Chapter 3 Global Economic
Development
• Introduction
– Nature of Technology, Global Distribution of
Technology, Elements in Economic Development
• World Levels of Development
– Regional Growth
• Problems of Development
– Regional Economic Change, Growth Pole Theory,
Circular and Cumulative Causation, The Bell
Shaped Development Model
• Concluding Thoughts and Summary
Introduction
• The Nature of Technology
“technology … refers to the application of scientific
knowledge and methods to economic activity, resulting in
changes in productivity” p. 35
• The basic problem in engineering economics and
management science - defining products/services, and
optimal combinations of factor inputs to produce them
• Component technologies: (1) transport &
communications, (2) manufacturing, (3) agriculture, (4)
urban-service
• Energy consumption as an indicator of the stock of
technology (Table 3.1); vehicles per capita (Figure 3.2)
Elements in Economic Development
Population Characteristics
Cultural Attributes
Economic Development
Technology
Energy and
Resource Base
World Levels of Development
• Figure 3.4
• Regional Growth: Rostow’s stages of growth
model (1) traditional societies,
(2) preconditions for takeoff, (3) takeoff,
(4) drive to maturity, (5) high mass consumption
• The process of diffusion of development
• ? Inevitability of Rostow’s sequence?
Changing Composition of
Employment in the U.S.
100%
90%
80%
70%
Services
60%
Manufacturing
50%
Construction
Mining
40%
Farm
30%
20%
10%
2001
1995
1989
1987
1982
1977
1972
1967
1958
1947
1939
1929
1919
1909
1899
0%
Development of the U.S. Service Sector
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
State & Local Government
Federal Government
Services
Finance, Insurance, Real
Estate
Retail
Wholesale
Transportation,
Communications & Utilities
1940
1970
2002
Decomposition of Services
100%
90%
80%
70%
60%
Consumer Services
50%
Health Services
40%
Producer Services
30%
20%
10%
0%
1940
1970
2002
Development: The Circular Model of
Capital Flow
Stock of Productive
Capacity
Industrial
Output
Investment
•Interest rates
•Tax policy & public
investment
Final Consumer
Demand
“Savings”
Business
Income
(Value Added)
Payments to
Households
“Savings” - retained earnings, household savings, institutional
investors, international capital sources
Regional Economic Change:
Initial Triggers to Development
Vance’s model
- contrast of “old model” of endogenic
development (internal growth theory)
- versus “new model” of exogenic growth
Local examples: fur trade
Hudson’s Bay Co trading posts
Oregon Trail settlers
Puget Sound timber trade
Jacksonville OR gold mining
Vance’s
Exogenic
And
Endogenic
Model
Internal Development after Initial
Triggers to Development
Retail and other service functions
? Location relative to export activity?
Crossing thresholds with growth,
substituting local production
for imports, exploiting scale economies
Static versus dynamic relations
Impact of Scale Economies on
Market Division
B
Market Division
A
Market Division
P
P
P
a
a
I
II
distance
t
t
P
t
a
a
I
II
Impact of Transport Improvement
C
Market Division
P
P
I
II
Process of Regional Specialization
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
Bread
Lumber
Iron
Region A
Cameras
Bread
Lumber
Iron
Cameras
Region B
Initial Condition: No Interregional Trade
Local Production Equals Location Consumption
Process of Regional
Specialization, Continued
Exports
To B
30
35
25
30
Exports to A
25
20
20
15
15
10
10
5
5
0
0
Bread
Lumber
Iron
Cameras
Region A
Imports from B
Bread
Lumber
Iron
Cameras
Region B
Imports from A
Process of Regional
Specialization, Continued
Interregional Exports
45
60
40
50
35
30
40
25
30
20
20
15
10
10
5
0
0
Bread
Lumber
Production for
Local Use
Iron
Cameras
Bread
Interregional Imports
Lumber
Iron
Cameras
Production for
Local Use
Perroux’s Growth Pole Model
“Growth does not appear everywhere at the same time; it
becomes manifest at points or poles of growth, with variable
intensity; it spreads through different channels with variable
terminal effects on the whole economy.”
Growth Poles versus Growth Centers
Propulsive Industries & Lead Firms
- large size; fast growth; strong
linkages; innovative
? Geographic clustering of pole components?
? Use of I/o data to identify poles??
Uneven Development: Spatial
Outcomes at varying scales
• Role of lead industries, growth poles
• Regional economic base as a platform
for development over time
• The outcome of Perroux’s arguments:
uneven development, where there is:
(1) a dominant center or core, and
(2) a subdominant periphery
that materializes (a) locally; (b) nationally,
(c) globally
Core-Periphery: Shifting Scales
Global: Nation State Level: Developed-Developing
Urban Perspective: Global Cities (New York,
London, Tokyo) - peripheral cities - e.g. Seattle
National: The Industrial NE Vs. the agriculture &
resource dependent South and West
Regional: Seattle & Portland as central-place
core cities, rural peripheries
Local: Seattle CBD Vs. lower order urban
centers
The classic core-periphery
model: Myrdal & Friedmann
Demands from center for goods/services
yields payments to periphery
Abundant
Labor
Supply of materials and products
Abundant
Capital
Scarce
Labor
Center
Capital flows to periphery
Periphery
Shortage of labor in center creates
stimulus for labor migration from periphery
Supply of labor from periphery will create labor
shortage in periphery and raise wages and incomes
Adequate
Labor
Adequate
Capital
Scarce
Capital
Core-periphery Model: Spread Effects
Demands by Center for goods & services;
labor movements; capital flows to meet
investment needs: ? “Trickle-Down”
leading to equilibrium?
BUT:
(1) Distance attenuating effects - related to
transportation & communications
(2) Hierarchical impacts with stronger
access to resources in higher order places
Core-Periphery Model: Backwash/
Polarizing Effects Overtake Spread Effects
1. Goods/Service purchase in periphery
(a) inelastic demand for peripheral goods
(historically owned by core industrialists)
(b) Offset by peripheral demand for goods and
services produced in the core
2. Migration: historically selective
3. Capital: net flows often favor the core
Result: Convergence, Divergence,
Persistent Imbalance
Backwash Circuits
Capital Investment
Migration and Employment
Capital
attracted
to center
Young workers
migrate
to center
Lack of
investment
in periphery
Wider
Gap
C-P
Retarded
growth in
periphery
Wider Gap
C-P
Decreased
Services and Infrastructure attraction for
Reduced Investment
new activity
and new jobs
in periphery
Widened gap
between C-P
Decline in
local services
Smaller local
market, purchasing power
Aging
labor force
in periphery
Pred’s Model of Circular and
Cumulative Growth
Enhanced chance
of invention
and innovation
Entry of new
industry or expansion
of existing industry
Initial
Multiplier
Effect
Attraction of
linked industries:
forward linkages
backward linkages
New local or
regional threshold
New
Construction
Activity
Expanded
Tertiary
Sector
Secondary
multiplier effects
Expanded
Public
Utilities
Invention or
Innovation