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

• James Watt First reliable Steam Engine 1775

• Eli Whitney Cotton Gin, Interchangeable parts for muskets 1793, 1798

• Robert Fulton Regular Steamboat service on the Hudson River 1807

• Samuel F. B. Morse Telegraph 1836

• Elias Howe Sewing Machine 1844

• Isaac Singer Improves and markets Howe's Sewing Machine 1851

• Cyrus Field Transatlantic Cable 1866

• Alexander Graham Bell Telephone 1876

• Thomas Edison Phonograph, Incandescant Light Bulb 1877, 1879

• Nikola Tesla Induction Electric Motor 1888

• Rudolf Diesel Diesel Engine 1892

• Orville and Wilbur Wright First Airplane 1903

• Henry Ford Model T Ford, Assembly Line 1908, 1913

Characteristics of Countries

More Developed (MDC)• Low birthrates

• High level of literacy

• Abundant medical care

• Tertiary/quaternary sector jobs

• Demographic transition model stages 3-4

• Give aide to LDC

Less Developed (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 jobMDC’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. Traditional stage

2. Preconditions for takeoff

3. Take off stage

4. Drive to technological maturity

5. 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 Theory- Hostelling’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 Sam’s snow cones

area of profitability

Why do industries have different distributions?

1. Situation factors-involve 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 inputs-1. 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 production-soft drinks, fabricated machinery

Steel Industry in the USA

Breweries

Car Assembly

Situation Factors

Single market factories-manufacturers with only one or two customers

Situation Factors

Perishable products-produce, 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-Alcoa-hydroelectric 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. Prevention

2. Technological change

3. Mitigation-undo or reduce damage once it happens

4. Compensation-people who sue companies.

Measures of Development

• 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

• 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

• Life expectancy

• Infant mortality rate

• Natural increase rate

• Crude birth rate

Demographic indicators

More/less developed

HDI

• 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.