations
(NGOs)
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Defined: aid organizations that assist in boosting economic
development and human rights throughout the world’s
peripheral regions
Always non-profit
Many thousands exist around globe
Deal with myriad of causes like women’s rights, health care,
eradication of poverty, animal rights, education, etc.
Often supply resources and money to local businesses and
causes advancing economic and human development
Have worked to combat HIV/AIDS and hunger
Examples: Doctors without Borders or Save the Children
Sustainable Development
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Defined: rate of growth and resource consumption
that can be maintained from one generation to
another
Many feel with will protect future generations from
us consuming all Earth’s resources
In 1992, UN Commission on Sustainable
Development called for conservation and careful use
of resources
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Focused on caring for soil, protecting species from
extinction and reducing air pollution
Recycling and alternative sources of fuel seen as
important as well
Globalization and Sustainability
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With increased industrialization and economic
interaction, many wonder if this increased rate of
production and development can be sustained
Fossil fuels and natural resources (including land)
are being depleted
Travel availability are altering landscapes to fit what
tourists want
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Ecotourism: tourist operations that aim to do as little harm
to the environment as possible
Costa Rica is excellent example
Levels of Development
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Developed Countries
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Middle Income Countries
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Highest level of development including high GDPs, high
literacy and education levels and high levels of
industrialization
Middle levels of development where the urban areas look
more developed and the rural areas look more developing
Developing Countries
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Lowest level of development with low GDPs, low literacy
and education levels and low levels of industrialization
UN Human Development Index
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Defined: uses a formula to measure development that can be
used to compare the various development levels of regions
and countries
Based on idea that development is a process of expanding
choice
Factors three areas into measurement: life expectancy,
average educational levels and standard of living
Economic component of the HDI is GDP (gross domestic
product)
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GDP: value of total outputs of goods and services produced in a
country, usually over a one year period
Per-capita GDP is simply the GDP divided by the population
Developed countries have per-capita GDP greater than $20,000;
developing countries have per-capita GDP less than $1,000
GNP: value of all goods and services owned and produces by a
country overseas
World Human Development Levels
Uses for the GDP
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Gives PPP (purchasing power parity)-a measurement tool for
calculating the exchange rates required for each currency to
buy an equal amount of goods
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Example: GDP per capita in sub-Saharan African countries is at or
below $750.00 but with the PPP, buying power is closer to $4,000.00.
Puts number comparisons into perspective
Doesn’t reflect inequality among people in a country
HDI highest score is 1.000 with the lowest .000. In 2006
lowest country was Niger with score of .311, highest country
was Norway with score of .965.
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U.S. ranked 8th among 177 countries
GDP levels across the world
Other indicators of development
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Because of problems with GDP, we often use other measures to analyze
economic development. These include…
Access to raw materials
Amount of consumer goods
Amount of technology in the country/region
Number of TVs and radios per person
Women’s rights and level of equality
Expendable income: the amount of money left over after all bills have
been paid
Big Mac Index: compares price of Big Mac throughout the world
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In Thailand, costs $1.78 where GNP per person is $8,440
In United Sates, costs $3.22 where GNP per person is $42,000
This shows the Big Mac is an expensive meal in Thailand
The Development Gap
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Defined: the widening difference between development levels
in more-and less- developed countries
More-developed countries are improving their development
levels faster than less-developed countries with this
difference widening
In last 10 years, GDP tripled in more-developed countries but
only doubled in less-developed countries
Natural population increase fell by 85% in more-developed
countries but only by 5% in less-developed countries
North-South Gap: more-developed countries located in
Northern Hemisphere and less-developed countries primarily
located in Southern Hemisphere
Development Gap Countries
This map shows what happens to the world if you remove the countries
producing the bottoms 5% of the worlds GDP. (realize this is ONLY 5% of the
worlds GDP!)
Structuralists vs. Liberal economic
development theories
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Structuralist theories
Argue less developed countries are locked into
vicious cycle of entrenched underdevelopment
by global economic system that supports
unequal structure
Dependency theory: argues that political and
economic relations among countries limit the
ability of less-developed countries to
modernize and develop
Uses Immanuel Wallerstiens world-systems
analysis (we will learn more about this later)
but basically states there are core, periphery
and semi-periphery countries
Use Europe’s colonial occupation of Africa as
reason for Africa’s poverty
Offers little hope for less-developed countries
because the dominance of more-developed
countries is highly linked to continued
economic and political inferiority of lessdeveloped countries
Major criticism is it doesn’t allow for cultural
geographic differences
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Liberal Theories: The Rostow Modernization
Model
Claim that development is process through
which all countries can move
Assumes all countries follow similar path of
development toward becoming modernized
Similar to demographic transition model that
predicts countries will move through stages of
structural change to attain development
5 total levels
More developed countries exist in stages 4-5
while less-developed countries exist in stages
1-3
Rostow’s Stages of Development
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Stage 1: traditional where economic activities focus on subsistence with outcome
of activity consumed primarily by those producing the product-sees large amount
of national wealth allocated to tasks that are not economically productive like
building temples or a military
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Stage 2: preconditions to take off where small groups of people initiate innovative
economic activities that pave the way to economic development-these people
invest in new technologies and infrastructure- causes some surpluses for trading
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Example: better water systems and modes of transportation
Stage 3: takeoff where small number of new industries that the elite invested in
during stage 2 begin to show rapid economic growth-industrialization increases
but some areas remain dominated by traditional activities like agriculture
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Example: subsistence agriculture
Example: Industrial Revolution
Stage 4: drive to maturity where diffusion of advanced technology moves beyond
just the few initial industries-other industries experience rapid growth, workers
become more skilled and specialized and the economy begins to diversify
Stage 5: high mass consumption where economy shifts from dominance of
secondary manufacturing jobs to dominance of service-sector tertiary jobs- most
incomes fairly high and people become mass consumers of produced goods
Criticisms of Rostow
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Some feel the model isn’t applicable to all countries
because model is based on European and AngloAmerican development patterns
Does not account for road blocks to development
like postcolonial dependency on former colonizer
that many countries experience while struggling to
develop their economies
Considers each country an independent agent rather
than one that interlocks with other countries
Reducing the Development Gap
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There is much debate on how to reduce the development gap
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Example of gap: African women’s chances of dying in childbirth is 1 in 16
while in the industrial world, chances are 1 in 2,800
Popular method developed in the 1900s is the self-sufficiency model
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Defined as ability to provide for a countries own people, independent from
foreign economies
Country should spread its investments and development equally across all
sectors of its economy and regions
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Favors closed economic state
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Rural areas develop along with urban areas
Poverty reduced across the entire country
Imports are limited and heavily taxes so local businesses can flourish without
competing with foreign countries
China, India, eastern Europe and Africa are using this approach to improve
development in their regions
This system can and does create corruption and inefficiency limited develop
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Example: Indian government paid failing businesses to stay open and continue
rather than face competition that could improve product and by extension,
business success
Reducing the Development Gap with
International Trade
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This approach encourages international trade
Pushes a country to identify its strengths in the world then channel
investment toward those strengths
Argues that to compete internationally, a country must find out what it can
offer the world and then capitalize on that good or service
Argue that eventually a country will develop a comparative advantage
(when the country is better at producing a particular good or offering
some service than another country) over the rest of the world in producing
that good or service
This comparative advantage can fill the market’s need for a good or
service at a lower production cost than other places can
Example: Japan invested money and power into developing a comparative
advantage in high-technology products
Eastern Europe
Western Europe
America
South America
Australia
India
Nepal
Mongolia
Africa
What does this population pyramid suggest about the future for
developing nations?
Services
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Defined as any activity that fulfills a human
want or need and returns money to those who
provide it
In the modern economy, most people work in
the service industry!
Where services are located and why they
grow where they do is a major part of
geography
Types of Services
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Consumer Services: provides services to individual
consumers who desire and can pay for them
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Business: facilitate other businesses
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Retail Services: about ¼ of all jobs in U.S. – this is shopping
Personal Services: 1/5 of all jobs in U.S. – these improve quality of
life like health care or education
Producer services: provide services to help people conduct other
business like financial, real estate, law or management
Transportation: businesses that distribue and diffuse services –
includes information services like broadcasting and publishing
Public: provides security and protection for citizens and
businesses
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Includes police, fire, public schools, etc.
About 10% of American workers are in public services
Where are services located?
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Central Place Theory: defined as a market center for
the exchange of goods and services by people
attracted from the surrounding areas
Central places compete with each other to provide
services
A.K.A. the Christaller model
Primarily deals with question of How far will you
drive to receive a particular service?
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Ex. Pizza vs. Neurosurgeon
The Informal Sector
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Many countries do not know and/or report data from their
informal sector in GDP
Defined: network of business transactions that are not
reported, therefore, not included in the country’s GDP and
official economic projections
Examples: babysitting, street vendors, drug trafficking
In many less developed countries, this sector is prominent in
overall economic activity
Why does the informal sector exist?
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Good produces in informal sector may be meeting need the formal
sector has ignored
Good produced here may be in high demand because they are
inexpensive-the negative to this is people who work in this sector
rarely make enough to meet basic needs
Often this sector involves illegal immigrants