Economic Development
and
Industry
Alvin High School
Industrialization
• Topic of great interest in Economic Geography
• Economic geography studies the impact of
economic activities on the landscape and investigates
the reasons behind the location of economic activity
Industrialization
• Process by which
economic activities
evolved from primary
goods to using factories.
• Secondary economic
activities transform raw
materials into usable
products, giving them
usefulness.
Industry Types
• Footloose Industry- industry that can easily move
and transportation costs are not important.
• Cottage Industry- based in homes
• Brick and Mortar Industry- actual stores
• NIMBYism- “Not in my Backyard”- opposition to
construction of new development
• Outsourcing- turning over production to business
outside of the country.
Industrial Revolution
• Began in England in the late 18th century.
• Secondary Economic activity was created by the
Industrial Revolution.
• Animal and human muscle was replaced by machines.
• Transformed societies beyond economic activities
changing lifestyles, customs, beliefs and values.
Industrial Revolution Inventors
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James Watt First reliable Steam Engine 1775
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Eli Whitney Cotton Gin, Interchangeable parts for muskets 1793, 1798
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Robert Fulton Regular Steamboat service on the Hudson River 1807
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Samuel F. B. Morse Telegraph 1836
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Elias Howe Sewing Machine 1844
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Isaac Singer Improves and markets Howe's Sewing Machine 1851
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Cyrus Field Transatlantic Cable 1866
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Alexander Graham Bell Telephone 1876
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Thomas Edison Phonograph, Incandescant Light Bulb 1877, 1879
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Nikola Tesla Induction Electric Motor 1888
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Rudolf Diesel Diesel Engine 1892
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Orville and Wilbur Wright First Airplane 1903
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Henry Ford Model T Ford, Assembly Line 1908, 1913
Characteristics of Countries
More Developed (MDC)
Less Developed (LDC)
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Low birthrates
High level of literacy
Abundant medical care
Tertiary/quaternary sector
jobs
• Demographic transition
model stages 3-4
• Give aide to LDC
High Birthrates
Low level of literacy
Few doctors
Primary/secondary sector
jobs
• Receive aid from MDC
• Demographic transition
model stages 1-2
MCD-LCD
Newly Emerging-light blue
Globalization
• Expansion of economic, political and cultural
processes to a global scale. Worldwide activity
Economic Indicators of
Development
1.
Gross Domestic Product per Capita.
Per capita GDP= GDP
population
$14,143.3 billion
307,448,945
The higher the per capita GDP, the more industrialized the
country.
Per Capita GDP in USD
Economic Indicators of
Development
2. Types of job
MDC’s-fewer workers in primary sector
LDC’s-more workers are farmers.
Economic Indicators of
Development
3. Worker productivity
MDC-more machinery, tools and equipment to
perform work.
LDC-more human and animal power. Productivity
measured by the value added in manufacturing by
each worker.
Product value=$ of raw materials-energy
Economic Indicators of
Development
4. Access to raw materials
Development requires access to raw materials-oil,
coal, water, natural gas.
England’s access to coal fueled the industrial
revolution
European empires came to control raw materials in
other areas of the world.
Economic Indicators of
Development
5. Availability of consumer goods
MDC’s money for essentials and non-essentials.
Cars, telephones and televisions measures of
consumption.
LDC’s few people can buy non-essential goods.
Where is industry located?
• Less than 1% of the Earth’s land is devoted to
industry.
• Industrial production concentrated in 4 regions:
• Northwestern Europe
• Eastern Europe- Russia/Ukraine
• Eastern North America
• East Asia- S. Korea, Hong Kong, Taiwan and Singapore
“Asian Tigers”
Industrial Regions
Theories of Economic Development
What factors explain differences in levels of economic
development?
Two conflicting theories have developed:
Modernization Theory (Westernization Model)
Dependency Theory
Modernization Theory
Economic prosperity is open to all nations.
According to W.W. Rostow, modernization occurs in five
stages:
1.
2.
3.
4.
5.
Traditional stage
Preconditions for takeoff
Take off stage
Drive to technological maturity
High mass consumption
Modernization
1. Traditional stage-society built lives around families, local
communities and religious beliefs.
2. Preconditions for Takeoff-investment in infrastructure.
More knowledge=more ability to have technology.
Trade is promoted.
3. Take off stage-people produce goods for profit. Some
form of industrial revolution takes place. Urbanization
increases, technological breakthroughs occur. Desire
for material goods take hold at the expense of family
ties and traditional customs.
Modernization
4. Drive to technological maturity-economic growth
accepted, people focus on higher living standards.
Economy diversifies because people can afford
luxuries. Poverty reduced, material goods are more
common. Rate of population growth reduced, as
children are more expensive to raise. International
trade expands.
Modernization
5. High Mass Consumption- Economic development
raises standards of living as mass production
encourages mass consumption. Items which once
were considered luxuries are now necessities. High
incomes, with a majority of workers in the service
sector of the economy.
Modernization
High income countries can help poorer countries
with foreign aide, economic aide.
Criticized as exploiting capitalism.
Fails to recognize rich nations, which benefit from
status quo.
Blames poor countries for being poor.
Poor countries develop from a position of global
weakness.
Weber’s Least Cost Theory
Theory of the Location of Industries, 1909.
Compared to Von Thunen’s agricultural model because they
explain location of economic activity.
Weber’s Least Cost theory explained location of industry in
terms of three factors:
1. Transportation
2. Labor
3. Agglomeration
Weber’s Least Cost
1. Transportation-cost of moving raw materials to
factory; then factory to market.
2. Labor-cheap labor allows for higher transportation
costs. Example: an American Factory in Mexico.
Factories in South rather than north because of
unions vs. non-union labor.
3. Agglomeration-several industries cluster in one city,
they can share talents, services and facilities. Ex.
Restaurant supply stores
Weber’s Least Cost
A result of excessive agglomeration can lead to:
Deglomeration- The movement of activity, usually
industry, away from areas of concentration
Substitution principle-business owners can juggle
expenses as long as labor, rent, transportation and
other costs do not increase all at once.
Locational Interdependence TheoryHostelling’s Model
• The influence on a firm’s locational decisions by
locations chosen by its competitors
• Variable revenue analysis-a firm’s ability to capture a
market that will earn it more customers and money
than it’s competitors.
Locational Interdependence
Water
Beach
middle of beach
Fred’s snow cones
area of profitability
Sam’s snow cones
Why do industries have different
distributions?
1. Situation factorsinvolve transporting
materials to and from a
factory. A firm seeks a
location that minimizes
the cost of transporting
inputs to the factory
and finished goods to
the customers.
2. Site factors-result
from the unique
characteristics of a
location. Land, labor
an capital are the three
traditional production
factors that may vary
among locations.
Situation Factors
1. Proximity to inputs1.
Every industry uses inputs.
2.
Raw materials, parts of materials
3.
Locate near input to minimize transportation costs.
Bulk reducing industry-final product weighs less than its
inputs-copper
Copper Foundries
Situation Factors
2. Proximity to markets where product is sold.
Transporting goods to consumers is critical
location factor in three types of industries:
 Bulk gaining-volume, weight added during productionsoft drinks, fabricated machinery
Steel Industry in the USA
Breweries
Car Assembly
Situation Factors
Single market factoriesmanufacturers with only
one or two customers
Situation Factors
Perishable productsproduce, milk, bread,
newspapers
Frozen, canned food
can be farther from the
market.
Inputs and shipping
• Inputs are transported in one of four ways:
ship
rail
truck
air
Firms seek the lowest cost. Long distance transportation is
cheaper.
Break-of-bulk points
A location where transfer among transportation modes
is possible.
Important break-of-bulk points are airports and
seaports.
A steel mill near Baltimore-iron ore by ship from South
America, coal by train from Appalachia.
Port of New York, Port of Houston
Site Factors
Labor-your workers
labor intensive industries-wages and compensation
are a large portion of costs-textile industry
Cottage industries-work done at home.
High tech industries tied to skilled labor.
Labor intensive
Site Factors
Land-not every location has the same climate,
topography, recreational opportunities, cultural
facilities and cost of living.
Industries like low cost energy sources-Alcoahydroelectric power.
Site Factors
Capital-where is the money available?
Industries typically borrow money for new factories.
Banks in MDC’s typically loan money to businesses in
LDC’s
Where are industries expanding?
 Interregional shifts-USA to the South and West.
Right to work laws
 Southern and Eastern Europe
 Asia-China
 Latin America-Mexico and Brazil
Maquiladora
• Manufacturing zone created in the 1960’s in
Northern Mexico just south of the border.
• Goods are produced primarily for US consumers
• This has been promoted by NAFTA-1995 treaty to
promote free trade with the USA, Canada and
Mexico.
Why are location factors changing?
• Cost of labor
Outsourcing-”new
international division of
labor”
Why are location factors changing?
• Just in time delivery-reduces money that is tied up in
inventory.
• Parts and materials arrive daily, if not hourly.
• Producers have less cushion against disruptions in
the arrival of needed parts.
• Labor unrest
• Weather related events, “acts of God”
Deindustrialization
• Fewer jobs within industrial sector.
• Number of jobs in service or tertiary sector has
increased.
• A result of globalization?
• Labor intensive manufacturing in developing world is
displacing jobs of workers in advanced economies.
Challenges for LDC’s
• Distance from markets-invest scarce resources for
airports, docks and ships.
• Inadequate infrastructure-few schools to educate
workers
• Competition with existing manufacturers in other
countries-transnational corporations in MDC’s use
LDC’s for cheap labor. Competition among LDC’s
for MDC’s factories.
Industrialization/Environment
 Fossil Fuel Reserves-how much coal, oil and natural gas remains in
uncertain.
MDC’s with ¼ of the population consume ¾ of the world’s fossil
fuels
 Industrial pollution
global warming, greenhouse effect-increasing earths temperature
acid rain-sulfur dioxide and nitrogen oxides released into
atmosphere by burning fossil fuels.
 Sustainable development-people living today should provide for
future generations
Possible solutions
1.
2.
3.
4.
Prevention
Technological change
Mitigation-undo or reduce damage once it happens
Compensation-people who sue companies.
Measures of Development
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GDP- Gross Domestic Product
GNP- Gross National Product
HDI- Human Development Index
PQL- Physical Quality of Life Index
Calorie Consumption
• We will look at a few of these:
Human Development Index
Human Development Index
• Developed by the United Nations.
• Measures a countries level of development according
to three factors:
• Economic
• Social
• demographic
Economic Indicators
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GDP per capita
Types of jobs
Productivity
Raw materials
Consumer goods
Types of jobs
Social Indicators
• Education and literacy
• Health and welfare
Economic indicators
Demographic indicators
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Life expectancy
Infant mortality rate
Natural increase rate
Crude birth rate
Demographic indicators
More/less developed
HDI
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A numeric measurement
The nearer to 1 the better.
Anglo America-.94
Western Europe-.93
Eastern Europe-.8
Japan-.94
Latin America-.9
East Asia-.76
Southeast Asia-.58
Middle East-.68
South Asia-.58
Sub Saharan Africa-.51
Measure of gender inequality
• Gender-related Development Index (GDI)- compares the
development of each group
• Average incomes of men/women
• Education and literacy
• Life expectancy
• Gender Empowerment Measure (GEM)- compares ability
to participate in economic and political decisions
• Economic power-income and professional jobs
• Political power-managerial and elected jobs
GDI
GEM
Fair trade
Products are made and
traded according to
standards that protect
workers and small
businesses in LDC’s.
Food or craft products
can be fair trade.