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Page 1: First Edition - Geography, Economics and Economic Geography

Geography, Economics and Economic Geography 8/5/2002

Web Site http://groups.msn.com/geographyindiapuneshersinghparmar Email [email protected]

Geography, Economics

And

Economic Geography

Sher Singh Parmar.

Page 2: First Edition - Geography, Economics and Economic Geography

Geography, Economics and Economic Geography 8/5/2002

Web Site http://groups.msn.com/geographyindiapuneshersinghparmar Email [email protected]

Geography, Economics

And

Economic Geography

Sher Singh Parmar

Gold Medalist, B.A. (Geography) University of Pune.

Page 3: First Edition - Geography, Economics and Economic Geography

Geography, Economics and Economic Geography 8/5/2002

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1. Author : Sher Singh Parmar. 2. Copyright © : Author 3. First Edition /

Impression : 2002 A. D.

4. Publishers : ASD Publications, Pune,India.

5. Price : India : Rs.200 Nepal / Pakistan / Sri Lanka: Rs.250 Others: US $ 100

This edition is for sale only in India.

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Geography, Economics and Economic Geography 8/5/2002

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Acknowledgement

The author is greatly indebted to all those whose works have been relied upon as reference material.

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Geography, Economics and Economic Geography 8/5/2002

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Dedicated to My Spiritual Master, beloved Parents and Teachers.

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INDEX

Sr.No Table of Contents 1. Introduction Nature & Scope 1. Definition , Nature & Scope Types of hypothesis 2. Elaboration and testing of hypothesis

2. Economic landscape . Historical Evolution 1. Homestead 2 Tribal & village economy 3. Modern Economic landscape

3. World Economy Historical Evolution Medieval Feudal economics, The rise of mercentilism, slave

trade, The Industrial Revolution, colonialism , multinational corporations.

4. Location of Economic Activity Location of primary,secondary and Tertiary production. Von Thunen’s Model, Weber’s Model and Christaller’s

theory.

5. Resources Natural and Human Resources Significance of Natural and Human resources in Economic

Development.

6. Factors of Production Land, Labour, Capital, Technical Knowledge Significance of Land, Labour, Capital & Technical

Knowledge in different economic activities, spatial variation in the factor cost.

7. Transportation

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Model of transportation 1. Characteristic of different models. 2. Variation in cost of transportation.

8. Economics and Scale Types of economics of scales Internal and External economics of scale Spatial variation in demand.

9. Economic Development 1. Spatial & temporal aspects 2. Measures of economic development 3. Classification of countries 4. Rostows & Myrdal’s models

10. International Trade 1. Basic concepts 2.

3.

Factors influencing the international trade , problems & prospects. David recardo’s theory

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PREFACE TO THE FIRST EDITION

1. The present volume is written inter alia to meet the needs as per the syllabus

prescribed for “Economic Geography” for MA by University of Pune as of 2001

– 2002.

2. It is hoped the present volume shall be helpful to the students preparing for

‘Economic Geography” paper of various other universities and competitive

exams, too.

3. I lay no claim as to the originality of ideas/facts/figures presented in the present

volume except the chapter on “Economic Landscape” which purely is my own

contribution. My endeavour has been to bring at one place the study material on

Economic Geography scattered over a large number of sources like books,

articles, etc. It is hoped it shall save the student precious time wasted in looking

for study material. It is hoped it shall help those students who can’t afford to

purchase costly books prescribed in the course, too.

4. However, I do have a piece of advice to students. Although present text is fully

equipped to help a student sail through exams with flying colours, yet an

extensive and wide study covering reference and non – reference study material

has no perfect substitute. A serious and scholarly student must try to read all the

reference material, if time , money and energy allow so . A wide reading does

certainly help widen one’s intellectual horizons.Especially for the latest facts and

figures on international trade , the sincere student must make it a point to

religiously browse through the section on trade/finance in the daily newspapers of

established authentic standing.

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5. I wish to place on record my deep gratitude to Mrs. Jayaprakash Jadhav, the Head

Of the Department , Departmen of Geography , and Vice – Principle of

Padmashree Dr. D.Y.Patil College of Arts, commerce and science, University Of

Pune , who patiently read the whole manuscript and kindly wrote a forward to the

present text. I am thankful to Mrs. Sharmila Chodhuri, lecturer geography,

Padmashree Dr. D.Y. Patil college of Arts , commerce & science who provided

me a great deal of encouragement and moral support to go ahead with the present

text. My youngest brother Rajesh Parmar, a management student, deserves my

appreciation, too, since it was he who got the original manuscript typed

electronically and did the drawings. Last but not least, my publisher deserves a

word of appreciation, too.

6. Constructive suggestions and comments to improve the present text are most

welcome. Presence of error of omission or commission, if any in the given text,

are solely mine.

SHER SINGH PARMAR Pune: /7/2002

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1. ECONOMIC GEOGRAPHY

1.1 INTRODUCTION The phrase “Economic Geography” consists of two words ‘Economic’ & ‘Geography’.

What do we mean by the term “economic” ? Hartshorne & Alexander say,

“The word economic pertains to all the activities in which people engage the world

over, in the production, exchange (or distribution), and consumption of goods and

services. Anything people buy, barter, or work to produce, consume, or exchange is

an economic activity.”

Next, what do we mean by the t erm “Geography”?

The word geography has Greek roots: “geo” means “earth” and “graphos” means

“description”. Thus, “geography” means “description of the earth”. Other sciences

like geology, pedology, botany, zoology, meteorology too describe the earth.

Surely, geography can’t be a sum total of all these earth sciences. Main feature of

geography is the way or how it studies and not what it studies. As says V. A. Janaki,

“Geography is a method of study rather than a subject… In geography, we approach the

subject matter with a spatial perspective”. The subject of geography is primarily related

to variations from place to place rather than from time to time. Hartshorn & Alexander

say,

“Any phenomenon whose distribution diff ers from place to place is t ermed a

spatial variable and qualifies as an element of geography”.

Thus, geography is the study of spatial variation on the earth’s surface inclusive of

all spheres, i.e. Lithosphere, Atmosphere, Hydrosphere, and Biosphere.

1.2 DEFINITIONS :

In simpler terms, economic geography can be defined as the study of spatial variation

on earth’s surface of production, exchange & consumption of goods,

services/information. Although opinion differs on the exact definition of economic

geography, yet everyone agrees on one point that economic geography is the study of

the spatial distribution of human beings economic activities in relation to its

environment, be it physical or non-physical.

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Let us review a few of famous definition on the subject :

A. Hartshorne & Alexander,

“Economic geography is the study of the spatial variation on the earth’s

surface of activities related to production, exchanging and consuming goods

and services… wherever possible, the goal is to develop generalizations and

theories to account for these spatial variations … Economic geography refers

to the field of study focussed on the location of economic activity at the local,

national and world scale.”

B. V.A. JANAKI,

“ It deals with the economic and commercial aspects of man on earth and the

influences on these of the environment in its broadest sense. The adjective

‘Economic’ confines the geographer to the economic problems and system of

man and as such he must know something of the principle of economics”.

C. DUDLEY STAMP :

It “… involves consideration of the geographical and other factors which

influence man’s productivity, but only in limited depths in so far as they are

connected with production and trade”.

D. E.W. ZIMMERMANN:

“Economic geography deals with the economic life of man with relation to

environment.”

E. R.S. THOMAN :

“Economic geography may be defined as an enquiry into the production,

exchange and consumption of goods by people in different areas of the

world. Particular emphasis is placed on the location of economic activity -

upon asking just why economic functions are situated where they are in this

world.”

F. J. MACFARLNE :

“It is (study of)… influence exerted on the economic activity of man by his

physical environment and more specifically by the form and structure of the

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surface of the land, the climatic conditions which prevail upon it and the

spatial relations in which its different regions stand to one another.”

G. CHISHOLM :

It , “…Forms some reasonable estimate of the future course of commercial

development”, as det ermined by geographical factors.

H. SHER SINGH PARMAR :

“Economic geography is that branch of geography which deals with the

influence of so-called geographical and extra-terresterial factors on economic

activities of human beings on earth and in universe from a spatial perspective

in the short run in juxtaposition with primacy of the influence of non-

geographical and extra-terresterial factors on such spatially varied economic

activities in the long run.”

1.3 NATURE:

Economic Geography personified has a nature too, just as any human being has a peculiar

nature or psychological tendency. It is a science, arts and philosophical by nature.

It is a science because it follows scientific methods of observation,collection of

data,hypothesis, theory and model building ever open to scientific scrutiny in terms of

relationship among variables under study and validity of such a relationship.

It is an arts, since it involves quite a subjective approach too in terms of skilful

organization of field studies, collection of data, map drawing and interpretation of results.

Its philosophical, too, in terms of ever trying to philosophise questions of human being

and environment relationship in economic terms. It tries to frame postulations as to what,

why, how, and where an economic activity takes place in a particular corner of the globe

or the universe?

Finally, it of course is interdisciplinary, flexible, dynamic, friendly and far-reaching ,

too.

1.4 SCOPE:

Scope or ambit or area of economic geography is vast both in terms of temporal and

spatial scope.

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Although Hartshorne and Alexander opine that “the geographer is concerned

primarily with variations from place to place rather than from time to time”, yet a

geographer can’t escape studying temporal aspects, too in terms of studying varied

geographical patterns of phenomena prevailing at any given point of time on earth.

(i) TEMPORAL SCOPE:

With emphasis on the current contemporary situation, it includes in its ambit the scope of

going back into times, since ills of many countries today have their roots in past

geographical economic spatial patterns like during the great age of discovery, 30 million

young people aged 15-35 years were removed from Africa during Slave Trade Era which

depleted human resources of that continent. It caused a lack of economic development in

Africa whereas slave trading nations like U.K., Spain, etc. flourished and built up

enormous monetary and capital assets which helped them later to kickstart and sustain

economic development in their own countries. This led to spatial variation in economic

development in that bygone era. But, its repercussions are still felt in Africa, where

economic development has quite been low due to bequeathing of no economic

development by their preceding generations.

Thus, one may devide temporal aspect into following broad categories :

1. Ancient,

2. Medieval,

3. Great Age of discovery

4. 19th century,

5. 20th century,

6. Contemporary,

7. Recent,

8. Present.

(ii) SPATIAL ASPECT/SCOPE :

Economic geography has enormous spatial scope which includes the following

aspects/points:

1. VERTICAL:

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Spatial locations right from ocean bed to the mountain top and related economic

phenomena.

2. HORIZONTAL:

(i). Continental Scope : It includes studies of all continents/islands in economic

terms and their interactions.

(ii) Hemispheric Scope : Economic geography may be studied in terms of eastern,

western, northern, southern hemispheres.

3. ECONOMIC ACTIVITIES SCOPE:

i. PRODUCTION :

It includes studies of all kinds of economic activities – primary, secondary,

tertiary, Quaternary, quinary.

ii. EXCHANGE :

It includes value addition to each product, goods, services created by the

specialized services provided at each level of handling, including packaging,

promotion, financing, and merchandizing of the product.

iii. CONSUMPTION :

It includes both the pattern of consumption and the spatial aspects of consumer

behaviour.

4. DEVELOPMENTAL SCOPE :

It includes a study of spatial variation in terms of economic development, i.e.

different categories of countries like more developed and less developed

countries.

2 INTEGRATIVE SCOPE :

It includes a study of spatial variation in economic activities in terms of an

integrated approach to all spheres, i.e. Lithosphere, Atmosphere, Hydrosphere and

Biosphere. It includes studies of underground spatial aspects like aesthenosphere,

sial, sima, mantle, core so as to determine their influence on economic activities

of human beings.

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3 EXTRA TERRESTERIAL SCOPE :

With the opening up of extra terrestrial scope, economic geography shall have to

take into consideration availability of economic activities/possibilities in outer

space like Moon, Mars, etc. Experiments carried out to produce special kinds of

minerals aboard spacecrafts fall within the spatial scope of economic geography.

4 GLOBAL SCOPE :

It has global scope, because of variations in the level and interdependencies that

exist in international economic development. The whole earth has become a

global system with shrinking economic distance. So much that even a person in

the most remote geographical/economic areas of the world now participate in an

economic system that is less local and regional and more national and

international in scope.

(iii) THEORETICAL SCOPE :

It has enormous theoretical scope. Hartshorne & Alexander say ,” Locational

analysis in economic geography involves not only an explanation of activities

already present on the landscape but may also involve the selection of a

future location for an activity such as a restaurant or shopping mall.”

Theories are used in so far as possible to explain why activities are located as they

are ,i.e., Von Thunen’s Model (Agriculture), Weber’s Model (Manufacturing) and

Christaller’s Central Place theory (tertiary, quaternary, quinary activities

including retail location) are excellent examples.

It includes concepts in analytical work like distance, interaction and region.

(iv) INTERDISCIPLINARY SCOPE :

It studies other subjects like economics, political economy, etc. to gauge the

effects on spatial variation in economic activities of factors like political economy

of a nation, macro forces associated with the transition of the world economy

from a manufacturing to a post industrial base, the international monetary system,

and multinational corporations.

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1.5 TESTING/TYPE OF HYPOTHESIS

1.5a INTRODUCTION:

First of all, let us try to find out what we exactly mean by the concept of a

“hypothesis”. A “hypothesis” is a tentative logically drawn conclusion concerning

any parameter of the population based upon observation of the population. Here

“population” means a given set of certain variables. For example, a collection of

different crops in a village may be said to be a “population”. After having made

an observation of the yield or production of different crops in general, it may

seem that a particular crop gives better yield than others. So, one may form a

‘hypothesis’ that the particular crop (let us say rice) is most suitable for sowing in

the agricultural fields of that village. For this purpose, a sample (chosen

randomly) may be taken of the agricultural lands. Now, this involves an element

of risk, the risk of taking a wrong decision. Here, modern theory of probability

plays an important role in decision making by helping arrive at decisions in

certain situations having an element of uncertainty on the basis of a "Sample" or

"“representative small set of variables ” taken from the “Larger set of variables”

or the “Population” . In the above example, if the sample mean and population

mean have no significant differences, the hypothesis is accepted. Otherwise, it is

rejected, if significant differences exist.

1.5b TESTING OF HYPOTHESIS :

That statistical method which helps in arriving at the criterion for making

decisions in situations having an element of risk or uncertainty, the risk of taking

a wrong decision, where inductive influence is for deciding about the

characteristics of the population on the basis of sample study is called Testing of

Hypothesis. In other words, the testing of hypothesis is a process of testing of

significance regarding parameter of the population on the basis of sample. It

involves computation of a “statistic” from the sample drawn from a population on

the basis of which it is decided whether the sample so drawn belongs to the

parent population with certain particular characteristics. It shows whether the

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difference between the computed "“statistic” and the hypothetical parameter is

significant or otherwise. If the difference is small, it is accepted on the grounds

that it has cropped up due to sampling fluctuations. Accordingly, it is accepted. It

is rejected, if such difference is quite large in which case it is presumed that the

difference has arisen due to some other reasons and not due to sampling

fluctuations. “Testing of hypothesis” is also called the “test of significance”,

because it reveals the significance or otherwise of differences between the

computed “statistic” and the hypothetical parameter.

1.5c ORIGINATORS :

Neyman and E.S. Pearson initiated this theory.

1.5d TYPES OF HYPOTHESIS :

Hypothesis are of 2 types:

1. Null Hypothesis

2. Alternative hypothesis

i. NULL HYPOTHESIS :

It is a hypothesis which is stated for the purpose of possible acceptance. It

is denoted by the symbol Ho. To quote Professor R.A. Fisher, “Null

hypothesis is the hypothesis which is tested for possible rejection

under the assumption that it is true.”

ii. In the foregoing example, we may express the Null hypothesis as below : -

iii. Ho:µ.= Rice

Following two precautions are taken while setting up a Null Hypothesis :

1. A Null Hypothesis that “ the difference is not significant” is set up when

one has to test the significance of the difference between a “statistic” and

the “parameter” or between two sample “statistics”. In other words, the

difference if any is just due to fluctuations of sampling.

Ho : µ = X (X = Sample mean)

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2. A null hypothesis that “It is true” is set up when one has to test any

statement about the population, e.g., if one has to test whether population

mean has a specific value “(µo), this type of hypothesis is set up

Ho : µ = µ o

ii. ALTERNATIVE HYPOTHESIS : It is a complementary hypothesis to the Null hypothesis. It is denoted by H1 For example,

if we want to test the null Hypothesis that the average yield is 100 kg per hectare in

agricultural fields, i.e. ,

Ho: µ=100 k.g.= µ o (say) µ

the alternative hypothesis could be:

i. H1: µ ≠µ 0 (i.e. , µ >µ 0 or µ <µ 0) [two tailed alternative]

ii H1: µ >µ 0 [right tailed test]

iii. H1: µ >µ 0 [left tailed test]

1.5e ELABORATION / PROCEDURE OF TESTING A HYPOTHESIS :

It involves following 7 steps :

i. Setting up a hypothesis

ii. Computation of a statistic

iii. Finding out type I Error (αααα) and Type II error (ββββ)

iv. finding level of significance

v. Critical Region or Rejection Region.

vi. Two tailed Test and one-tailed Test.

vii. Taking a decision.

1. Setting up a hypothesis: A statistical hypothesis is logically drawn

concerning any parameter of the population. Either a Null Hypothesis or

an Alternative Hypothesis is set up as explained earlier.

2. Computation of a statistic : It is based upon an appropriate probability

distribution. It is used to find out acceptance or rejection of the Null

Hypothesis set-up. 2 distributions- Z and t distributions are used. Z

distribution under normal curve for large sample where the sample size is

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equal to or larger than 30 (n>30). t distribution for small sample where the

sample size is less than 30 (n<30).

3. Type I error (αααα) and Type II error(ββββ) : Acceptance or rejection of a

Null hypothesis on the basis of sample data always carries the risk of

errors of two types : 1.True hypothesis is rejected 2. False hypothesis is

accepted.

DECISION ACTUAL

Accept Ho Reject Ho

Ho is true Correct decision, no error

Probability=1-α

Wrong decision, type I error

Probability = α

Ho is false Wrong decision, type II error

Probability = β

Correct decision, no error

Probability=1- β

While accepting or rejecting a Null hypothesis chances of type I errors and type II

error have to be avoided as far as possible.

4. finding the level of significance : The level of significance denoted by α

is the maximum probability of making type I error. The level of

significance denoted by β Is the maximum probability of making type II

error. Derived level of significance always is fixed in advance. Generally,

these are 5% (0.05) and 1% (0.01). 5% level of significance means that

every 5 out of 100, there are chance of rejection of a correct Ho. This

means 95% confidence of the rejection of Ho being correct. This 95% of

confidence is also called the confidence coefficient.

The probability of error (β) is much higher in accepting a false hypothesis

than in rejecting a true hypothesis ( α type error).

5. Rejection region/critical region : The total area under a standard normal

curve is equal to 1 signifying probability distribution. The rejection region

or the critical region is the region of the standard normal curve

corresponding to a pre-determined level of significance fixed for knowing

the probability of making the type I error of rejecting the true hypothesis.

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Web Site ht Email shers

The acceptance region is the region not covered by the rejection region.

If the “test statistic” computed to test the hypothesis falls in the acceptance

region, it is reasonable to accept it, because it is believed to be probably

true. If it falls in rejection region, it is rejected, as it is reasonable to reject

it because it is believed to be probably false. The acceptance region and

rejection region are separated by the "critical value” (which is the value of

the test statistic computed to test the hypothesis) .In case of large sample

size, the critical value of Z from the Z table is used and in case of small

sample size, the critical value of t from the t table is used.

6. 2 - tailed test and One-tailed test : The critical region under the normal

curve is presented in 2 ways :

i.)“One tail” or one side under the curve, either ‘the left’ or the ‘right tail’.

ii.)“Two tails” or two sides under the normal curve. These are a called one

tailed test and two-tailed test respectively,also.

Two tailed test is used when the sample mean is significantly different

from the population mean. In other words, it is used when the positive or

negative difference between the sample mean and the population mean

tends forwards rejection of the Null Hypothesis.

One tailed test is used (right tail) when the population mean is at least as

large as some specified value of the mean or (left tail) when the population

mean is at least as small as some specific value of the mean.

LCV UCV

Rejection region

(α/2)

tp://g

inghp

UCV

Acceptance region (1-α )

Z=0 +Zα

-Z α

roups.msn.com/geographyindiapuneshersinghparmar

[email protected]

= Upper Critical Value, LCV = Lower Critical Value

Two tailed Test ( Level of Significance ‘αααα ’)

(α/2)

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Right Tailed Test ( Level of Significance ‘

Left Tailed Test (Level of Significance ‘!!!!

Acceptance Region (1-α )

Z=0

Acceptance Region ( 1-α )

-Zα Z=0

Rejection Region (α )

Rejection region (α)

Z

inghparmar

α’ )

’ )

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7.Taking a decision :

Finally, a decision on acceptance or rejection of a Null Hypothesis is taken. A

Null Hypothesis is accepted, if the computed value of the “test stastic” is less than

the critical value(and it falls in the acceptance region). It is rejected, if the

computed value of the ‘test stastic’ is more than the critical value (and falls in the

rejection region). Unless stated expressly otherwise, generally a 5% level of

significance (α = 0.05) is used in testing a hypothesis.

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2. ECONOMIC LANDSCAPE

2.1 INTRODUCTION:

What do we exactly mean by the term “Economic Landscape”? It means viewing

the geographical area around in terms of economic activities like production ,

distribution and consumption of goods, services and information.

The term landscape has been borrowed from geomorphology. In geomorphology,

the term “landscape” means the configuration of land. That is whether the given

piece of land is even or uneven; whether it is plain or rugged, whether it contains

features like hills, mountains plateaus and so on. In short, it means the physical

features present on a given piece of land. When applied to economics, the term

landscape shall naturally mean the economic features present on a given piece of

economic land. “Economic Land” here means any given piece of land on which

economic activities take place. Instead of physical features like hills, plains, etc.,

here one has to visualize economic features like production , exchange and

consumption of goods, services, and information. Also, visualize one has to the

spatial location, processes and impact of economic activities in various forms like

primary, secondary, tertiary, quaternary, and quinary.

However, one has to keep in mind that the term “ Land “ as used in economic

geography has quite broad meaning. When we talk of an economic landscape, it

means not only the land aspects, but any physical features that may be present in a

given area, i.e., land, water bodies, etc. In other words, any economic activities

happening in a given area are covered under the term “ Economic Landscape.”

Thus, the term “Economic Land Scape” means the economic scenario existing

on any given point of time at any given place of the earth or anywhere in the

universe.

2.2 HISTORICAL EVOLUTION:

Economic scenario at any place constitutes economic activities taking place

there. Just as in geomorphology, we see the growth of any landscape over a large

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period of time, so do we see the economic activities grow at varying rates in

varying directions at varied places owing to various factors, too.

These economic activities may differ in time and space. Temporally speaking

, humanbeings have advanced from the primary economic stage of subsistence on

food gathering, hunting and fishing to the modern day economic activities based

on services and information technology. We see a giant leap forward from a

simple barter economy to the modern day complex economics greatly influenced

by Multinational companies (MNCs). Also, economic activities differ greatly

from one physical region to another depending on the effective use of existing

natural and human resource. For example, human beings living in an alluvially

rich plain primarily carry out agricultural activities, because physical factors

therein like rich soil and presence of water are conducive to growing of crops. On

the other hand, rugged mountainous areas are unfavorable to the growing of

crops. So, people in mountains regions carry out other kinds of economic

activities like horticulture, sheep rearing ,etc.

The evolution of economic landscape or growth of economic activities is not

the same for all regions and people on the earth. North West Europe and

North America represent the highest stage of contemporary economic

development. Whereas, people living in some other areas like pygmies of

equatorial rain forest have still not come out of their outdated economic mode of

subsisting on the free gifts of nature like fruits, roots, etc., with practically nothing

to spare for sell to others. It means no economic activities in the modern sense,

because any activity can be said to be an economic activity only when there is a

sale and purchase involved.

Historically speaking, some 5 lakh years ago, humanbeings were dependent on

subsistence kind of hunting, fishing and food gathering. Humanbeings led a

nomadic life in Palaeolithic era upto 8000 B.C. (Stage age) .In Neolithic er a(8000

B.C. - 4000 B.C.), Human beings learnt to domestic 1. Plant 2. Animals and

started living a settled social life, thereby involving some extra production of

plants and animal products which could be exchanged, though exchange was still

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of primitive type involving barter system. Areas in Asia/Europe especially those

in Iran / Arabian desert showed some economic progress .They started producing

cotton, wool clothes, milk ,meat ,sharp edge stone implements for agriculture

purposes. Discovery of fire, pottery, weaving, and wheel greatly aided the

economic progress. Later on, during copper & Bronze era ( 4000 B.C. – 2000 B.

C.), city life evolved. Great civilisations like Indus river valley, Sumerian

(Mesopotamian), Egyptian (Nile River Valley) and Chinese (Hwang – Ho River

Valley) emerged on the world stage. Emergence of city life necessitated division

of labour. Advances in science, technology and arts helped increase agricultural

production in terms of better improved implements like hoe, and highly improved

systems of irrigation like canals and dams. This made it possible to produce extra

surplus food grains. Therefore, the whole population was not required to engage

in agricultural activities. Consequently, some of them were freed from

agriculture. This freed population now could concentrate on activities other than

agriculture. This freed population engaged itself in trade and commerce which

helped the growth of big cities and hastened the urbanisation process. This freed

population was able to engage in producing highly useful agricultural inputs like

hoe, etc. ,which they could exchange for food products. Thus, it initiated a

process of rural - urban interlinked economy. This linkage was further reinforced

during coming Iron Age ( 1200 B. C. – 600 B.C.) wherein Iron implements led to

easiness in clearance of forests for agricultural purposes, besides helping increase

agricultural productivity. Iron caused the industrial development. Weaving

became easier. Bullock carts were developed. Fighting arms of iron were made.

Iron age was experienced differently by different regions, i.e., India first

experienced it around 1000 B.C. , whereas Africa around 1 B.C. All this

revolutionized the existing economic landscape. Now, the economic landscape

consisted of highly developed centres of trade and commerce.

Refining of economic activities continued at a slow pace till round 1750 when

industrial revolution in North –West Europe triggered rapid economic growth in

all sectors like agriculture and industrial. With further growth of transportation

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system around 1800, economic development picked up leading to the modern day

complicated interlinked and interdependent global economy.

Thus, as the above discussion clearly shows, the historical evolution of economic

landscape has not shown a consistent linear pattern. Rather, it displays different

rates and directions both temporally and spatially.

Following flow chart shows the idealized model of development of economic

landscape:

Homestead

Tribal

Village

Modern

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2.3 TYPES OF ECONOMIC LANDSCAPE

1. INTRODUCTION:

Economic landscape on any given point of time at any scale whether local, regional,

national or international may be viewed from numerous perspectives. One perspective is

to see whether it is a balanced or an imbalanced type of economic Landscape.

Accordingly, I propose to introduce through the present textbook two types of Economic

Landscape:-

1) The Idealised perfectly balanced pentagonal Model/type.

2) The realistic Isostatically balanced Amorphous Model/type.

2. TYPES

(i) The Idealised Perfectly Balanced Pentagonal Economic Landscape:

An economic landscape may be said to be perfectly balanced if the number of

people employed theorein are proportionally distributed over all the 5 kinds of

economic activities: Primary, Secondary, Tertiary, Quaternary and Quinary. In

other words, each type of activities must engage 1/5ths of the productive

population. It has to be proportional, because a balanced economic scenario

requires that all natural and human resources be fully utilized. The full

utilization of all resources in a given space is possible only if all the above

mentioned 5 types of economic activities are undertaken. For example,

mineral resources falling under primary activities may remain unutilized, if the

whole population of the given area engages only in tertiary activities (services)

like clerical works, secterial jobs, etc. This shall naturally lead to top sided

existence of the resultant economic landscape characterized by dependence on

outside areas for mineral based needs! In fact, the idealized perfectly balanced

economic landscape denotes a totally self – dependent economic landscape with little or

no dependence on outside areas. Such an idealized landscape is likely to lead to a growth

of favorable terms of trade to the people of the region contained in it.

A pentagon represents perfectly this idealized state of the balanced Economic

landscape.All triangles P, S, T, Qa, Qu have equal area and represent equal

number of productive population engaged in economic activities in the Pentagonal

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Economic Landscape represented by the area contained in the Pentagon abcde.

(ii). The Realistic Isostatically balanced Amorphous Model/Type:

However, real world is quite different from the idealized one, especially in social

sciences. Likewise, one does not find in existence in the real world the idealized perfectly

balanced pentagonal economic landscape. On the contrary, deviations from the idealized

model are noticed more as a rule rather than an exception.

Why are deviations noticed? Well, human beings on different parts of the earth’s surface

have different wants, desires, needs, choices and different abilities to realise the same.

Thus, the economic landscape of a typical village in India shows primacy of agricultural

activities, whereas a highly developed metropolitan region like that of Mumbai reflects

an economic landscape consisting primarily of tertiary, Quaternary, and Quinary

economic activities both representing economic landscapes in a rural and urban setting

respectively. Neither is self – sufficient. Rural economic landscape provides food grains,

vegetables to the urban one, while the typical urban landscape provides to the rural one

the quinary products like finances and health services.

P = Primary Activities.

S = Secondary Activities.

T = Tertiary Activities.

Qa = Quaternary Activities.

Qu = Quinary Activities.

abcde = The Pentagon

representing the given

economic Landscape.

.

P S

T Qu

Qa

c

b e

a

d

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2. MEASUREMENT OF DEVIATION FROM THE IDEALISED MODEL:

An economic landscape in the real world exhibits amorphous tendencies with all the 5

activities forming differing proportions of the total economic landscape unit. However,

the economic landscape itself remains in an isostatically balanced state, i.e., increase of

workers in one sector leads to decrease in other sectors.

One may measure the deviation by applying the following method. First of all, divide

total productive population according to 5 activities. Add the grand total. Divide the

grand total by 5 (representing the total number of activities). This figure be taken as the

expected proportional population in any given economic activity. Then , find the

difference between this expected productive population with actually observed

productive population in a given activity. This gives the deviation against each category

of economic activity. Add all the deviations, if any, ignoring the minus (-) signs. Divide

the total of deviations by the grand total of productive population. The resultant final

deviation , co-efficient or the degree of imbalance shall range from 0 to 4 indicating

varying co-efficient of imbalance in the given economic landscape as per following table

of co-efficient of imbalance:

Co-efficient of

IMBALANCE

KIND OF

IMBALANCE

(20%) 1 and > 0 SLIGHT

(40%) 2 and > 1 HIGH

(60%) 3 AND >2 VERY HIGH

(80%) 4 and > 3 PERFECT

Note: The ideal to any country should be to keep the co – efficient 0 to 1 and see that

it does not increase beyond 1. The values are applicable universally at all levels, i.e.,

local, regional, national, international (global).

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EXAMPLE OF CO–EFFICIENT OF IMBALANCE IN A

HYPOTHETICAL ECONOMIC LANDSCAPE “X”

Sr.

No

Economic

Activity

Total Working

POPULATION

(O)

EXPECTED

Proportionate

Population (E)

Deviations

(D) =

(O – E)

1. Primary 500 720 -220

2. Secondary 600 720 -120

3. Tertiary 720 720 0

4. Quaternary 780 720 +60

5. Quinary 1000 720 +280

N ΣO = 3600 ΣD =680

NOTE: ΣD is

calculated by

ignoring

minus (-)

sign

E = ΣO = 3600 = 720

N 5

ΣD 680

Coefficient of IMBALANCE = ΣO = 3600

= 0.188 = 0.188 x 100 = 18.800 %

INTERPRETATION:

The given economic landscape shows only slight imbalance (18.8%) as per table of co-

efficient of imbalance. In other words, the given region is fairly economically self –

dependent.

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IDEALISED HYPOTHETICAL EXAMPLE OF A QUANTITATIVELY PERFECTLY BALANCED ECONOMIC LANDSCAPE : 1,2,3,4,5 (circular feature) = Economic Landscape

P = Primary activity

S = Secondary activity

T = Tertiary activity

Qua = Quanternary activity

Qui = Quinary activity

AB = Height of the economic landscape from base

A = Centre of the Economic Landscape Model (representing same height for all sectors

of economic activity)

(NOTE : In the above graphical figure, AB is equal to 5. In other words, all the economic

activities have 5 workers each. Thus, it is a perfectly balanced economic landscape).

X

5

4

3

2

1

0

Y

1 2

3

45

P T

Qui Qua S

A

B

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ISOSTATICALLY BALANCED ECONOMIC LANDSCAPE :

OX = Base level

AB = Original height = 5 workers

CB = New height = 6 workers

DB = New Height = 4 workers

Workers in secondary, quaternary and Quinary activities = 5 workers each.

Workers in Primary activity after isostatic adjustment = 6 Numbers.

Workers in tertiary activity after isostatic adjustment = 4 Numbers.

(NOTE : It is clear the total Number of workers in figure (i) is 25 which remains the

same in figure (ii). However, in figure (ii), One worker is reduced or the tertiary portion

has sunk beneath the base level OX to –1. This one worker lost to tertiary activity (T) has

flown into the Primary activity block which gets pushed up to level 6 from 5 on Y axis.

This means that Primary activity has now a larger number of workers. Although the

present resultant economic landscape is activitywise imbalanced, yet it is isostatistically

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balanced because the orignal total number of workers remain unchanged in the whole

landscape, i.e., 25).

THE MODEL OF ECONOMIC LANDSCAPE BALANCE :-

OBJECTIONS :-

The above model of the balance of Economic Landscape may be found highly

objectionable in view of its emphasis only on the quantitative aspects of different

activities, i.e., number of human population employed in each . It may be pointed out that

it ignores the qualitative aspects like scientific and technological advancements and their

impact on development of a particular economic activity .For example , it is generally

observed that a proportionaly large number of population engages in primary activity of

agriculture in developing and underdeveloped countries compared to other activities. Yet,

contribution in productivity per head in agriculture measured in terms of market value of

primary products is less compared to the productivity per head in secondary or tertiary

activities .On the other hand, a very small population takes to agriculture in developed

countries as compared to other activities. Still, this small population is able to give

substantial higher contribution per head in terms of agricultural productivity. This

difference can easily be explained in terms of various factors like advanced technology,

agricultural methods, etc. employed in developed countries. So, one may argue that the

model of the balance of economic landscape is invalid as it ignores qualitative aspects as

mentioned above.

However, a further look into the model reveals that it still is valid, if we consider

qualitative aspects associated with each economic activity in addition to the quantitative

aspects of human labour force. Therefore, we may further refine the above explained

model by stating that an economic landscape is perfectly balanced, if contribution by

each economic activity is perfectly balanced , if contribution by each economic activity is

proportional in terms of equal output by each worker irrespective of the type of activity

undertaken. For example , in a hypothetical case, 5 workers each may be employed in

secondary, quaternary ,quinery activities, 6 workers in primary and 4 in tertiary activities.

Now, if each worker contributes equally a product of the same worth/monetary value, the

resultant economic landscape may be said to be an ideally balanced one.

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IMPORTANCE OF THE CONCEPT OF THE BALANCE OF ECONOMIC

LANDSCAPE :

1. In an idealised situation of a perfectly balanced economic landscape, each worker

contributes products of equal value. Or alternatively put, each one’s work is

considered of equal importance in society. This leads to the concept of the

dignity of labour both in social and economic terms.

Any economic landscape gets imbalanced because of either disproportionate

quantitative deployment of workforce in different economic activities or the

disproportionate cornering of economic benefits in terms of price of products by

workers in certain economic activities. For example, both a doctor and a mine

worker may be putting same hours of work daily. Still, a doctor earns more than a

mine worker. Why? Commonsense would like to explain it away in terms of the

varying degree of complexity involved in both the activities, besides the

operation of law of demand and supply in terms of excess supply of mine workers

and less supply of doctors which gives doctors a higher bargaining power for their

products in the market as compared to the so called unskilled mine worker.

However, a further analysis shall reveal that this difference is more than simply a

case of law of demand and supply dictated by market forces. Rather, it is the

“degree of dignity” attached to the jobs that causes this wide variation. One may

ask how could it be? Well, a doctor no doubt is required on the economic

landscape to take care of health problems of the human population. But, so is

required the services of other so called unskilled low paid workers like plumbers,

electricians, scavengers. All workers, irrespective of specialisation of their jobs

are a cog in the big machinery of interdependent society, whether big or small.

You take one part out however small it may be and the whole machinery shall

come to a grinding halt. For example, if scavengers or plumbers stop work when

required to do so in a doctor’s house, the doctor shall loose precious time in

trying to do the cleaning or plumbing work all by herself or himself! What does it

show? It shows that all types of economic activities are of equal importance on

any given economic landscape. It further shows that the dignity of labour has to

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be restored to encourage workers to participate fully in exploiting economic

potential in all economic activities of the economic landscape instead of the

present tendency of the people to rush to the economic activities which provide

better monetary and other benefits.

2. The present concept of the balance of Economic Landscape clearly shows as

outlined above that it’s the dignity of the labour which is more important than the

simple play of market forces of demand and supply on any given economic

landscape. Therefore, it follows as a natural corollary that we don’t need any

isms like socialism, capitalism, etc. to usher in a balanced development of an

economic landscape. Rather, it’s the change in human attitude restoring the

dignity of labour which is the most important factor.

3. Many of contemporary and past world political problems have their genesis in the

imbalance of economic landscape on a global scale. Several examples may be

cited in support of this proposition.

4. Babur, the ruler of Kabul attacked the Gangetic plains of India during medieval

periods due to this factor only. Kabul was steeped in poverty, whereas the

economic landscape of the then gangetic plains was highly developed. This

difference stimulated the less developed economic landscape of Kabul symbolised

by Babur to attack the highly developed economic landscape of gangetic plains

represented by Ibrahim Lodhi. Conversely, Highly developed economic landscape

of Europe prompted subjugation by Europeans of the less developed economic

landscape of Africa which caused a drain of African resources during the evil

slave era. Likewise, the capitalist economic landscape represented by highly

developed U.S.A. pulled down the lesser developed economic landscape of the

erstwhile communist U.S.S.R. U.S.S.R. itself disintegrated, because of the

disenchantment with central command structure in Moscow of constituent states

finding themselves floating on an imbalanced Russian Economic Landscape with

certain areas highly developed as compared to others! Even as recent as 11th

September, 2001, this phenomenon expressed itself ghastly , when two jet

airliners hijacked by international terrorists pulled down the “North and South

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Towers of the “World Trade Centre” in New York, sending the world economy

into a slide. Highly developed economic landscape of the U.S.A. is perceived by

Islami jehadists as a threat to the culture and economies of the lesser developed

economic landscapes of Muslim states of African Sahara and middle east. In all

probability, these attacks might not have taken place had both U.S.A. and

Islamic world economic landscapes been ones developed to the same degree. In

fact, world wars I and II were fought as a fall out of this imbalance of economic

landscapes.

As the above brief discussion shows clearly, even a slight imbalance in economic

landscapes at any level is sufficient enough to engineer political and other

problems.

5. World peace may be achieved, if the whole globe is developed into a perfectly

balanced economic landscape. Such an ideal landscape shall discourage wars

simply because of the equitable distribution of fruits of human progress and

consequent disincentive for wars, besides the realisation by each part on the

economic landscape of other constituent parts being equally developed. The

concept of the dignity of labour may play a vital role in this direction. Therefore,

the integration of the world economy in a perfectly balanced state shall cause

development of the perfectly balanced economic landscape. Thus, world peace

and economic prosperity may ideally speaking be accomplished!

6.

2.4 HOMESTEAD ECONOMY

1. INTRODUCTION :

Homestead economy existed prior to the emergence of tribal and village

economies on the economic land scape. First of all, lets know what we do meant

by the term “Homestead”. The word “Homestead” means “a building with

outhouses”. Therefore, the phrase “Homestead Economy” means the economy

related to a homestead characterised by primitive level of division of labour and

low specialisation. The head of the family generally controls the nature, type,

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structure and direction of economic activities performed by members of the

family.

2. SIGNIFICANCE :

Homestead economy shows an advance over the palaeolithic economy in the

sense that now human beings tend to organise themselves in small socially

recognisable units capable of carrying out more refined activities as compared to

cave dwelling human beings.

3. PRESENT STATUS :

“Homestead economy” hardly exists on the earth’s surface as a major economic

force. In less developed countries, the transition from “homestead economy” to

modern economy is direct without experiencing the intermediate stages of tribal

and village economies. It is because of the direct impact of the benefits of

modern economy flowing from Developed countries to less developed economies. 2.5 TRIBAL ECONOMY

1. INTRODUCTION:

Tribal economy exists on this earth, since times immemorial. Despite evolution of

economic landscape from early homestead economy to the modern day

complicated global economic landscape, earth’s surface is still replete with

regions housing tribal groups with their tribal ways of carrying out economic

activities. However, contact with the more developed (scientifically/technically)

outside world is slowly influencing their economies. Consequently, their

economic behaviors/activities is reflecting a perceptible change, albeit a slow one.

2. WORKING OF THE TRIBAL ECONOMY :

As a general rule, tribal people depend on physical surroundings for their basic

needs like food, clothing, shelter. Nothing belongs to any individual human being.

All natural resources are supposed to belong to the whole tribal community. No

two tribes are similar in their appearoach towards economic activities. Some

tribes depend purely on Mother Nature for survival. Whereas, some other tribes

take up activities like agriculture, fishing, and hunting. Some tribes are barely

able to eke out a living. While, a few other tribes are able to exchange their

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products with outsiders or in the local market. Mode of tribal economy is quite

primitive lacking in modern methods of economy like sophisticated production

complexes or financial institutions. They are generally happy the way they are

and quite content with whatever bare minimum for survival is provided to them

by Mother Nature, though to an outsider brought up in the modern cultural

settings this may appear to be quite inadequate by modern standards of living. To

quote Balbir Singh Negi in “HUMAN GEOGRAPHY – An Ecological

APPROACH.” “Undoubtedly, they are nurtured by the hardy mother nature

making them strong and stout, but side by side they have to suffer a lot of

trouble and material loss.”

Although world has many tribes in all parts, yet a brief study of Indian tribes shall

suffice to indicate fully the scope of any tribal economy in general. Indian tribal

people are the earliest amongst the present inhabitants of India. They have

variously been called by various authors, i.e. “Aboriginal” by Risley, “ Primitive

Tribes” by Hutton, “Hill Tribes” by Sir Bains, “Aborigines” by Shoobert,

“Adivasis” by Balbir Singh Negi. They are still in primitive sage of

civilization/economy.

To quote Balbir Singh Negi , “ The Adivasis of India are the most backward,

even at present their existence depends to a large extent upon hunting of wild

beast, and the gathering of wild fruits and berries.”

The following chart gives an example of tribal economy with reference to India:

ECONOMIC ACTIVITY TRIBES

Hunting, food gathering Raji (U.P.), Kharia, Birhor(Bihar),

Kuki(Bengal and Assam), Nagas

(Nagaland), Konyak; Hill Maria (M.P.),

Koya, Reddi, Yan Kadar, Hill Pantaram

(T.N. & Andhra Pradesh), Juang (Orissa).

Shifting Cultivation, Lumbering ,

manufacturing

Korwa, Saheria, Bhumji (U.P.), Korwa,

Asur, Santhals (Bihar), Garo (Bengal),

Nagas (Nagaland), Khasis, Mezos, Garo;

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Muria, Damdami, Gonds (M.P.), Rhonds,

Kurimba Gonds, Saora Mudavan (T.N. &

Andhra Pradesh), Saora (Orisa).

Settled Agriculture, Poultry,

Cattle, Weaving, Spinning,

Knitting, Terrace farming

Tharv, Bokhasa, Kol, Khasis(U.P.),

Munda, Ho, Oraon (Bihar), Polia Santhals

(Bengal), Khasis, Manipuri, Parja, Bhutva

(M.P.) Badga, kota, Irula, Parja (TN &

Andhra Pradesh), Bhil, Gonds (Orissa).

3. FACTORS INFLUENCING TRIBAL ECONOMY :

1. PHYSICAL / NATURAL

2. CULTURAL 3. HISTORICAL

1. PHYSICAL –

Physical isolation, inaccessibility of the land inhabited by the tribals

owing to difficult rugged physical terrain, dense forests have all meant a

relative isolation of primitive tribes from modern highly developed

materialistic civilization. Consequently, they have generally remained

untouched by influences of the working of modern day economies. Thus,

they keep carrying subsistence level of primary economic activities like

fishing, hunting and food gathering in sharp contrast to the commercial

level of these activities being practiced by highly civilized people with the

help of latest science and technological gadgets. This prevents them from

producing for higher level markets or to undertake production and

exchange of goods, services and information on a commercial level.

2. CULTURAL –

1. CONTENTMENT –

Tribals as a rule are generally happy with whatever bare minimum

necessary is provided to them by Mother Nature. Whereas, highly

civilized society undertakes highly sophisticated economic activities,

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because, of a desire for various materialistic objects, services and

information. Fully satisfied with their material situation and with no or

little desire for material comforts of modern civilization ,tribal population

remains at primitive economic level.

2. POLITICAL –

Tribals had so far been kept out of ambiance of economic development in

the modern sense of the term by political rulers of the day. Consequently,

tribals generally remain economically backward.

3. SOCIAL –

With no or little social contact with the civilised world, some of these

tribes still retain Palaeolithic age streaks subsisting purely on food

gathering economy, and not knowing even how to make a fire.i.e ,the

Onge Tribe of the Little Andaman islands in the Bay of Bengal. These

people to not know agriculture. They live on hunting, fishing, wild fruits,

edible roots, honey, fish (Sardines), fat of turtle. They live in huts which

are shared communally by all members turn by turn.

3. HISTORICAL FACTOR:

Time itself has acted a great factor by reinforcing primitive mode of tribal

economies with hardly any perceptible changes.

4. EXAMPLES OF WORLD TRIBES:

1. Eskimos (North American Coasts)

2. Khirghis (Steppe – Central Asian Russia)

3. Bushman (Kalahari Desert)

4. Pygmies (Central Africa – Cango basin)

5. Semang and Sakai (Malay Peninsula)

6. Melanesians and Papuans (Melanesia – New Guinea & adjacent

islands)

7. Bedouins (Arabian Peninsula)

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5. CRITICISM OF TRIBAL ECONOMY:

Tribal economy carries both advantages and disadvantages in terms of economic development.It has the advantages of optimum utilization of natural resources, since tribals meet their economic needs in harmony with their natural surroundings.This blissfully avoids overexploitation of natural resources and consequently less chances of problems like deforestation , and pollution, etc. unlike modern econmies.On the negative side, the tribal economies being selfsufficient are unable to provide a higher standard of living .

2.6 VILLAGE ECONOMY INTRODUCTION:

Generally speaking, a village economy is a fully self dependent economy with hardly any

interaction with the outside world. It is based on specialised division of labour,

determined either by society-imposed social caste system or the capability of the

individual. Nearly all areas in the world had the predominance of this type of economy

till the great industrial revolution of 1750s in North West Europe (England), wherein

villages started loosing village labour to newly created factories in big cities in Europe. It

adversely affected the village economy in developed Countries. Similarly, it affected

badly the village economies in other parts of the less or underdeveloped regions of the

earth like Asia and Africa by forcibly supplying to these areas the cheaply produced stuff

of the industrialised colonial ruling countries. Simultaneously, it soaked natural or raw

materials of these villages at cheap rates. This ruined the village industries like weaving,

tannery, etc. which could not compete with cheaply produced foreign goods and it

deprived them of invaluable local raw materials supply. Other factors came into

operation, too, like slave trade. Colonial powers / merchants of powerful European

nations stripped African villages of nearly 30 million productive population through

forcible enslaving during the slave era. Therefore, African village economies collapsed

beyond repair.

PRESENT SCENARIO:

However, in the present contemporary globally integrated economy, village economy is

moving away from subsistence type of economy to the one based on commercial type of

primary and related agro – based industries and activities. Various factors have speeded

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up this process like explosion of information and technology, improvement in rural

education, availability of financial and technical support, better irrigation facilities,

improved means of transport and communication, improved medical facilities,

introduction of better crop production and soil conservation practices.Political factors like

ascendancy in regional politics of the rural politician too have helped this cause.For

example, the powerful politician Vikhe Patil using his clout in the sugar – belt of

Maharashtra was successful in bringing medical and technical educational institutes to

the rural settings of the Loni – Pravara villages. The presence of these institutes meant

presence of a large community of students and supporting staff which created demand for

food, clothing and shelter by these students and staff. Consequently, economic landscape

of Loni – Pravara changed drastically to cater to these newly created sustainable

demands.

General global phenomenon of “ Pull & Push Factors” has led to mass exodus of rural

labour to urban areas leading to impoverishment of village economic landscape.

However, in India, this phenomenon is absent as illustrated by various studies.

Presently, all governments the world over have initiated various remedial measures to

help sustain village economies, modernise them and thereby avoid problems of flow of

rural population to urban areas which generally end up as poorly paid factory workers

leading to problems like proliferation of slums. The primary effort is aimed at integrating

rural economies with local, regional, national and international economies in a holistic

manner retaining their plus points and removing their disadvantages. This is done through

effective rural planning.

2.7 MODERN ECONOMIC LANDSCAPE INTRODUCTION:

Modern economic landscape or the modern economic scenario is a highly complicated

one influenced by a complex set of factors both natural and human. No economic activity

takes place in isolation. Rather, it is interlinked in a highly complex and amazing maze of

economic relations. It is indicative of the high degree of economic sophistication of

contemprarory humanbeings. The concept of “Self dependency” has been replaced with

the dictum of “global integration”.

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WORKING OF THE MODERN ECONOMIC LANDSCAPE: This landscape can be viewed at various levels, i.e., local, regional, national and

international. No place, region or a nation state is fully self dependent due to non –

existence of all the resources required for economic development in that place, region or

the nation state. Therefore, interdependence is the key word. This interdependence causes

an exchange of goods, services and information. For example, U.S.A. can’t survive

without supply of crude oil (petroleum) especially from Saudi Arabia. Likewise, Saudi

Arabia can’t have the benefits of American Science and technology without supplying

crude oil to U.S.A., since Saudi Arabia does not have advanced science and technology

so vital to its rapid economic development. Coming to the national level, every region is

dependent on the other. For example, Punjab farming sector can’t survive without farm

labour migrating from Bihar, since Punjab lacks in cheap farm labour. Likewise, Bihar

and other states are dependant on Punjab for food grains like Wheat, etc., because these

states lack in these agricultural products. Still, further down the line, we may examine

this interdependence on a local level. Take the case of big cities like Pune, Mumbai,

Ahmednagar and Nasik with their rural hinterlands. These cities depend on their

hinterland for supply of basic necessities like fresh vegetables, fruits, food grains, simply

because these are not produced by these cities. Simultaneously, the adjoining hinterlands

depend on these cities, too, because these villages in the hinterland don’t produce

industrial products like water pump sets, television sets, etc. which are produced in Urban

centers and their fringe areas like Kirloskar brothers in Pune manufacture water pump

sets. Also, these cities provide to rural areas many services like court, higher education,

modern medical facilities, etc.

Thus, as the above discussion clearly shows the Modern Economic Landscape is a

complicated landscape characterized by interdependence of different key economic

players.

1. FACTORS AFFECTING MODERN ECONOMIC LANDSCAPE:

Many factors influence the content, type and structure of modern economic Landscape.

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These factors are primarily as stated below:

(i) HUMAN ATTITUDE:

A sweeping change in human attitudes has greatly changed the contemporary economic

landscape. Now, no longer people have this notion of self dependency. Having realized

the virtues of interdependency, they interact more vigorously in the economic sense. This

factor has led to other factors like Social, Cultural, Political, Science and technology.

(ii) POLITICAL FACTORS:

Political compulsions have forced many nation states to lower their tariffs, thereby

leading to greater flow of economic goods, services, and information. This has helped

growth of block like E.E.C., ASEAN, G-7, etc. The emergence of W.T.O. is a big signal

of the importance of this factor.

(iii) ECONOMIC FACTORS:

Economic factors influence an economic landscape, too. For example, emergence of a

single currency “Euro” in Europe has done away with the currencies of its members.

Consequently, the many exchanging Houses existing near borders earlier amongst its

members have vanished from the respective economic landscapes of its member

countries.

(iv) SOCIAL:

With greater democratisation and freedom of social choice, people are free to undertake

any activity anywhere generally without any restrictions like caste system, etc. This

social aspect has influenced modern economic landscape.

(v) CULTURAL:

With cultural advancement, people are progressing more towards tertiary activities in

addition to quaternary and quinary areas. This is influencing the whole face of economic

landscape of a given place.

(vi) SCIENCE AND TECHNOLOGY:

Science and technology is a contributory factor, too. This has led to the emergence of big

economic landscapes dominated by big industrial complexes like Maharashtra Industrial

Development Corporation, to cite just one.

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1. CRITICISM OF MODERN ECONOMIC LANDSCAPE:

A. Following are the plus points in favour of modern economic landscape:

(1) It shows greater refining of economic activities.

(2) It reflects material progress of human beings in positive and practical terms to be

quite high compared to earlier period of human civilisation.

(3) It leads to utilization of natural and human resources optimally and holistically in an

integrated manner.

(4) It has led to a general ushering in of economic prosperity.

B. Following are the negative points which show modern economic landscapes in

poor light:

(1) It has led to the complications of all economic relations with attendant negative

impact on relationship in other areas like political, etc.

(2) It has created problems of vast unmanageable economic relations.

(3) It has created problems of fast changing skylines of Urban Countries.

(4) It has created problems related to modern urban life like slums, traffic congestion,

pollution, socio-economic crimes, etc.

(5) It has made life more stressful to an already stressed human beings to keep working

towards the continuity and maintenance of the existing economic landscape so as not

to lose material comforts flowing from it.

(6) These become easy targets by enemy, if these represent pillars of economic strength.

For example, Terrorists knocked Down “North and South Towers of World Trade

Organisation” in Newyork, on 11th September 2000, killing nearly 4,000 people

inside. This centre represented the core of American Financial Might.

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3. WORLD ECONOMY

3.1 INTRODUCTION :

A. World economy consists of an open economy system wherein each nation is

dependent on others directly or indirectly either through bilateral or multilateral

trade arrangements, since no single region or nation is endowed with all the

Natural and Human resources to develop, grow and sustain its particular

economy. Countries carry out activities involving production, exchange and

consumption of goods, services and information having transnational sources of

origin and destination. Thus, one has a peculiar perspective called world

economy or simply the “world system Perspective.”

To quote Hartshorn & Alexander, ”The world system perspective builds on the

network of linkages that tie together the various countries of the world”.

This broad network of linkages has evolved through time from its infancy into

contemporary mature form. Various factors are responsible for the evolution and

development of contemporary world space economy consisting of developed and

underdeveloped counties reflecting dependency of the later on the former.

B. No space economy can be discussed in isolation. Immannuel Wallerstein and

Samir Amin argue that the spatial integration within the world system

innately generates a dependency relationship which leads to

underdevelopment. For example, they argue that the economic

underdevelopment of most of today’s third-world countries derives from

dependency relationships with developed countries, dating back to the pre

colonial mercantilist period, when a wide range of trade relations first started.

However, even developed countries depend on one another and compete with

each other. These countries depend on underdeveloped countries too as reflected

in their helplessness when Arab countries put an oil embargo in 1973.In a period

of 24 hours daily , 40% of global output of goods and services is traded and

nearly 1.5 trillion US$ is exchanged in the world’s currency markets!

C. In the broader frame work, world space economy consists of three types of

countries :

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i. Centre countries

Ii Semi peripheral countries

ii. Peripheral countries.

1. Centre countries like U.S.A., Japan, European Nations, Australia have

strong economies and sturdy economic activities.

2. Semi-peripheral countries like Israel, Taiwan, South Africa. India show

intermediate characteristics between centre countries and peripheral

countries.

3. Peripheral countries like Pakistan, Thailand, Indonesia, Kenya, Nigeria,

Mexico, Chile and Jamaica have “weak” states, low wages, simple

technology economies.

D. A study of world space economy is helpful in understanding many

features like :

i. Process of development and sustaining of relationship between

developed and underdeveloped countries.

ii. Causes for the failure of most underdeveloped countries to develop

their economies to overcome basic problems of economic poverty,

unemployment , underemployment, spatial social inequalities.

iii. Role of multinational Corporations.

iv. Suggestions of remedial measures to overcome problems faced by

the world economy in general and underdeveloped countries in

particular.

3.2 Historical Evolution :

Contemporary world economy has its genesis in the extensive trade relations that

developed first in the pre-colonial mercantilist period. Medieval feudal

economies were replaced by mercantilism due to the Age of Discovery and

Exploration in the middle of the 15th century in Europe with church loosing

control over the lives of people. In the 15th and 16th century, dominance of

European nations on the international trade and development of long distance

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economic interactions for the first time integrated all major countries into one

world space economy. Slave trade was a prominent feature of this era. With

enormous profits from trade in slaves and other commodities, Europeans got

enough cash/capital to prepare ground work for industrial revolution in England

in late 18 th century which began with the mechanical harnessing of steam

power. Big factory systems emerged requiring sources of raw materials and

potential vast markets for finished products for profit maximisation which led to a

scramble for colonisation of known and unknown lands for raw materials and

finished goods markets. This created a dependency relationship between

temperate and tropical countries with the former supplying primary raw material

to the later and the later supplying finished goods to the former in which generally

the former always was a looser since terms of trade were dictated by developed or

temperate countries. This caused enormous miseries to underdeveloped people.

Of course, it also had positive aspects like modernisation of dependent areas into

modern nation-states with western education, science and technology. After

World War I & II, colonialism came to an end nearly with all former colonies

getting freedom. However, the depending relationship stills continues in various

forms with newly freed colonies/countries being dependent on their former bosses

through various means/mechanism. To quote Hartshorne and Alexander,

“These include international trade, multinational corporations, international

labour migration, foreign aid (both economic and military) and technology

transfer.”

Uruguay Round (1993), Doha round (2000), etc., too are being perceived by some

scholars as a sophisticated way of continuing this colonial legacy of dependency.

3.3 MEDIEVAL FEUDAL ECONOMIES:

To quote Hartshorne & Alexander, “No international economy in the modern

sense existed in medieval times.”

Not many long distance spatial economic relationships and interaction existed

between and among the comity of nations. Regional relationships existed which

were limited in scope or extent. Feudal structure had created a centripetally

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oriented economy. To quote Lekachman, “Change was slow in towns and

slower elsewhere partly because of the conception of life which emanated

from the period’s dominant social institution, the church.”

Like elsewhere in the contemporary medieval world, in Europe too nature

determined space economic relationship, because of the infancy of advancements

in science and technology. Therefore, economic activities were primarily

domestic and regional at most. Tribal feuds and territorial expansionary wars

only occasionally led to long distance interaction. Otherwise economic life

remained static/subsistence oriented, more so the supreme controller, the

CHURCH discouraged materialistic values, desires, objects and the development

of commercial and industrial activities.

3.4 THE RISE OF MERCANTILISM :

The great period of “Renaissance” or the age of Discovery and Exploration began

in Europe in the middle of the 15 th century. Old “geocentric” concept gave way

to “Heliocentric” concept of the universe. People started questioning the moral

authority of the church in view of contemporary scientific discoveries, inventions,

and explorations. Church lost its hold. Europeans set out on voyages in search of

wealth, to gain personal glory and, to spread Christian gospel in the 16 th century.

Europe, especially London became the hub of commercial activities. Europeans

found new sea routes to Asia and China. They began dominating import export

trade in Africa, Asia and the new world of North and South America. This led to

mercantilism which encouraged long distance economic interactions spatially

amongst the countries. Earlier , Arab merchants had done international trade but

not on such a large scale and with such a sophistication as practiced by mercantile

European Traders who changed the whole complexion of International trade and

there by world economy. Western Europeans acting as merchants/brokers in this

trade expropriated to Europe the profit from trade which laid the foundation of

Industrial revolution.

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Spain, Portugal, England, France, Netherlands dominated the trade. In the 17 th

century, European sold African Ivory to Indians, where, says Walter Rodney,

“they engaged in buying (Indian) cotton cloth to exchange for slaves in Africa

to mine gold in Central and South America. Part of the gold in the Americas

would then be used to purchase spices and silks from the far East.”

Europe benefitted enormously at the cost of less developed countries, especially

through slave trade, which helped it retain its dominance in the world Trade till

world War II, wherein U.S.A. had to step in to help rebuild it through “Marshall

Plan” aid. Famous Barclays Bank and Lloyd’s of London (one of the biggest

banking/insurance companies) was founded primarily on the basis of the profits

earned in slave trade! (As per Eric Williamsin in “Capital and Slavery”).

3.5 THE SLAVE TRADE :

Mercantilism was characterised by the Trans Atlantic African slave trade

especially between 1700 A.D. and early 1800 A.D.European traders enslaved able

Africans of 15 years to 35 years of age, sometimes below 15 years too, but rarely

older people to the New World to work in back breaking mines/fields. It

continued for several decades despite its abolition in U.K. in early 1800 . Africa

lost 30 million productive people through slave trade. Depletion of young hands

created a shortage of labour for agriculture in Africa which caused decline in local

domestic production activities, whereas it helped Europeans exploit resources in

the New World. It created a systematic linkages between Africa and the

North/South America, West Indies.

To quote Walter Rodney :

“Europe itself had a very small population and could not afford to release the

labour required to tap the wealth of the Americas. Therefore, they turned to

the nearest continent, Africa, which incidentally had a population

accustomed to settled agriculture and disciplined labour in many spheres….

Those are the reasons why the capitalist class in Europe used their control of

International trade to ensure that Africa specialized in exporting captives.”

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3.6 THE INDUSTRIAL REVOLUTION :

Mercantilism was followed in the late 18TH century in U.K. by Industrial

revolution. Mercantilism had laid the foundation of Industrial revolution in terms

of providing financial support based on enormous profits expropriated from slave

Trade. Even James Watt expressed “eternal gratitude to the West Indian

Slave Owners who directly financial his famous steam engine.”!

It all began with the mechanical harnessing of steam power. Capital got central

role. New technological advances changed production processes, especially in

textile sector, the most important sector in U.K. Innovations in transportation

towards the closed of 18TH century, especially steamships and railroads reduced

economic distance, reduced transportation costs of goods and people. Easy

accessibility to sources of raw material encouraged and sustained factory

production in Europe with U.K. leading the field followed by other European

countries and the U.S.A.

Industrial Revolution created following problems for Britain :

1. Shortage of raw materials’ supply for expanded production capacity.

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2. Question of expanding markets for expanded production capacity.

3. Declining margins of profit due to capital glut, wherein capital

(i.e. machine, tools, etc.) was created in larger quantity than that could be

utilized effectively domestically.

4 Excess capital created problem of sustained economic growth on the

domestic front.

5 Recently industrialised countries like Germany, France, U.S.A. created

stiff competition in the international market.

6 It created employment problem since machines meant less need for human

labour.

3.7 COLONIALISM:

With European & American countries in stiff competition with it, U.K. protected

its resource base and foreign markets by using its powerful naval forces and

colonising/annexing foreign territories. It helped her continue the sustained

economic development bequeathed by the earlier mercantilism. Also, it

neutralised international competition. To quote Cecil Rhodes, “My cherished

idea is a solution for the social problem, i.e. in order to save the 40,000,000

inhabitants of the United Kingdom from a bloody civil war, we colonial

statesman must acquire how lands to settle the surplus population, to provide

new markets for goods produced in the factories and mines. The Empire is a

bread and butter question. If you want to avoid civil war, you must become

imperialist.”

However, tug-of-war originated due to a “scramble for foreign territories or

colonies”, especially in Africa, amongst Western European Powers. This led to

convening of Berlin Conference (November 1884) under the leadership of Otto

Von Bismarck, German, Chancellor, participated by 14 countries including

U.S.A., to discuss distribution/demarcation of colonies in Africa controlled by the

U.K. and France, among others.

Colonialism led to economic benefits for colonisers and losses to the colonised.

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ECONOMIC BENEFITS :

1. Europeans and other colonisers got a guaranteed productive outlet for the use of

excess capital generated in industrial countries. To quote Lenin, “

In these backward countries (colonies) profits are usually high, for capital is

scarce, the price of land is relatively low, wages are low, raw materials are

cheap.”

2. According to John Stuart Mill, it had following advantages :

1. Use of Capital in the colonies helped increase Europe’s profits by maintaining

the productivity level of capital that remained back in Europe.

2. It guaranteed access to raw materials and assured markets for finished good of

European countries in view of scarcity of resources and a small domestic

consumer market respectively.

3. It allowed access to contemporary luxury items like silk & porcelain from

China, tea & spices form India, ivory, gold and diamond from Africa; Sugar

from the West Indies and Latin America.

4. It acted as a safety valve by releasing an increasing number of domestic

unemployed and underemployed labour force to work in the colonies.

5. Clonisation provided cheap source of food products to the colonial powers

which helped feed industrial labour force, control inflation and keep wages

lower back at home. Food shortage in Europe was created due to shifting of

labour from Agriculture to industry.

HARMS :

Colonised countries / regions were harmed in the following main ways :

1. Destruction of local industry:

Small local industry was slowly and steadily finished as it could not

compete with cheap foreign products from colonisers.

2. Depletion of Primary Resources :

Primary resources were depleted owing to their use by colonisers.

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3 Creation of dependency Psyche :

Colonisers did not in general train the local population in different

sciences, technologies and skills, thereby leading to lower self

esteem/poor managerial or technical skills amongst the locals. Thus, local

people became psychologically dependent on their foreign masters. They

could not develop their economies spatially on their own.

To quote Hartshorne & Alexander,“colonial government rarely

trained the indigenous population to handle managerial or highly

technical tasks, which served to psychologically dampen their

confidence and innovative abilities and to institutionalise the

dependency situation found in the modern world system.”

3.8 MULTINATIONAL CORPORATIONS(MNCs) :

Multinational corporations or MNCs are one of the several mechanisms through

which developed countries maintain and sustain dependency of the

underdeveloped countries despite colonial era having ended long back. These

MNC’s or Transmultinational Corporations have a far reaching impact on the

developing/Underdeveloped countries/regions.MNCs contributed 1/3rds of the

total world trade in merchandise in 1998,i.e.,2 trillion US$! They are inter

related with international trade, foreign aid, and technology transfer in numerous

ways.

To quote Hartshorne & Alexander, “In a sense, MNC’s are a modern version

of mercantilist trade…..but the mode of operation is very different.”

MNCs are privately owned firms, companies, Corporations having legitimacy and

consent of host countries, establishing their branch operations in foreign

countries. Although they maintain a headquarter in their parent country, yet all

other operations like manufacturing, transportation, distribution, procurement etc.

are spread globally to take full advantage of and make efficient use of all the

factors of production. They are an excellent example of true internationalisation

of space economy. Their main goal is to minimise the cost and maximise

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volumes of profits. They have a vast global operating network. They command

enormous Natural, human and other resources.

REASONS/FACTORS FOR MULTINATIONALISATION :

1. Raw Materials and Naturals resources : It helps cut down transportation

cost of bulky raw material and marketing of finished products.

2. CHEAP MANUAL LABOUR : Underdeveloped regions provide cheap

blue collar manual labour with no obligation to cover their health and

other benefit aspects. This saves money.

3. MARKETS : Sheer large number of population despite poor standard of

living provides a big market in host countries of Africa, Asia, Latin

America.

4. LABOUR UNION : Existence of minimum of labour unions and

consequent no problems in underdeveloped regions.

5. ENVIRONMENTAL LAWS : Hardly anyone cares about environmental

standards in underdeveloped regions.

6. TAX BENEFITS : Host countries provide to MNCs tax benefits so as to

attract them to invest in their country so as to help develop economically

the region.

7. POLITICAL POWER STRUCTURE : Generally in a relatively stable

strong underdeveloped region, MNCs don’t face threats. A corrupt

political structure ensures symbiotic relationship with elite framing

policies favorable to MNCs in exchange for material/financial benefits.

8. BETTER PRACTICAL INDUSTRIAL LOCATION MODEL

ADVA NTAGE S.

IMPACT OF MNCs :

It can both be positive and negative both to host and parent country.

POSITIVE IMPACT :

1. MNCs bring badly needed foreign investment in money, material, and

technology to the host region.

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2. They help develop the area ,i.e. , involvement in manufacturing activities has been

found beneficial. Hongkong’s initial industrialization was strongly related to the

development of textile and apparel industries whose success attracted more

foreign investment causing greater diversification.

3. They provide employment.

4. They help harness natural resources.

5. they help overcome business pressures through cross-border mergers and

acquisitions(M&AS),i.e.,the value of M&As in 1999 was nearly 720 billion

US$!

NEGATIVE IMPACT:

1. Generally, MNCs choose and concentrate on only on that activity in such a region

only which may help maximize its profits without caring for the priorities of the

host region.

2. They provide little local employment, because they are capital intensive.

3. Relocation adversely affects workers, i.e., closing down of iron production by

General Electric Company in Ontario, California and relocating it to Singapore

made workers loose their jobs permanently.

4. Flooding of domestic and other markets with cheaply produced products

elsewhere discouraging domestic production, leading to closure of domestic

industries and consequent employment loss.

5. Sometimes, MNCs are involved in scandals such as was the case in Enron,

Dabhol. Also, in 2001, Mittal who does not hold British passport created uproar in

U.K. over his alleged payment of £1,25,000 to Tony Blair, U.K. P.M to secure a

crucial 70 million pound loan to buy the state-owned Romanian steel company

Sidex at a cost of millions to the British taxpayer. Mittal is an international tycoon

controlling steel plants globally. Similarly, IBM , one of the world’s largest

companies has been accused by Edwin Black , a jew author in his book “IBM

AND THE HOLOCAUST” to have had helped Hitler during Nazi era by its

proactive policy of providing solutions in advance before clients found problems

by way of collecting information on jews of Germany .It showed Hitler just how

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he could get lists of jews in every city and profession, how census could be

conducted to provide details of purity and descent .This information helped Hitler

implement the Nuremburg Laws to systematically and easily locate and liquidate

German jews !

A) SHARE OF TERRITORY RULED BY EUROPEAN COLONISTS,

BY CONTINENTS, (%)

COLONIES IN 1876 1900 CHANGE

AFRICA 10.8 90.4 + 79.6

POLYNESIA 56.8 98.9 + 42.1

ASIA 51.5 56.6 + 5.1

AUSTRALIA 100.0 100.0 -

AMERICA 27.5 27.2 - 0.3

B) COLONIAL POSSESSION OF FOREIGN TERRITORIES (AREA

IN MILLIONS OF SQUARE MILES- PEOPLE IN MILLIONS)

Year Great Britain France Germany

Area Population Area Population Area Population

1815-1830 - 126.4 0.02 0.5 - -

1860 2.5 145.1 0.2 3.4 - -

1880 7.7 267.9 0.7 7.5 - -

1899 9.3 309.0 3.7 56.4 1.0 14.7

Source: V.I. Lenin, “Imperialism, the highest stage of capitalism” (Peerking:

Foreign Language press, 1969) as given in “Economic Geography” by

Hartshorn & Alexander.

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4. LOCATION OF ECONOMIC ACTIVITY 4.1 LOCATION OF ECONOMIC ACTIVITY :

What do we mean by the term “Economic Activity” ? Well, it means the activities

related to production, exchange and consumption of goods, services and

information on the rotating earth and in universe. These activities take place in

the context of some geographical location on the earth’s surface and outer space.

The location where these activities take place is called the location of economic

activity. The economic activity may be related to any one or all the three aspects,

i.e., production, exchange and consumption.

4.2 LOCATION OF PRIMARY, SECONDARY , TERTIARY , QUATERNARY AND

QUINARY PRODUCTION : First of all, lets know the types of production economic activities. Hartshorne and

Alexander have given five broad categories of production economic activities as

follows :

(i) Primary

(ii) Secondary

(iii) Tertiary

(iv) Quaternary

(v) Quinary

(i) PRIMARY PRODUCTION :

It includes hunting, fishing, gathering, mineral extraction, and harvesting

of trees. This is called red collar activity.

(ii) SECONDARY PRODUCTION :

It includes those activities which increase the value or usefulness of a

previously existing product by changing its form. It includes

manufacturing and commercial agriculture. It is called blue collared

activity.

(iii) TERTIARY PRODUCTION :

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It includes the service sector rather than the goods. It includes personal

and business services provided by retail clerks, barbers, beauticians, and

secretaries. It is called pink-collared activity.

(iv) QUATERNARY PRODUCTION :

It includes professional and administrative services characterised by

specialised technical, communication, motivation, and leadership skills

provided in specialised environment like schools, theatres, hotels,

hospitals. It includes financial and health service, information processing,

teaching, government service, and entertainment activities. It is called

white collar activity.

(v) QUINARY PRODUCTION :

It includes chief executive officers and top management executives both in

government and private sectors. It is characterised by a very high degree

of analytical and managerial activities in larger urban ,university, medical

and research centres. It includes research scientists, legal authorities,

financial advisers, strategic planning and problem solving professional

consultants. It is called gold collar activity.

1. Flow chart showing increasing order of complexity and specialised

nature of economic production activity.

Primary

Secondary

Tertiary

Quaternary

Quinary

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2. Graphical Hypothetical simplified Representation of the complexity and

specialisation involved in different productions :

3. LOCATION :

Location of primary, secondary and tertiary production is determined by

numerous factors like historical, cultural and physical. Different theories have

been advanced by different economists and geographers to explain this

phenomenon of location of production activity. Von Thonen’s model tries to

explain the location of primary activities. Alfred Waber’s model tries to explain

the location of industrial units or the secondary production. Walter Christaller’s

theory tries to explain the location of tertiary production like retail business

activity. No theory is perfect or Universally valid.

It is to be noted that primary activities can be undertaken on a commercial basis,

too., for example, primitive people carry out subsistence type of primary activities

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,whereas modern human beings especially Europeans have undertaken these

activities like fishing and forestry on a commercial basis with the help of modern

scientific and technical knowledge and gadgets.

4.3 VON THUNEN’S MODEL

1. INTRODUCITON:

J.H. Von Thunen, himself a prosperous and successful owner/manager of a large estate in

Mecklenburg made an attempt to explain agricultural land use pattern in economic terms by

publishing ‘Der Isolierte Staat’ (The Isolated State) in 1826 based partly on his

observations in that locality. His attempt/model called ‘Von Thunen’s Isolated State’

model is an example of a normative model and is partly based upon empirical evidence

relating to the economic conditions in the early 19TH century.

2. ASSUMPTIONS :

Like all other theorists, he made certain assumptions, too for the sake of simplicity like:

i. Isotropic surface within the isolated state.

ii. All surplus production was sold in a single city upon which all communications

converged.

iii. Use of a single form of transport (horse-drawn carts)

iv. Direct proportional relation of transport costs to distance.

v. Concentric zones of differing production and the city.

vi. Presence of a hypothetical area called ‘an isolated state,’ surrounded by an

uncultivated wilderness and having no trade connections with outside areas.

vii. Existence of a rational human being.

3. EXPLANATION: A. Von Thunen argues that 3 factors influence the type of agricultural production at any

particular locations

i. Distance to market.

ii. Selling price of product at the market.

iii. Land rent, which is regularly equivalent to economic rent in classical economics

described earlier in 1817 by British economist David Ricardo. Economic rent is

the revenue a farmer receives after deducting the cost of production of a

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commodity or it is the monetary return from an area which can be obtained above

that which can be received from land which is at the margin of production.

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B. According to Von thunen ,perishable items in strong demand and those products

with high transportation costs get located close to the city. These items could

compete favourably on higher priced land near centre because of higher market

prices. Less perishable products with lower transport costs and lower market

prices predominate with increasing distance from the market. Extensive

agriculture, including grazing, replaced more intensive grain production and

general farming in most distant remote locations.

However, distortations crop up in this highly idealized model. For example, in

figure (b), presence of a navigable river and a second market centre has distorted

the model which calls for further investigations into the reasons responsible for

this deviation.

C. The following diagram shows Von Thunen’s concept of economic rent:

Von thunen assumed that quality of land varies not with fertility, but with respect

to location or distance. The land is assumed to be of uniform fertility and crop

yields equal in all areas, but the return on agricultural produce (XY) declines with

increasing distance from the city (0) due to the grater cost of transporting crops to

the market. In the figure above, the shaded portion means the economic rent of A

and B if the next distant location is farmed.

4. APPLICATION:

C B A

Distance from 0 increase

Y

X

0 (City)

Price for one hectare of production

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A bid rent curve clearly shows the relationship between economic rent and

distance from the market for one or several products. The basis for rings of

production around the market can be determined by comparing the bid-rent curves

for two products.

The bid – rent curve is the line showing the economic return at varying distance

from the market. It slopes down to the right for each product, since additional

transport costs occur with greater distance from the market. For example, item

located at the market would cause no transportation costs. Economic rent would

decrease in direct proportion to transportation costs - increases at any given

distance away from the market. We can find the height of the curve at any

distance by subtracting production and transportation costs from the price

received for the item at the market. Figure (a) shows the economic rent return

from a ton of Bajra at the market as Rupees 100. We can determine this figure by

subtracting the cost of production (Rupees 100) from the selling price at the

market (Rupees 200), yielding an economic rent of Rupees 100. The rent

decreases in direct proportion to the transportation charge at any distance from the

market. Let us assume that transportation costs are Rupees 20 per kilometer. 2

kilometer from the market, an additional Rupees 40 decrease in rent occurs .we

are therefore left with a return of Rupees 60 only.

Figure (a)

50

150 100

0 Kilometre

2 5

Economic Rent (Rupees)

Market (Pune)

Bajra

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At 5 Km, with an additional t

making it uneconomical to prod

returns would become negativ

increase/decrease in the market

curve would become steeper

transportation costs. The curve w

production at greater distances.

Figure (b) helps find the basis fo

a bid-rent line for two products

out in a higher position than th

higher than that for Bajra (

production (Rs. 110). A return o

for Cauliflower is higher than th

the transportation charges, leavi

market, another Rupees 135 cha

points are connected, it is seen

Kilometer from Pune market, be

The highest return would be give

5 3 2 0 Kilometre

Bajra

Cauliflower 100

150

60 50

Economic Rent (Rupees)

Market

om/geographyindiapuneshersinghparmar

ail.com

Figure (b)

ransport charge of Rupees 60, the rent becomes zero,

uce Bajra at any greater distance from the market, where

e. Production area would contract/expand with any

prices or any charges in transportation cost. The bid-rent

and contract the production area with increase in

ould be flattened with a decrease in rates, encouraging

r rings of production around the market (Pune). It shows

Bajra and Cauliflower. The curve for Cauliflower starts

e Bajra curve because its market price is significantly

Rs. 260), more than offsetting the increased cost of

f Rupees 150 is found at the market. Transportation costs

at for Bajra. 2 Kilometer from the market, Rupees 90 is

ng economic rent at Rupees 60. At 5 Kilometer from the

rge occurs, with rent level going below zero! When these

that it is uneconomical to produce cauliflower beyond 2

cause at greater distances Bajra becomes more profitable.

n by the curve in top position at any given distance from

Bajra Zone

Cauliflower Zone

(Pune)

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the market. Thus, cauliflower would be produced closest to the Pune market and Bajra

farther away.

5. CRITICISM:

a. NEGATIVE:

(i) Von thunen simply re-invented the wheel, because his concept of land rent

is quite similar to economic rent model of David Ricardo who had

described the same 9 years before Von thunen put forward his concept. Of

course, Von thunen himself was unaware of Ricardo’s economic rent

concept. Instead of basing his model on soil infertility, he assumed equal

fertility and based it on location or distance. One can see similarity

between Ricardo & Thunen’s models from the following concept of

Ricardo of economic rent based on the assumption of declining soil

fertility with increasing distance from the city.

“A” is an area of cultivation close to a city (0). The yield for a given crop is 2.0 tonnes

per hectare. With the expansion of city and its market for products, cultivation gets

extended to area “B”, which is located further away from the city and is considered

having a lower fertility. The yield is 1.5 at location B. So, the economic rent of “A” is 0.5

tonnes per hectare (2.0 -1 .5 = 0.5).

1.5 1.0

2.0

0.5

0 Quality of land decrease

Yield (tonne per hectare)

B C

City

A

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When area “C” is put under agricultural production, and yield 1.0 tonne per hectare, then

the economic rent of “A” and “B” would be 1.0 (2.0 – 1.0 = 1.0) and 0.5(2.0 – 1.5 = 0.5)

respectively.

(ii) His assumptions are not universally true.

(iii) His model is anachronistic, outdated, irrelevant to contemporary economic spatial

scenario.

(iv) All operators, i.e., agriculturists don’t have complete information.

(v) All operators are not necessarily rational – decision makers.

(vi) All operators differ in their evaluation of the land and the definition of

remuneration for their work.

(vii) All operators need not necessarily make rational choices of crops, live

stock.

(viii) All operators need not seek to maximize their return from their lands.

(ix) All the above factors distort symmetry of the model.

(x) Model is applicable only mainly to commercial agricultural patterns found

in North America and Western Europe.

(xi) Forests belts are no more so important as to warrant proximity to a city in

view of technological advancements in the field of energy generation.

(xii) Being a normative model, it suffers from all the shortcomings of such

models.

(xiii) Changes in transportation/refrigeration have destroyed the symmetry of

land use systems around central markets, since the early 19TH century.

B.

POSITIVE:

1. It was one of the earliest pioneering approach which attempted to explain

agricultural land use patterns in economic sense.

2. It helped put geography on a sound scientific footing.

3. Von Thunen himself pointed out that his work was essentially a method of

approach to the complex subject of agricultural location and that while his

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findings had no claim to universality, the methods by which they were obtained

could be applied generally.

4. The model is applicable at all scales, i.e., local, regional or global (as M.

Chishdin pointed out). Study was done in Uruguay applying this model to

agriculture.

5. Shortcomings of the model prompted newer theories to solve the question of

decision making at the level of the individual farmer like ‘Game Theory’.

6. CONCLUSION: To conclude in the words of J.R.Peet,

“While transport costs continue to form a major part of the total costs of

producing and marketing crops, at least some semblance of a concentric zonal

system remains.” 4.4 ALFRED WEBER’S MODEL 1. INTRODUCTION:

Alfred Weber attempted in 1909 to develop a theory based on least cost with

respect to transport ( collection of raw materials and distribution of finished

products ) and processing (labour, power, capital, services ) assuming that the

manufacturer would best locate where the sum total of these cost is least . To find

the least cost location ,it is necessary to examine spatial variation in this cost and

to examine the cost structures of different industries, because a location with low

labour cost will not be very attractive to an industry with a small labour cost

component such as oil refining and an area with high labour costs and cheap

power will not attract industries with a high labour, low power component such as

textiles. Alfred Weber tried to find this spatial point of least cost. His model tries

to explain the location of secondary production.

2) ASSUMPTIONS:-

Alfred Weber, inter alia, assumed uniform demand for a product at all locations,

resulting in a uniform price; presence of an isotropic surface, a rational well

informed human being, perfect competition; and therefore the plant located at the

point of least costs would get the highest profits. Occurrence of raw materials/

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labour/markets at specific places only, and immobility of labour supply available

unlimited at aspecific wage level.

3) PRINCIPLES:- He examined one by one the following: (i) Least Transport Costs (ii) Labour Costs (iii) Tendency to Agglomerate. (i) LEAST TRANSPORT COST:-

He tried to find first the least transport cost location which he considered the most important influence,using a ‘locational triangle’.

Reality is simplified to two raw materials M1 and M2 and one common

consumption point C. The least transport cost point P, is the point at which the

total cost of moving raw material and finished products is least. These transport

costs are calculated by multiplying the weight of material or product by the

distance carried, resulting in a ‘pull’ being exerted on the production point by

each of the corners of the triangle.

In the above figure(a), 2 tonne of material M1 and 2 tonne of material M2 are

needed to produce 1 tonne of finished product. In a weight-losing manufacturing

process such as iron smelting, the least transport cost location is near to the

sources of the raw material. But, in figure(b), one tonne of material M, and1 tonne

of material M2 are needed to produce 2 tonnes of finished goods. In a weight

losing industry such as backing a market oriented location is attractive. The only

raw materials that are localised and not ubiquitous will have a locational effect.

Weber’s locational triangle

a. Weight losing b. Weight gaining

2 Tonne

1 Tonne 2 Tonne

1 Tonne

M2 M1 M2 M1

P P

CC

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(ii) LABOUR COSTS:-

He considered that industries would be located away from the point of least

transport costs to the point of least labour costs if savings in labour costs were

greater than any additional transports costs.

In the following figure (c), P is the least transport cost point, and around this point

a series of isodapanes (cost contours) or lines of equal transport cost per unit of

production from P are drawn. Cheap labour at L1 & L2 would reduce costs by

15p per unit of production, and manufacturer has to decide whether it is useful to

relocate from P to take advantage of it. Surely, any location within the 15p

transport isodapane would save more on labour than would be spent on extra

transport and therefore L1 would be a more profitable location than P. Location at

L2 would increase transport costs more than any saving in labour costs. With

efficient transport, labour costs rise and transport isodapanes move further apart.

(iii) TENDENCY TO AGGLOMERATE:-

After combining transport and labour effect, he examined the effects of industry’s

tendency to agglomerate. In figure(d), A,B,C,D, and E are least cost location , but

industrial units located there could cut their production costs by £1 per unit of

production if at least 3 of them operated in the same location. But they must not

incur increased transports cost of over £1 per unit of production. Figure(d) shows

the critical isodapane of £1 drawn round each producer and it also shows that

units C,D,E could reduce their total costs by locating in the shaded portion/area.

Same is for C,D,A and ABD.

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4) CRITICISM:-

(i) POSITIVE:-

(a) Weber’s model has validated in several studies like W. Isard’s

work on the US steel industry and W. Smith’s work on weight-

losing industries in Britain.

(b) It is a pioneering theory.

(c) It has influenced a large number of later writers.

(d) It gave rise to Maximum Revenue theory as a reaction to its

neglect of the demand aspect .

(e) It shows that intermediate plant locations between the raw material

and market locations are undesirable because they induce higher

costs of production due to the effect of increased freight rate

charges.

(f) More realistic behavioral and structural theories have come in

vogue to supplement this classical theory like spatial Margins

theory combining both the production and the demand aspects.

(ii) NEGATIVE:-

a) It holds demand constant at a point. It ignores the locational

interdependence of units.

b) It is too abstract, and emphasizes economics instead of space.

c) It has obvious limitations.It is deterministic .It fixes location.

d) Presence of an isotropic surface, rational human being, full

knowledge, perfect competition are a fallacy.

e) It ignores MNCs creating their own markets/infrastructure.

f) It helped capitalists maximize their profits and exploit the labour

class cold bloodedly.

g) Weber did not discuss variations according to the stage of

production, i.e., raw material and final product transfer costs.

Hoover noted that the raw material shipmant rates often fell below

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those of finished goods due to increased fragility and higher

packing and hanling costs for manufactured items.

h) He failed to acknowledge the advantage of “break of bulk”

location advantage.

i) He failed to recognise various systems like capitalism/socialism

and other similar differences.

j) He ignored disadvantages of agglomeration like space problem,

energy crisis, etc.

6. CONCLUSION:

To conclude in the words of KNOWLES AND WAREING,

“His assumptions about transportation rates and the effect of agglomeration have

been questioned, but the theory is important because of its pioneering nature

and its effects on later writers”.

SOME ADDITIONAL POINTS:

1. A. Weber propounded his views in a book titled “Theory of the location of

industries” translation of 1909 original edition in German.

2. He distinguished between 2 types of materials to determine minimum cost

locations:

(A) {i} weight losing (gross materials)

(ii) Non – Weight losing (Pure Materials).

(B) (i) Localized Material(Restricted availability)

Example: Mineral processing activity.

Location: (Near Raw Material.)

(ii) Ubiquitous Material (Available everywhere)

Example: Locally produced limestone for cement

manufacturing.

Location: (Near Market).

3.Example of contemporary firms primarily having either raw material or market

locations.

Baking Beer and Soft

Bulk

Market Orientation Perishable

Weight Gain

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4.5 WALTER CHRISTALLER’S CENTRAL PLACE THEORY

1. INTRODUCTION:

Walter Christaller in 1933 developed his ‘central place theory’ based on observations

concerning settlement patterns and functions in Bavaria, with a view to discovering

order in the spacing of population clusters and settlements in the landscape. It is assumed

that since there is a degree of order in the relationship between size and ranking of

settlements in any region, there may also be some logic in the distribution or spacing of

settlements of different sizes and functional importance.

However, this theory does not apply to any manufacturing economic activity. To quote

Hartshorne and Alexander (economic geography) ,

“ This theory does not apply to manufacturing or other specialized activity,

but to those functions that occur in central places in response to the needs of the

hinterland market, such as retail goods, banking, and professional services… these

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activities occur in town of various sizes due to the size of the market or trade area

covered.”

2. ASSUMPTIONS :

A. EXPLICIT :

1. Isotropic(even)surface.

2. An economy based on providing goods and services to the surrounding population

and not on the production of primary or secondary products.

3. Even distribution of population on the isotropic plane.

4. Equal ease and opportunity of movement in all directions.

5. Single means of transport and transport costs being directly proportional to distance.

6. Location of service center in the centre of the area served.

7. Visit of nearest Central Place by consumers to minimise travel distance. (i.e, principle

of least effort).

8. Same income and demand for goods/services.

9. Economic men : suppliers try to maximise their profits by locating in the place

where its possible to cover maximum possible area of consumers.

10. Central place is not necessarily central in geometric sense.

11. Central places are points of settlement.

B. IMPLICIT.

1. Dependence of the population size on the goods/services offered.

2. Offering of all goods & services of the lower order center by the higher order central

place.

3. Operating of a minimum number of central places in a systems.

4. Existence of complete information and perfect competition.

5. “Closed Systems” nature of central place hierarchy because each center serves only

its immediate hinterlands. It does not interact with any outside regions like national

or international regions.

6. It is deductive and deterministic, since it deduces conclusions and fixes the place of a

centre and its function.

7. Central place’s existence as a dimension less point.

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8. Serving of hinterland by a central place but non-serving itself or its own needs!

9. Higher order goods have longer ranges.

3. IMPORTANT CONCEPTS :- Concepts like “Range of a good”, “Threshold”, “Desire lines” , “Order” , “economic

reach” help us understand Christallen’s Central place theory.

4. WORKING OF CENTRAL PLACE HIERARCHY.

LEVEL OF CENTRE Types of goods and services

SHOPPERS CONVENIENCE

Metropolitan Centre X X X X X X X X

Regional City X X X X X X X

City X X X X X X

Town X X X X X

Village X X X X

Hamlet X X X

X = A Centre of the specified level provides goods and services of this order.

Each higher order centre provides services of lower order centres, too.

5. EXAMPLES OF FUNCTIONS IN CENTRAL PLACES OF VARYING

SIZES.

1. HAMLET :

Grocery, Church,gasoline service station.

2. VILLAGE :

Barber shop, Bank.

3. TOWN:

Furniture store, Clothing store.

4. CITY:

Shoe store, Jewellery store, Florist, Hospital.

5. REGIONAL CITY :

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Administrate Government functions.

6. METROPOLITIAN :

International Banking, Finance.

6. PRINCIPLE OF CHRISTALLER’S THEORY :-

Christaller chose the hexagon as the ideal trade area shape because it closely

approximates the qualities of a circle (all areas on boundary are equal distance from the

centre) and avoids the problem of underlap or overlap as shown below :-

He was of the view that the Hexagon would be a more efficient shapes to include all the

surrounding regions/space in one unique trade area and to avoid the problem for each size

of community of overlap or underlap. So trade areas for each size of community

appear as hexagons instead of circles.

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7. THE THEORITICAL BASIS OF CHRISTALLER’S CENTRAL.PLACE NETWORK :- A. First , populations to settle in the region would be agricultural. Families would

tend to settle in groups and small, largely self sufficient hamlets would be

established in the landscape. However, to buy, sell or exchange goods people

have to travel to the nearest trading centre or hamlets (villages) and villagers in

turn have to look up to higher order towns for higher order goods and services.

B. There are 3 ways of developing this hexagonal network :-

a. Market Principle ( K = 3 )

b. Traffic Principle ( K = 4 )

c. Administrative Principle ( K = 7 )

Here K means the number of areas served by a Central place including its own, i.e.,

K = 3 means Central place + two other equivalent central places.

K = 4 means Central place + 3 other equivalent central places.

K = 7 means Central place + 6 other equivalent central places.

Here equivalent central places means the consumer populations of the central places.

C. (I) Market Principle ( K = 3 ).

Here , the routes which link the higher order center do not pass through the lower order

centres. Consumers divide into 3 equal groups when shopping in the 3 nearest largest

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places. Three largest nearest places , because they can approach only 3 largest centres

equal in importance and equidistant. Each of this lower order consumer group is located

on the each points of hexagon. This would minimise travelling to the next higher order

central place.

Each higher central place has six surrounding points .1/3 rds populations of each these

points can be taken to visit it. So, 1/3rd of populations from 6 points is equal to 1/3*6=2

Full populations or 2 equal size places. Thus, it serves the populations equal to

populations of 2 such places plus its own, i.e ,1+2 = 3 central places.

Thus each higher order serves 3 centres including itself and dominates two centres (lower

order). This chain continues down. There exists only one highest order central and the

number of centres at every level below it increases by a factor of 3.

This K = 3 network would develop where the lower order settlements had to be as near

as possible to the higher order central places.

A central Place Systems Organized according to Christaller’s Marketing Principle.

Level of Hierarchy Equivalent Number of

Central Places dominated by

the highest order central

place

Equivalent Number of

Market areas dominated

by the highest order central

place

Metropolis 1 1

City 2 3

Town 6 9

Village 18 27

Hamlet 54 81

ii. TRAFFIC PRINCIPLE (K = 4)

In marketing principle, the routes linking highest order centers do not pass through lower

order centers, thereby leading to inefficient transportation Network. In traffic principle,

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central places are so located that lower order centers lie along the straight line paths

between higher order centres.

Each higher order serves a population equivalent to population of 3 similar size

central places. For example ½*6 (points) = 3.

Thus, it dominates 3 lower order centres and serves 4 similar size centres including its

own self. This chain continues down the hierarchy.

Here, smaller lower order places divide into two equal parts, that is ½ when shopping in the 2 nearest larger cenral places.

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A central place system organised according to Christaller’s is Transport Principle:

Level of Hierarchy Equivalent Number of

Central Places dominated by

the highest order central

place

Equivalent Number of

Market areas dominated

by the highest order central

place

Metropolis 1 1

City 3 4

Town 12 16

Village 48 64

Hamlet 192 256

Here, in this principle , the number of settlements are maximised along the straight lines

to facilitate efficient transportation.

This hierarchy would develop in regions where transport costs are more important,

because it maximises the number of central places on straight line routes.

III. ADMINISTRATIVE PRINCIPLE ( K = 7 )

In this case, the whole market area of the each lower order centre is included in the

region. Population has no choice to visit nearest centres and hence no chance of

population getting divided amongst various nearest higher order centres. This is done to

achieve political and administrative goals. For example, district collector has to collect

tax from the whole population of the area .Populations of the area can’t be permitted to

pay some tax to collector of their area and some to collector of other area , because it

causes inefficiencies besides law & order problems.

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The Central place G dominates 6 other places and serves population of 7 places including

its own. K = 7 Network would develop in highly developed systems of central

administration, because the resultant arrangement maximises the number of settlements

dependent on any one central place and eliminates the shared allegiances of other K value

system A central place system organised according to christaller’s Administrative principle:

Level of Hierarchy Equivalent Number of Central

Places dominated by the highest

order central place

Equivalent Number of Market

areas dominated by the highest

order centre

Metropolis 1 1

City 6 7

Town 42 49

Village 294 343

Hamlet 2058 2401

Here, all places A, B, C, D, E and F are controlled fully by central place G.

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8. CRITICISM:

i. NEGATIVE :

a. Assumptions of isotropic surface and rational human beings are wrong.

b. Settlements are not even spaced.

c. Non existence of equal sized equidistant spheres of influence or central places.

d. Sometimes, lower order centres have functions of higher order central places.

e. Consumers need not necessarily act in a rational way.

f. Hierarchical tier functioning is not strictly followed. Higher order central places have

snatched some of the functions of a lower order place.

g. Market forces need not always operate central place systems because governments

too interfere.

h. It is more applicable to regions emerging from a subsistence economy having

clear distinction between town & country but not to economically advanced regions.

Where it is distorted by factors like industrial concentrations and government policies

for regional development.

1. Fixed K value shows a very poor approximation with reality.

ii. POSITIVE :

a. Selective locations and efficient division of space and functions find a rational

basis.

b. It shows interdependence by way of functional and behavioral aspects.

c. It helps find some order in the spacing of settlements.

d. Settlement distributions may be uneven but not disorderly.

e. Central function may be found in socio-economic political structures like temple, etc.

f. It helps understand role of settlement as a place of trade and exchange.

g. The model has been used for regional planning as in Germany.

h. Its validity is proved by examples like settlement pattern in Northern china plain.

i. It helps understand play of concepts like range of good, etc.

9. CONCLUSION:

To Conclude in the words of Sidhhartha & Mukherjee

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(Cities, Urbanisation, & Urban Systems) “Despite all the criticism it must be

emphasized that as with most other social sciences theories the central place theory

is not meant to have universal validity.”

10. CENTRAL PLACE SYSTEM IN INDIA :-

A. India has administrative and demographical hierarchy. It has K = 6 level

administrative hierarchy as follows.:

1. National Capital

2. State Capital

3. District Headquarters

4. Tehsil towns

5. Block Development Centres

6. Gram Panchayat Centres

Ratio of Districts to States 1 : 19 Ratio of Gram Panchayats to Blocks 1 : 40 Ratio of Tehsils to District 1 : 6

Theoretical spacing lower & higher order = 2 : 6

Practical spacing = 2 : 6

B. The Census has on its own identified various settlements level without applying

any logical of scientific method. Still ,Indian settlements have a close resemblance to the

marketing principle of the theoretical central place systems.

Spacing Theoretical (Marketing principle) high to immediate low order centre = 1: 1:72

Spacing practical actual (Marketing principle) high to intermediate low order centre =

1:1.41 to 1:1.83

Major exceptions relate to million cities.

To quote Siddharth and Mukherjee ,

“It cannot be conclusively proved that central place systems apply to Indian

conditions …. It cannot be rejected as well.”

Metropolitan Cities

5000 population Most-Non Urban

Urban Centres

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5. RESOURCES

5.1 INTRODUCTION:

What do we exactly mean by the term “resources” ? “Resources” in common

person’s parlance means anything available on this earth like Coal, plants, etc.

However, a mare presence of these things does not make them a resource from the

point of view of geography. A a thing becomes a resource only when it is actually

of some use to human beings.

To quote E.W. Zimmermann ,

“ The word resources does not refer to a thing or a substance but to a

function which a thing or a substance may perform or to an operation in

which it may take part, namely, the function or operation of attaining a given

end such as satisfying a want. In other words, the word resource is an

abstraction reflecting human appraisal and relating to a function or

operation.”

A thing is converted into a resource only if it satisfies human wants which may be

of any nature ,i.e., personal or social. To quote Prithwish Roy,

“Only the satisfaction of human beings converts anything or a substance into

resource.”

1. In short, a resource must posses following attributes :

i. functionability

ii. Utility

For example, plants do have functionability. But, if they can’t be utilised to satisfy

human wants, they can’t be termed resources. Conversion of a thing into a

resource depends on many factors like :

1. Human desires/wants

2. Level of cultural development. For example, petroleum is existing in

Arabian countries for a long time. Yet, it could not become a resource

until and unless modern technology could be applied to these areas to

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extract petroleum. Once extracted to satisfy human wants, it became a

resource.

2. A Resource can be viewed from different perspectives :

i. Temporal Perspective : Past, Present, future/potential

ii. Geographical Perspective: Lithospheric, atmospheric,

Hydrospheric, biospheric, extra terrestrial, Geo-centric.

iii. Quantitative Perspective: Sufficient, Insufficient or less/more

iv. Qualitative Perspective: Objective(external), subjective (internal)

All resources broadly fall into above categories. For example, biospheric

resources contain plant, human and animal kingdom resources. Human

resources include man’s own wisdom ,too . To quote E.W.

Zimmermann,

“man’s own wisdom is his premier resource - the key resource that

unlocks the universe.”

4. Changing perspective :

a) Old concept : Prior to industrial revolution (1760), a resource

meant a tangible thing, only natural things, only the quantity of

things, static nature of things. It excluded intangible things like

peace, human population, concept of resistance by things.

b) New concept : It includes intangible things, human population,

concept of resistance of things, dynamism of things. It excludes

things full of resistance and no functionability.

3. NORMAL CLASSIFICATION :

However , a geographer generally classifies a resource into 2 broad

categories :

a) Natural

b) Human

A) NATURAL : Examples are petroleum, iron, copper, etc.

B) HUMAN : Health conditions, culture, technological level etc.

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4. Following are some of the important definitions in the field of Resources

geography.

1. E.W. ZIMMERMANN,

“Resources were defined as means of attaining given end, i.e.,

individual wants and social objectives. Means take their

meaning from the ends they serve. As ends change means must

change also.”

CONVERSION OF A THING INTO RESOURCE

Substances

Human Natural

Resources CULTURE

Introduction of Utility Conversion of

Neutral Stuff

Overcoming Of Resistance

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2. Wesley C. Mitchell,

“Incomparably, greatest among human resources is

knowledge.”

3. Hamilton, “It is technology which gives value to the neutral

stuffs which it processes; and as the useful arts advance the

gifts of nature are remade. With technology on the march, the

emphasis of value shifts from the natural to the processed

good.”

4. Bowman, “The moment we give them (resources) human

association they are as changeful as humanity itself.”

5. Prithwish Roy, “So, with the efforts of man, through the

functional or operational process, resource is dynamically

created.”

6. Professor Harbison,“Human resources are the energies, skills,

talent and knowledge of people which potentially can and

should be applied to the production of goods and services.”

INTERRELATION OF NATURE, HUMAN BEINGS AND CULTURE

NATURE

NATURE

NATURE

Human beings are both a producer and consumer

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7. A.k. Dutta Gupta, “Human resources refer not to human

beings as such, but to the qualities they posses and which can

be used by the community for some useful purpose.”

8. E.W.Zimmermann, “Man (read it as human being) is

predestined to be the director, planner and adviser.”

5. COMPARISON BETWEEN WEALTH AND RESOURCES :

Wealth consists of :

i. Utility

ii. Functionability

iii. Scarcity

iv. Transferability

Resources consist of only :

i. Utility

ii. Functionability

7. COMPARISON BETWEEN RESOURCES AND NEUTRAL

STUFF:

Anything or any process that restricts substance becoming resource is

called neutral stuff. Also, alternatively, if anything or substance does not

contain functionability or utility, it is termed neutral stuff. Whereas, a

resource contains both functionability and utility. 5.2 NATURAL RESOURCES

1. CHARACTERISTICS OF NATURAL RESOURCES:

A) AVAILABILITY :

They are available both spatially and temporally. Both horizontally and

vertically. However , availability may be affected adversely in case of

non-replenishable resources, whether biotic or abiotic, i.e., land his

become a 3 dimensional resource since the industrial revolution. These

resources may be terrestrial or extra-terrestrial.

B) DISTRIBUTION :

Highly uneven distribution.

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C) OCCURRENCE :

1. UBIQUITOUS : Available everywhere, i.e., land, etc.

2. LOCALISED : Restricted to some places only. Two types are:

1.Commonalities – found commonly variedly, i.e., Water bodies.

2.Rarities – Found rarely/scarcely in some places only , i.e. , gold, silver,

etc.

D) TYPES

a. FUND RESOURCES :

These resources will not last forever if used indiscriminately, i.e., coal,

etc. They may be renewable or non-renewable, i.e., Iron Ore (non-

renewable), pig iron (renewable) since scrap can be recycled from pig

iron once more.

b. FLOW RESOURCES :

These resources will last forever , i.e. , water, wind etc. These may be :

1.Finite

2.Infinite.

Infinite resources may be turned into a finite one through

indiscriminate use, i.e., forest resources are a self generating and

renewing resources but dense forests may become barren infertile

wastelands due to indiscriminate felling. E.W. Zimmermann has

termed such resources as silt ed or choked flow resources.

D. DYNAMISM :

Natural resources are dynamic, since nature is dynamic. To quote Prithwish Roy,

“In the eye of a natural scientist nature may be constant but a social scientist

is concerned with the meaning of nature for man – dynamic nature known

to man for his own existence.”

This nature is both expanding and contracting. As the concept of Phantom Pile

(E.W. Zimmerman) shows, application of science and technology produce/expand

the extra resources from a given substance, i.e. ,fuel efficiency increased recently

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(1990 s) leading to plying 8o km per litre compared to 30 km per litre in 1980 s!

To quote E.W. Zimmerman,

“ It (Nature) expands in response to increase in knowledge and improvement

of the arts.Nature reveals herself gradually to man, but no faster than he

can learn”.

E. IMPORTANCE :

i. Natural resources are quite important to human beings in terms of their

forming the basic bedrock upon which the whole edifice of economic

development is constructed. Availability of natural resources gives to a

place the initial advantages on which to build on.

ii. Presence or absence of natural resources may have both positive and

negative effects. For example, natural resources of Africa, North America,

South America and Australia led to their exploitation by European nations,

which were highly advanced in terms of human resources. It created

positive gains to European nations. But, it led to negative consequences of

the still lingering economic backwardness of African countries due to

enslaving of 30 millions of their productive human population during

slave era and their transportation to newly found lands. African countries

have still not recovered from those losses of human beings.

iii. Natural Resources remain meaningless, if there are no corresponding

human resources/cultural advances capable of exploiting these. Despite

being located in equally the same geographical locations (equatorial dense

forests), Malaysian Rubber Plantations have a semblance of development

with all the benefits/fruits of modern economic development, whereas

pygmies are still economically backward and subsisting on nature for their

bare survival with no benefits of modern civilisation owing basically to

superior and efficient human resources/culture/science technology of the

former in sharp contrast to primitive levels of human

resources/culture/science/technology of the later.

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5.3 SIGNIFICANCE OF NATURAL AND HUMAN

RESOURCES IN ECONOMIC DEVELOPMENT

1. INTRODUCTION : What do we exactly mean by the terms ‘Significance’, ’Natural’, ‘Human’,

‘Economic Development’ ? Once we understand these terms, we are in a firm

position to appreciate the significance of Natural and Human resources in

economic development.

A. SIGNIFICANCE : This words means “Importance” or the “Prime

role”, or “Main role”.

B. NATURAL : This word means all those things which are made

available to human beings by nature. These are freely available to

human beings. Human beings have not created these things. For example,

Sunshine, Wind, etc.

C. HUMAN : This word means all those thing which are related to human

beings and those that are created through human efforts and their

interrelationships. For example, culture, ethics, arts, science and

technology, etc.

D. ECONOMIC DEVELOPMENT : ‘Development’ means growth of a

thing from infancy stage into maturity stage. Economic Development

means development from the point of view of economics. “Economics”

means activities of producing, exchanging and consuming goods/services

and information. Therefore, the phrase “Economic Development” may be

taken to mean development of activities related to production,

exchange and consumption of goods, services and information in a

spatio-temporal context.

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2. SIGNIFICANCE OF NATURAL AND HUMAN RESOURCES IN

ECONOMIC DEVELOPMENT :

A. Economic development of any place, region, or nation depends on the

natural and human resources available to it. Quantitative and Qualitative

aspects of resources are very important. Natural and human resources are

unevenly distributed. Small countries like Kuwait have disproportionately

large natural resources compared to big countries like India, i.e. ,Kuwait

has 500 times more quantity of petroleum than India. Similarly some

spaces may posses higher human resources, i.e. ,places in West Bengal

and Bangladesh have a density of population more than 600 persons per

sq. km ,whereas Himalayan regions posses population of less than 30

persons per sq. km. Therefore, Bengal and Bangladesh are more

developed economically than the Himalayan region.

B. Although natural resources give to a place, region, or space the initial

advantage, yet its human resources which are more important of the two.

To quote E.W. ZIMMERMANN, “ Man is predestined to be the

director, planner and aspirer” . Also, “As an agent of Production man

contributes his labour, mental and physical; with the aid, advice and

consent of nature he builds culture to render more effective his

production and to lessen the impact of resistance ; he discovers new

ways and invents new arts; his aspiration ,aim and purpose. As

beneficiary, he enjoys the advantages of advancing civilisation.”

C. MAN LAND RATIO :

A mere presence of a large/small number of human population is no

guarantor of economic development in all geographical area. Similarly, a

large/small population of human beings may mean less economic

development. It looks contradictory, does it not ? Its really not so, what

matters is not the presence or absence of a large population of human

beings rather its the man - land ratio which is more important. This is

indicated by the following equation:

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Man-Land Ratio = Efficiency of man (Humans)

Efficiency of Land

Efficiency of humans depends on their cultural, scientific, and

technological levels, which can be measured in terms of their productivity

from land per person especially in agrarian areas.

Sparsely populated areas may be under-developed and densely populated

areas may be highly developed in all respects. To quote E.W.

Zimmermann,

“ Man-Land Ratio takes into account all the human qualities bearing

on productivity and all the environmental aspects both natural and

cultural affecting the availability of resources. A high population

density may indicate overpopulation; but even a region with a low

population density may be over populated ,if we consider its man -

Land Ratio.”

For example, European Countries like Holland ,etc., have a higher

population density compared to India . Still , Holland has higher economic

development due to higher man – land ratio due to higher efficiency of

man compared to India. In other words, Holland has qualitatively better

efficient human resources in terms of health, knowledge, capabilities,

activities, productivity. On the other hand, Indian human resources are

poor qualitywise that hampers economic development.

D. SIGNIFICANCE OF NATURAL AND HUMAN RESOURCES IN

ECONOMIC DEVELOPMENT:

To quote E.W. Zimmermann, “Carrying capacity is the capacity to

support human life to satisfy human wants.”

It is both internal (geographical ) and external (cultivated culturally). For

example, though Hongkong possesses low internal carrying capacity, still due to

external capacity (like hard labour, science/technology) it has had tremendous

economic development.

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Thus, human efficiency, cultural level in Juxtaposition with natural resources

determine economic development. A lot many examples are available to prove

this point. Jharkhand state in India possesses one of the richest mineral resources

basis. Still, it is not economically developed simply because of poor quality of

human resources. It has a tribal population, which does not presently posses

requisite skills, knowledge and willingness to make optimum use of those natural

resources like coal ,etc. Consequently, skilled and qualified technical and other

types of labour from outside the state gets employed which naturally means:

1. No benefit of employment to locals.

2. Outflow of salaries/economic benefits to outside areas to which such

imported labour belongs. Naturally, Jharkhandites have low

purchasing power which affects their ability to enjoy basic needs like

proper food, clothing, shelter and other luxuries.

A. Spatial Examples of human – Natural resources’ significance abound. People like

Pygimes, Bushman, and other tribal groups still engage on a subsistence level in

hunting, fishing and gathering. Also, modern and advanced American and

European people engage in these activities. But, Pygmies/Bushmen are

economically less developed, because their economic activities are carried out on

subsistence level, merely enough to satisfy their own basic needs, leaving little to

spare for higher economic activities like exchange, etc. simply because of their

low man-land ratio in terms of their primitive level of science and technology. In

sharp contrast, Europeans/Americans carry out hunting, fishing, gathering on a

commercial basis with the help of their higher levels of science and technology

reflected in their use of modern means of fishing, forestry, agriculture, i.e., in

1995 the total fish catch was 90 millions tons in the world. Grand Bank, and

Dogger Bank are the famous fishing grounds. Atlantic and Pacific Oceans supply

80 % of the catch. This is so because temperate fisherman are skilled, possess

traditional technical skills and higher technology like high-tech processing,

salting, packaging and exporting. Naturally, they have much to spare for market

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besides fulfilling their own needs. This gets them enough money in

domestic/international markets which is further used to speed up their economic

development in terms of better health, education, living conditions, recreational

facilities, higher national income, lower fertility and mortality , etc.

B. Temporal examples: Earlier human civilisations developed around rivers

possessing areas endowed with fertile land like Indus valley, Mesopotamia,

Egypt, Mediterranean and China simply because of superb natural and human

resources, whereas areas like interior of Africa and Asia remained undeveloped.

5.4 Formula of Sustainable Economic Development :

Degeneration of resources(dr) = Regeneration of resources(rr)

Or dr = rr --------(i)

Now, rr = Discovery of new sources of particular resource(N), Discovery of more

efficient way of utilisation of present resources(E), working out alternative

substitute resource(W)

Or rr = (N,E,W) --------(ii)

From (i) & (ii) we get

dr = (N,E,W)

1. Concepts of short term and long term highest possible sustainable

development :

1 2 4 5 3

1

2

4

5

3 PH2

PH1

Y

X 0

SD1

SD A

A B

B

Levels of Sustainable Development

Consumption of Resources

SDPH1 = Short term equilibrium curve of economic development SDPH2 = Long term equilibrium curve of economic development

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EXPLANATION :

1. In the short run, maximum possible sustainable development level is at 5

on (X –axis), since resources are not fully utilised yet as in Primitive tribal

societies. However, with progressive advance of civilisation, resources

are used increasingly, leading to a situation where a given level of

development is found unsustainable in view of increasing utilisation/rapid

depletion/non-availability of resources. Hence, the point of SDPH, shifts

from B to A.

2. However, since human beings desire not to loose what is gained through

development processes already, it leads to an acceptance of the decline of

the known resources. At the same time , there is worry that they may

actually lose this development state , if not sustained adequately. This in

turn leads to a search for NEW. In due course of time, NEW is acquired.

Thus, now more resources are available to sustain the development.

However, since rate of depletion of resources shifts to a higher level, the

curve of sustainable development shifts to the higher side too as SDPH2.

Curiously enough, having learnt from the pitfalls of short-term run of

development, mankind becomes wiser in the new situation and therefore

makes more efficient and in a much efficient way the use of NEW

resources, thereby prolonging the life of resources. This leads to the point

of maximum possible sustainable development shifting from ‘A’ to ‘B’!

2. Formula for depletion or resource availability on particular given point of

time in future :

1. Total depletion = Present Depletion (1+rate of depletion) time

------------------

100

in future.

2. Resource Availability = OR – Total depletion.

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Where OR = total reserves of exploitable resources.

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5.5 AN INTRODUCTION TO THE INTERESTING ELEMENTS OF IN THE

STUDY OF “RESOURCES GEOGRAPHY”

1. INTRODUCTION :

“OPTIONS GEOGRAPHY” or the “RESOURCES GEOGRAPHY”

becomes an interesting field of study by applying certain basic principles

of economics as illustrated below:

2. LAW/CONCEPTS :

1. LAW OF CONSERVATION AND DEPLETION OF RESOURCES :

(Ideal Long run equilibrium of the conservation and depletion of resources)

C = Conservation of resources

D = Depletion of resources

C1 = Lower level of consumption of resources (C3=Level of consumption)

C4 = Higher level of consumption of resources.

X = Axis showing number of units.

S = Point of intersection or the point of sustainable development.

C1 C2 C3 C4 C7 C6 C5 X

Y

1 2

4

5

6 10

D

0

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(A) 1. Above figure clearly shows that in the short run, when consumption of

resources is at lower level C1, the conservation of resources is very high at level 6 on Y

axis and depletion is low at level 1 on Y axis.

2. At consumption level C3, conservation is still higher at 5 than depletion at 2 on Y

axis.

3. At consumption level C4, both conservation and depletion level are same at 4 on

Y axis.

4. At consumption level C7, depletion at 10 is higher than conservation at 1 on Y

axis.

(B) However, C & D curves tend to exhibit equilibrium in the long run ,because

though in short run initially resources consumed are less leading to a higher level

of conservation than depletion, yet after some time human advancement,

needs/desires lead to a situation where resources consumption assumes alarmingly

higher proportion leading to higher depletion than the known level of

conservation of resources. Consequently, humanbeings realise the folly and start

consuming less of those resources which ultimately leads to a situation where

depletion of comes back to the relative position of the conservation level.

(C) No doubt, at one point depletion becomes more than conservation. Naturally,

question arises as to how can than resources lost brought back so that C equals D/

It looks a fallacy, does it not ? Well, No! Here, resources mean all the resources

taken together that are available to humanbeings. Whenever, any one resource

depletes more than its conservation from amongst the basket of resources,

humanbeings are quick enough to compensate it either by developing viable

alternatives or efficient exploitation techniques. Application of efficient

techniques prolong the life of remaining resource amount, thereby raising its

relative level of conservation. Thus, mankind always achieves a balance between

C & D of resources, i.e., point S where development vs a vs conservation (or

sustainable development) issue gets resolved amicably.

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(D) THEORY :

1. The analysis of D & C illustrates clearly how automatic mechanism

solves the 3 problems of what, how and for whom, i.e., what resources to

be used or created, how to be consumed or how to bring down depletion

level, and for whom to do all this.

2. The conservation schedule :

A conservation schedule illustrates the relationship between the quantity

conserved and the consumption of commodity, other things being held

constant. Such a conservation schedule, depicted graphically by a C curve,

holds constant other things like destruction by natural causes like fire, etc.

Almost all resources obey the law of downward sloping conservation,

which holds that conservation falls as the consumption of resource rises.

This law is represented by a downward sloping conservation curve.

Many influences lie behind the conservation schedule for this

automatic mechanism as a whole: human desires , needs ,natural

hazards, etc. When these influences alter, the conservation curve will

shift.

3. The Depletion Schedule:

The depletion schedule (or depletion curve ) shows the relationship

between the quantity of a resources that humanbeings desire to

deplete- other things constant – and that resource’s consumption .

Quantity depleted generally responds positively to consumption ,

so the depletion curve rises upward and to the right.

Elements other than the resource’s consumption affects its depletion ,too.

The most important influence is the resource’s total availability ,its

known/unknown reserves and the ability of human beings to innovate and

evolve efficient technology to utilise the same for a still further longer

period . Other element in depletion include natural disasters beyond the

control of human beings.

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All resources obey this law of upward sloping depletion which holds that a quantity depleted increases as a resource’s consumption rises . This law is represented by an upward sloping depletion curve.

4. Equilibrium of Conservation and Depletion:

The equilibrium of conservation and depletion of resources is achieved in

a geographical setting at a consumption level at which the forces of

conservation and depletion balance each other. The equilibrium

consumption is the consumption at which the quantity of a resources

conserved just equals the quantity depleted. Graphically ,one can find the

equilibrium as the intersection of the depletion and conservation curves.

At a consumption level above the equilibrium, human beings are

confronted with more depletion of resources than they can withstand,

which leads to a shortage of resources & exerts downwards pressure on

consumption of resources .Likewise, a low consumption level of resources

leads to an excess of resources and human beings therefore are led to

consume more and more of them, thereby leading the consumption

upward to the equilibrium.

5) Shifts in the Depletion & Conservation curves alter the equilibrium

consumption and quantity of resources . An increase in conservation,

which shifts the conservation to the right shall increase both

equilibrium consumption and quantity of resources. An increase in

depletion , which shifts the depletion curves to the right shall decrease

consumption and increase the quantity conserved.

6) To use conservation and depletion analysis correctly, we must follow

these steps :-

i) Distinguish a change in conservation or depletion (which produces a shift

in the curve ) from a change in the quantity conserved or depleted ( which

represents a curve movement along a curve ).

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ii) Keep other factors constant, which necessitates distinguishing the effects

of a change in the resource’s consumption from the effect of a change in

the other influences.

iii) Look always for the conservation and depletion equilibrium, which is at

the point where forces acting on consumption and quantity of resources

are in balance.

7) Competitively, consumption levels determine the extent of depletion among

those resources in need of conservation.

2) CONSUMPTION ELASTICITY OF CONSERVATION :

A measure of the extent to which quantity conserved responds to a consumption

change. The elasticity coefficient (consumption elasticity of conservation Ecp ) is

percentage change in quantity conserved divided by percentage change in

consumption. In figuring out percentages, we must use the averages of old and

new quantities in the numerator and of old and new consumption levels in the

dominator disregarding the minus sign.

3) CONSUMPTION ELASTICITY OF DEPLETION:

Conceptually similar to consumption elasticity of conservation except that it

measures the depletion responsiveness to a consumption change. More precisely,

the consumption elasticity of depletion measures the percentage change in

quantity depleted divided by the percentage change in consumption.

4. CONSUMPTION- INELASTIC CONSERVATION (OR INELASTIC

CONSERVATION ):

The situation in which consumption elasticity of conservation is below 1 in

absolute value. In this case, when consumption declines, total resource loss

declines, and when consumption is increased , total resources loss goes up.

Perfectly inelastic conservation means that there is no change at all in quantity

conserved when consumption goes up or down.

5. CONSUMPTION ELASTIC CONSERVATION :

The situation in which consumption elasticity of conservation exceeds 1 in

absolute value. This signifies that the percentage change in quantity conserved is

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greater than the percentage change in consumption. In addition, elastic

consumption implies that the total resource gain (Consumption times quantity )

rises when consumption falls , because the increase in quantity conserved is so

large.

6. UNIT ELASTIC CONSERVATION :

The situation, , between consumption-elastic conservation and consumption

inelastic conservation, in which consumption elasticity is just equal to 1 in

absolute value.

A) LAW OF DIMINISHING AVAILABILITY OF RESOURCES :-

As more and more Quantities of a resource are consumed ,its total availability

declines.

B) LAW OF DIMINISHING CONSERVATION OF RESOURCES :

A law stating that the additional conservation from successive increases of

technological efficiency will eventually diminish when other efficiencies are held

constant. NOTE:

I LEAVE IT TO THE ERUDITE LEARNED READERS TO APPLY PRACTICALLY THE ABOVE

OUTLINED LAWS.

Y

Consumption

Availability

1 2 3 4

1

2

3

4

X

0

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6. FACTORS OF PRODUCITON

6.1 INTRODUCTION :

Factors which are necessary for production of goods, services and

information are called factors of production. Production may be of several

types : ( a) Primary, (b) Secondary,( c) Tertiary, (d) Quaternary, (e) Quinary.

Production of products, i.e., goods, services and information can not take place

from out of nothing. For example, in primary sector, agriculture generally is

followed. Agriculture involves many activities like tilling the land, sowing the

seeds, irrigating the land, and harvesting the crops. But, if there is no place or

piece of land to cultivate, crops can’t be grown. Similarly, if there are no people

to do the tilling, sowing, and harvesting of crops, again crops can’t be grown.

Likewise, seeds can’t be sown, if the farmer does not have money to buy them.

Again, farmer can’t purchase fertilisers to increase the productivity of soil, if the

farmer does not have enough money to do so. Without technical knowledge, the

farmer can’t apply scientific techniques to farming. Thus, we see that a large

number of factors determine the growing of a crop. Same applies to production of

products in other fields, too. All factors work in an integrated manner and not

in isolation.

6.2 FACTORS OF PRODUCTION :

Following are the main factors of production :

a) Land,(b) Labour, (c) Capital,( d) Technical knowledge,(e)Entrepreneurship,(f)

Organisation, (g) Time, (h) Government policy, (I) Power Resources, (j)

Power Resources, (k) Historical factors, (l) Opportunity cost, (m) Oceans, sky

and space.

1. EXPLANATION:

a) LAND:

Availability and configuration of land besides its quality influences

production. Land includes topographical features like relief, texture and

structure of soil, productivity of soil, minerals ores, plant and animal

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kingdom on it, etc. Financially cheap land attracts people to start some

economic activity there. High costs of land discourages people from

taking up economic activities there , in general. However, in cities, cost of

land determines the type of activities taken up, i.e. , central part of

metropolitans being costly is used for higher economic activities like Big

Shopping Centres ,whereas outer fringe areas, being relatively cheaper are

used for residential areas. Fertile land easily attracts farming activity of

crops ,whereas a barren land does not. But, a barren land may attract other

production activities like manufacturing which does not require land to be

fertile. Thus, in short land acts as an important factor of production.

b) LABOUR :

Quantity and quality of labour help determine the type of production and

location of production units. Without labour ,no production can take

place. Labour can be of several types: Skilled, Semi skilled or Unskilled.

Production activities requiring higher levels of skills/knowledge like

information technology are generally located in and around big cities due

to easy availability of the same. Production activities not requiring skilled

labour can do with unskilled labour. Shortage or excess of requisite

labour affects production ,too. A region lacking in requisite kind of

labour may not be able to take up a particular kind of production activity

or it may have to borrow the same from somewhere like Gulf Countries

are importing from outside the skilled / technical labour to help carry out

the production of petroleum, on a commercial basis. Labour may be

mobile or immobile. Mobility of Labour depends upon, using Everett S.

Lee’s Migration theory, on 4 factors: source, destination, intervening

opportunity and individual’s own perception besides sequential

decisions. Labour intensive production activities generally prefer a

location near labour itself to cut down on labour costs. Thus, Labour

influences in several ways the production.

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c) CAPITAL:

Without Capital, production can’t take place. Capital includes both money

as well as machinery. It may be:- mobile or immobile. Mobility is

determined by the probable distribution of returns. Known customers have

a fair chance of getting more finance from the financial institutes like

Banks, etc. Mobility determines industrial location in free & open

economies. On the other hand, mobility does not determine industrial

locations in Socialistic Countries, because there it is highly mobile. It is

not highly mobile in capitalistic societies. Production may or may not be

capital intensive. Industrial development of a nation state or any region

depends on building of core industries requiring heavy capital. Such

capital may either be borrowed from domestic or international financial

markets.

d) ORGANISATION:

Organisation acts as a factor of production, because without organisation

of production, the firm or productions unit can’t exploit economies of

mass production, raise funds and organize the production process. To

quote Samuelson Nordhaus “Efficient production requires specialized

machinery and factories, assembly lines, and division of labour into

many small operations” That’s why generally speaking production does

not take place in our basement rather it takes place in firms or the

organization ranging from finest individual proprietorship to the giant

multinational corporations or the state owned big corporations/Public

Sector Undertakings.

e) ENTREPRENEURSHIP:

It is considered to be a mobile factor. Entrepreneur is required to kickstart

some kind of production. A region may have numerous entrepreneurs,

especially in a capitalist economy. Entrepreneur takes decisions regarding

location of production unit, etc. For example, J.R.D. Tata was an

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entrepreneur who took decisions to set up steel plants in private sector in

India.

f) TECHNICAL KNOWLEDGE:

To run any production unit / process, a certain minimum amount of

technical knowledge / skill is required. Technical knowledge determines

production functions. Techniques may very spatially or according to

purpose / specific location. For example, in Punjab the farmer can till the

land with the help of a tractor quicker than a farmer working simply with

oxen and a wooden hoe in Orissa. Medical laboratory or cliff house may

be designed for a specific purpose / location. Technical changes enhance

productivity.

g) POWER RESOURCES :

Power is required to run production units. It may be derived either from

living or non – living kingdom .Coal comes from physical or non- – living

kingdom. Ox represents living source of power. Similarly, human labour

represent living type of power. In olden days ,farming depended on

human / animal power. Similarly , manufacturing depended on coal.

However, presently hydel and other sources have taken the place of pride

amongst the sources of power. In fact, no activity can be carried out

without the help of power of some kind or the other. Thus, power

resources act as An important factor of production.

h) HISTORICAL FACTORS:

Historicity acts as a factor of production ,too. With time ,certain places

come to have socio – economic – politico – cultural significance and

become leading centers of production , exchange of goods, services,and

information. This is turn encourages production activities in the region by

virtue of established systems of financial institution, procurements

distribution system, etc.

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i) OPPORTUNITY COST :

It acts as a factor, too. It decides what type of production activity may

take place. If an entrepreneur finds that taking up an activity ‘X’ may cost

him an opportunity ‘Y’ which will result into a net financial loss, the

entrepreneur may switch over to economic activity ‘Y’ from the

economic activity ‘X’.

j) OCEANS (WATER BODIES), SKY & GALACTICAL SPACE: Classical

economists considered only land as a prominent factor on the surface of which an

economic activity takes place. However, in today’s world water bodies, sky &

galactical space have become factors of production ,too. A nation with a large

indented coast line has better harbours / ports in larger numbers than a land locked

country. A country possessing oceanic coast may indulge into economic activities

suitable in such a scenario, i.e. ,India has been able to get mangnese noodles

from ocean surface owing to the availability of this factor of production called

large water bodies (Oceanic). European Nations having coastal locations have

been able to carry on fishery industry or Pisciculture owing to availability of

oceanic factor of production. Sky or atmospheric conditions become a factor, too

by encouraging or discouraging certain types of productions. Space (here it

means galactic, intergalactic) above atmosphere carrying human satellites is

important,too. Recently, it has become a factor in the sense that production of

certain minerals / items require certain conditions which are met only in outer

space, i.e., astronauts / cosmonauts have carried out experiments aboard artificial

satellites and succeded in manufacturing certain types of minerals, etc.

k) GOVERNMENT POLICIES:

In capitalist or free economies ,market forces primarily regulate economic

activities following generally the principle of demand &

supply/economics of scale etc. However, in communist or socialist

political set ups , principles like demand and supply/economies of scale

become rather irrelevent wherein governments of the day decide

production locations, types of products to be produced, and processes to

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be followed for production. Whereas, in mixed economics, both private

and public sectors play a joint role in production. Thus, government

policies act as a factor of production, too.

l) DEMAND FOR A PRODUCT:

Demand acts as a factor, too. No production of a product will take place, if

there is no demand for it irrespective of modes of production/political set

ups like capitalism/socialism or mixed economics.

m) TIME :

To quote Samuelson Nordhaus “ Production requires not only labour

and land but also time.”

A farmer can not change his crops in midseason. Gas pipelines can’t be

built in a single day. Once built, they last for many years together.

Time may be of 2 types: (1) Short run (2) Long run

In short run, fixed factors like Capital can’t be changed. Only variable

factors like materials and labour can be changed. In long run, all factors

including fixed ones like capital can be changed or adjusted, also.

Efficient production requires time in addition to other factors , too. 6.3 SPATIAL VARIATION IN THE FACTOR COST

1. INTRODUCTION :

First of all, let us understand what we mean by the terms "Spatial"

,"Variation" and "Factor Cost". Well ,the word "Spatial" refers to a place

or region on the earth's surface or a heavenly body. The word "Variation"

means a "Change". "Factor Cost" means the cost resulting from use of any

factor of production. These factors of production are: land, labour, capital,

Organization ,etc. Thus, the meaning of the phrase "Spatial variation in the

factor cost is "a change in the cost of a factor of production due to its

differing spatial location”.

2. EXPLANATION :

Production of any goods, services and information is not possible without

existence of certain basic factors like land, capital etc. The cost of these factors is

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not same at all places on the earth's surface or in outer space. For example, labour

cost is lower in rural areas than in the urban areas. Also, labour cost is lower in

less developed countries or regions as compared to the more developed countries.

Likewise, land is cheaper in rural areas. But, it is costly in Urban areas. Similarly,

finance is available at cheaper rates in highly developed financial nerve centres

like London, New York ,etc. But, the same is costly in rural areas. In the same

way, capital like machinery etc. is cheaper in highly industrialised countries. It is

costly in developing countries. Perishable and delicate raw materials transported

over a long distance makes the cost of raw materials very high. , a location of the

production unit near such raw materials decreases its cost of such raw materials.

The cost arising from "Organization and entrepreneurship" aspects are quite low

in industrial complexes like Maharashtra Industrial Development Corporation

(MIDC) complexes in Maharashtra. Whereas, these cost are quite high when a

production unit is set up in isolation ."Power" or "Energy" cost is lower near

sources of power and is higher at increasing distances. “Cost of Production” is

lower in industrially and economically backward areas in “Industrial Parks”.

Whereas, it is higher in units located in economically developed areas. Another

example can given that of the cost of land in the core and periphery of a city. The

cost of land is generally higher in the core compared to the periphery.

3. CAUSES OF VARIATION:

The spatial variation in the factor cost is caused by numerous factors. These

factors are availability or non – availability of these factors at a given place,

mobility or immobility of these factors, and policies of governments. Excess

availability causes reduction in the price at which that particular factor is

available. For example, labour will be cheap if its supply is more than its demand.

Likewise, labour is costly, if its supply is less than its demand, because labour in

such a situation is in a position to bargain for a higher compensation package.

Existence of a large number of financial institutions at a place increases the

mobility of finances and capital, thereby decreasing the cost of these factors in

terms of reduced rates of interest. Likewise, governments give numerous

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concessions like tax free holiday, cancess ional rates of duty, cheap infrastructural

facilities to industrial units located in economically backward areas,etc, This

reduces the overall cost of production. Governments provide these concessions to

achieve various policy decisions like development of economically backward

regions / areas.

4) SIGNIFICANCE OF SPATIAL VARIATION IN THE FACTOR COST

1) Spatial variation in factor cost has got both short term and long term

significance and implications. It may either encourage or dicourage the

exploitation of natural and human resources of a given region in terms of

attraction or repulsion of economic activities ,i.e., primary, secondary ,tertiary.

Quaternary, and Quinary.

2) Spatial variation in factor cost is very important in the location of production

units in capitalist and mixed economics. However ,it is of little significance in

centrally Controlled Command Economies like erstwhile Communist USSR.

3) A study of spatial variation in factor cost cleanly points to the fact that an

ideal location of any economics activity is the point where factor costs are

minimum possible.

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7.TRANSPORTATION

7.1 INTRODUCTION:

What do we exactly mean by the term ‘ Transportation ’ ? Well, it means the

process of carrying something from one place to another or conveyance to

another place by overcoming the friction of geographical/extra terrestrial

/economic distance. It includes Cargo and Passenger. In olden days, means of

transportation and communication were the same. However, in modern days,

these 2 have become separated. Transport excludes communication. Now a days ,

the means of communication include post office, telephone, satellites, Internet,

etc. highly sophisticated scientific and technological gadgets. Days of running

messengers and birds are almost gone away except during natural calamities.For

example, Orissa state police department makes use of trained pigeons during

cyclonic devastations.

7.2 BASIC ELEMENTS OF TRANSPORTATION :

Following are the important basic components or elements of any medium of

transportation.

i. The points of origin and destination.

ii. The route through which transportation takes place.

iii. The vehicle or the carriers on which the goods or passengers are

transported.

iv. The kind or type of power/energy used in the vehicle.

7.3 DIFFERENT MEDIUMS OF TRANSPORTATION :

i. Land

ii. Water

iii. Air

7.4 MEANS OF TRANSPORTATION :

i. Men and animals as carriers and draught power respectively.

ii. Road transport

iii. Rail transport

iv. Ropeways

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v. Cableways

vi. Pipelines

vii. Water ways : ( a)Internal, (b) Oceanic

viii. Air Transport.

7.5 MODELS OF TRANSPORTATION :

Models of transportation means the models which show different patterns of

transport link seen as a network. It gives more importance to lines or links

(edges) or connectivity than the points or areas (nodes or vertices).

1. Types of models and characteristics :

Models of transportation may be viewed from different perspectives as

follows:

i. PLANNER MODELS:

These are characterized by edges or links, which have no

intersections or common points except at the vertices. For

example, the following model of a transportation route from A to E

shows it :

ii. NON – PLANNER MODELS:

These are characterized by edges or links, which have several

intersections or common points including the vertices. For

example, the following model of transport routes from points A to

E shows it:

A

C D

E

B

Edge / Link

Vertices

E

A B

D

C

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iii. SIMPLE MODELS:

These models may be quite simple as shown below:

Simple Planner Model Simple Non - Planner Model

These reflect lower connectivity.

iv. COMPLICATED MODELS:

These models are quite complicated and reflect higher connectivity.

Following is an example of a complicated model of transportation

(Planner model):

Following is the example of a complicated Non-planner model:

NOTE: In case of a non-planner model, simplicity or complication is a relative

concept. Complicated Transportation (non-planned) models are likely to be more

connected compared to the Transportation models for planned ones for the same

number of points or vertices.

A

B C D

E

A B

C D

E

A

B C D

E

A

C

E

D

B

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(v) BUILDER FRIENDLY :

Such models of transportation are builders - friendly in the sense that

these minimize the routes and at the same time ensure that points or

vertices are connected in the network. This minimises the construction

cost of the entire work and maximises revenue generation from the

routes.

(vi) USER FRIENDLY:

These transportation models are user - friendly, because they connect

all the points with each other. In other words, these are non-planned

complicated type of transportation models showing 100% connectivity.

This minimizes the cost of transportation by providing to the user the

shortest route possible between any set of two given points. However, this

causes inefficiency to builder in terms of construction cost.

Thus, we may a clear out idea of the transportation models from the

following flow chart:

TRANSPORTATION MODELS

USER FRIENDLY

SIMPLE COMPLICATED

PLANNER NON - PLANNER PLANNER NON - PLANNER

BUILDER FRIENDLY

USER FRIENDLY

BUILDER FRIENDLY

USER FRIENDLY

BUILDER FRIENDLY

USER FRIENDLY

BUILDER FRIENDLY

AIR LAND WATER

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viii. SHAPES OF TRANSPORTATION MODELS :

Any type of shape may emerge like Hexagonal, diamond, Star, circular,

radial, etc. depending on the way the vertices/nodes or points are

connected with each other through edges, links or routes.

1. IMPORTANCE OF MODELS OF TRANSPORTATION :

1. Models show the number of maximum possible routes in a given

network, i.e., 0.5 (m2 -m)

2. Models show the connectivity of the vertices/models/points covered by it,

i.e. , 2(0r)

m2 – m

3. Models help practically in avoiding constructing non-profitable routes.

Routes/edges/links or transport network developed may cause often

financial losses to the builders. For example, poor-decision making led to

failure of the great central railway from Sheffield to London, the last

major railway line to London, in 1893-99, because it never paid any

profits. Whereas some transportation networks like Panama Canal have

proved profitable.

2. ELEMENTARY MEASURES (topological) of Network structures (based on

gross characteristics) :

1. For Planner Graphs:

(1) Cyclomatic Number (µ) = E – V + G

(2) Beta Index (β) = E / V

(3) Alpha Index (α) = E-V+G 100

2V-5

(4) Gamma Index (γ) =

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2. For Non Planner Graphs:

(1) Alpha Index (α) =

(2) Gamma Index (γ) =

7.8 OBJECTIVE OF THE STUDY OF TRANSPORTATION : 1. Analysis of transport linkes as a network to measure accessibility and the degree

of connectivity.

2. Measurement of volume of traffic on transport links as flows producing a

complex pattern of principal and subsidiary routes.

3. Studying Transport as a space – adjusting technique in terms of bringing

together of supply and demand by a reduction in distance between them and as

an analysis of economic distance. Economic distance is determined by the

distance upto which a commodity can be carried depending on the transport cost

and the increase in its value.

7.9 VARIATION IN COST OF TRANSPORTATION

1. INTRODUCTION :

Cost of transportation varies according to many factors like type of medium of

transportation, geographical/economic distance covered, terrain, commodity to be

carried. These can basically be reduced to 3 elements:

(1) Operating costs

(2) Profits expected by the carrier at the time of rate determination

(3) Government Policies.

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2. VARIATION :

Following graph shows a simple case of variation in cost according to different

methods of transport :

T1, T2, T3 represent overhead cost or the terminal costs of Road, Rail and Water

transport (Ocean) respectively. Ocean transport has greatest terminals cost,

because it need costly vast apparatus of ports with handling facilities. Whereas,

Road transport does not need such vast terminals, as even goods can be located

near godown along any motorable path. Railways require terminal costs between

the terminal costs of road and water (Ocean) transport. However, roads have

higher line – haul cost (cost of moving goods – fuel costs and wages ), because

only relatively small loads are carried and so the costs get spread over a few items

of cargo only. Oceans have lowest line – haul cost, because these rise slowly with

increasing distance due to their spread over much larger cargoes. Rail transport

cause intermediate type of line – haul costs.

Water

Rail Transport Costs

T1

T3 T2

C

X

Road

B A

Y

Distance

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Thus, as the above explanation of graph clearly shows ,the road transport is

cheapest over short distances (A-B), rail over medium distances (B-C) and ocean

transport over long distances (Beyond C). However, this is very much an

oversimplified and highly idealised explanation of transport costs. Transport cost

is affected by numerous others factors in addition to geographical distance and the

medium of transport.

3.CLASSICAL CASE STUDY:

Van Royen & Bengstn published in 1964 comparative Transport costs per Tonne

– Kilometer between methods taking railway transport costs as base of 100. This

study shows water transport to be the cheapest, followed by rail, road, airways in

that order. Following is the result of the case study: -

Medium Method Cost

( Rail transport = 100 )

Land Man

Horse & Cart

Road

Rail

1,800 – 1,700

1,800

430

100

Water River

Ocean

Great Lakes

28

14

7

Air Air Craft 1,500

4.TYPES OF COSTS :

(1) Line - Haul costs

(2) Overhead Costs (cost of equipment such as terminal facilities, ships, or railway

track, etc.)

(3) Transfer costs (indirect costs like insurance cover for the cargo).

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5.FACTORS OF VARIATION IN TRANSPORTATION COSTS :

(1) GEOGRAPHICAL/ECONOMIC DISTANCE:

Quite naturally costs increase with an increase in geographical distance. For

example, a journey of 700 km will cost more than a journey of 400 km,

because terminal costs can be spread over more distance (long – haul

advantage) .Break – of – Bulk point may increase costs. However, provision

of in – transit privileges may help keep costs constant, i.e., grains from

canadian prairies enjoy such a privilege.

(2) TERRAIN:

Terrain causes variation in transport cost. It is costly to cross land than oceans.

Likewise, it is costly to cross mountains than plains.

(3) TYPE OF CARRIER:

Carrier causes variation, too. Petroleum movement through pipeline is less

costly than through tankers.

(4) COMMODITY:

Different commodities attract different transportation costs. Raw materials /

semi finished products, being of low value and requiring less handling and

other charges are cheaper to transport than the finished products / breakable

/perishable articles which require much care ,handling and specialised packing

leading to building of higher transport charges. Some non – perishable

articles may not increase costs, however, other non – perishable articles may

require special need , and care like precision instruments / passengers which

causes higher transportation costs. For example, a tonne of coal is cheaper to

transport over the same distance than the refrigerated treat, since refrigeration

increases costs. Type of commodity is the basic factor determining the

level of a freight rate.

(5) COMPETITION :

Monopoly of any type of carrier causes higher transportation costs.

Competition leads to lower transportation costs, since every carrier tries to

attract business by offering lower freight rates compared to the competitor.

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For example, competition offered by New York state Barge has forced to keep

railway freight rates low between New York and the Greak Lakes. This has

meant that freight is transported more cheaply over a greater distance (1,446

km) from Chicago to New York than over a smaller distance (1,309 km) from

Chicago to Philadelphia. Earlier in 1836, freight rates fell from 12 ½ P per

tonn to 1 ½ p on the Loughborough Navigation.Slashing of airfare in 2002 by

nearly 40% by Jet Airways and Indian Airlines on pune-delhi air route has

narrowed the difference in fare charged by the railways and airways on pune-

delhi sector triggering a cut throat fare warfair between railways and airways ,

since by paying this just nominal higher airfare the traveler feels tempted to

travel by air saving 22 hours of journey!

(6) QUANTITY AND FREQUENCY OF COMMODITY MOVEMENT:

Commodities moving in large quantities cause less transport charges, because

even after charging lower rates per unit, the carrier can still get a large volume

of cumulative profit. To get the same level of profit as a full cargo, the carrier

charges higher freight rates per unit, if quantity of commodities is quite less.

Likewise frequent movement of commodities ensures steady and cumulative

profits to the carrier, even after charging less. Also, a carrier charges less the

frequently moving commodity to earn the goodwill of the shipper.

(7) CONCESSIONS:

Transporter may give back – haul rates to the customer to avoid empty return

of the cargo containers from the point of destination. These rates for goods

movement from destination to origin may be quite less than that for movement

of cargo from origin to destination. The idea is to earn whatever is possible

and it is a bonus of sort to the carrier. For example, the return of grain flows

from the Prairies to the Atlantic ports of North America enjoy such a

concessional rate.

(8) SPECIACISED NATURE OF SERVICES :

Premium or higher rates may be charged when specilised services are

provided. For Example, higher rates are charged for high-speed passenger

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train Shatabdi. than the normal - speed trains in India. The charges for a

chartered plane are higher than a flight aboard regular passenger aircrafts.

(9) GOVERNMENT POLICIES :

Government policies cause variation in transport cost , also. These policies

relate to three groups - Economics, Political and Social.

As regards economic reasons, government may take a decision to concentrate

or disperse economic activities. In India, industries have been encouraged to

be set up or disperse to remote undeveloped areas through provision of cheap

reliable transport lines despite their high initial construction costs. Ruhr

industrial belt in Germany saw concentration of industries due to differing

govt. policies on transport of iron ore and coal (lower/higher cost respectively)

which encouraged import of iron ore from Sweden more cheaply than the

costly transportation of coal export. As regards political reasons , government

may encourage or discourage provision of transportation and affect freight

rates by placing higher tariffs. For example, this was done in Europe till 1958

by doubling the handling charges on fuel and ore crossing international

boundaries. Trans continental railways of the USA and Canada, and Trans

Siberian Railway line of U.S.A. were created for political binding of the coast

to coast units or large stretches of land. This involved pricing policy,too.

From social perspective too, government influence by making transportation

cheap, since transportation is considered more a social service rather than a

business activity. It does it by 2 means of subsidizing:

(1) Direct cash grants to compensate for losses.

(2) Indirect subsidies by imposing uniform rates over the whole transport

system / network leading to supporting of loss making roots / transports by

the profit making one. Indian railways is able to connect to remote areas

due to this reason.

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7.10 MODES OF TRANSPORTATION:

INTRODUCTION:

First of all, let us understand the meaning of the phrase “Modes of Transportation”.

This key words are “Modes” and “Transportation”. Meaning of the word “Mode” is

“Way, Manner, Style”. Meaning of the word “Transportation” is “ Conveyance to

another place” or “Carrying from one place to another”. Therefore, meaning of the

phrase “Modes of Transportation” is “Ways or manners of conveyance or carrying

from one place to another”. “Meaning of the word “Conveyance” is “act of carrying ,

carriage or vehicles”. Thus, above explanation shows clearly that there are different

manners or ways in which “act of carrying” may take place. It may be by using

animated or lively and inanimated or lifeless ways. Lively ways include use of human

beings and beast of burden. Lifeless ways (in an organic sense) include roadways,

railways, airways, waterways, pipeways, and space ways.

EXPLANATION :

All the ways of transportation follow four broad mediums for passage :

1. Air

2. Land

3. Water

4. Space

Roadways and Railways constitute main forms of transportation on land. Ocean going

ships and boats/ streamers in inland lakes/rivers/canals form main type of water

transportation. Aeroplanes, helicopters, balloons, cable trolleys, and missiles are the

principal types of air transportation. Of late, Space transportation has assumed

significance, too. It takes place through space shuttles, space crafts and orbiters/satellites

mainly. Gaspipes, Oilpipes and Water pipes are the base of pipe ways kind of

transportation

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FLOW CHART SHOWING MODES OF TRANSPORTATION : TRANSPORTATION MODES

7.11 CHARACTERISTICS OF DIFFERENT MODES OF TRANSPORT

1. INTRODUCTION :

First of all, let us understand what we mean by the term “Characteristics” of

different modes of transport. It means special features which are peculiar only

to a particular type of transport. These features may be advantageous or

positive and disadvantageous or negative.

2. CHARACTERISTICS :

i. AIR : Following are the chief characteristics of air transportation :

a) POSITIVE/ADVANTAGEOUS :

1. It saves time, because it allows travel at very high speeds as

compared to other modes of transportation like water or

land.

2. It helps follow great circle routes on the earth’s surface,

since there are no obstructing features of the earth’s

surface.

HUMAN BEINGS

BEAST OF BURDEN

ANIMATED

Roadways Railways Waterways Airways Spaceways Pipeways

INANIMATED

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3. In times of emergency like floods, this is the only mode

available to transport relief materials.

4. It does not requires maintenance of a large network of

infrastructural facilities like roads, water ways, canals, etc.

5. It can sometimes take advantage of prevailing winds to

achieve speed just as in case of jet streams.

6. Its very useful in transporting perishable ,delicate and high

value small items.

7. Its very useful during war times to quickly transport troops

and attack enemy posts with lethal effect.

b)NEGATIVE / DISADVANTAGES :

1. Its very costly and out of the reach of the common people.

2. Its operational and maintenance costs are astronomical.

3. It is ineffective during bad weather which sometimes creates problems of

visibility to aircraft causing crashing of planes.

4. It requires highly trained and skilled people to drive the Aeroplanes.

5. It is the most risky mode of transport ,because even a slight mistake by a fraction

of second may lead to pilot error causing crashes leading to violent deaths of

passengers.

6. Its very costly as regards low value bulk items.

7. Aeroplanes are easy targets by terrorists.

3. ROADS :

A) POSITIVE /ADVANTAGES :

1. Its cheap over short distances on land.

2. It can be followed on foot, too.

3. It does not require construction of costly infrastructure like Aerodrums.

Simply, any piece of land on which a vehicle can be parked is sufficient.

4. It helps in direct delivery of products at the door-step of the consumers.

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5. The transporter can earn profit on return journey by bringing products

back from destination even if on low charges, because the cost of plying

vehicle to and for already is recovered from the original customer.

B) NEGATIVE/DISADVANTAGES :

1. Inaccessible and remote physical terrain discourages land transport.

2. It may get badly affected and rendered useless during natural hazards like

floods, earthquakes.

3. Its costly over long distances as compared to sea and rail transport,

because the cost of wear and tear outweighs the benefits of spread of

economies of scale.

4. Unlike sea and air mode, land transportation requires a vast network of

good metalled and motorable all weather roads.

5. It requires continuous maintenance of roads.

2. WATER :

Sea, Lakes, Rivers, Canals

WATER BODIES :

A) POSITIVE/ADVANTAGES :

1. It is economically very cheap over long distances as compared to other

modes, because there are no maintenance costs of routes involved.

2. It is suitable for transporting low value-high volumes commodities.

3. It can make use of prevailing wind directions to cut down costs on fuels,

i.e.; sailing from Europe to USA under the influence of North Eastern

trade winds and then sailing back to Europe under the influence of

prevailing south westerlies.

4. Tunnels under sea bed can be constructed to make travel easier, i.e., tunnel

beneath ocean between France and U.K. has made the travel easier. A

plan to link Spain and Morocco by building a tunnel (39 km long) 400

meter below sea level under the strait of Gibraltar already has been drawn

up. Point Paloma (Spain) and Malabata (Morocco) are chosen sites .It is

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300 metre below sea level at its deepest point and would cost us $ 8 billion

(1996 estimate).

5. The coefficient of friction on water is small as compared to road and rail.

One horse power can move 4,000 kg on water ,150 kg on road and 500 kg

on rail.The ratio for road,rail and water transport is 3:10:80

respectively.Therefore, water transport is the cheapest.

B) NEGATIVE/DISADVANTAGES :

1. It requires good natural or artificial harbours and ports to drop

anchor at.

2. Increased sedimentation at the mouth of river channels makes

inward navigation from sea quite difficult.

3. Sudden oceanic upheavals like storms such as hurricanes,

tornadoes may break or sink vessels into the ocean.

4. It takes a very long time to cover greater distances from origin to

destination as compared to Air transportation.

5. In times of Crisis, getting help becomes very difficult despite

advanced instruments abroad like , etc., as compared to disasters in

case of Road or rail transport.

6. RAIL :

A) POSITIVE/ADVANTAGES :

1. It is placed midway between road and sea transport as regards

transport cost, whether over short or long run haul.

2. It does not face problems like traffic congestion as faced

sometimes by road transport over busy routes and crossing.

3. It provides employment to large number of people, i.e., the Indian

railway the 4th largest in the world is the biggest employer in India.

B) NEGATIVE/DISADVANTAGES :

1. It requires heavy initial investment and infrastructure.

2. It has a long gestation period.

3. It can’t do door delivery like Truck-farming .

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4. One can’t stop train enroute like Buses and board or alight down as

wished.

5. A train stops generally at specified marked stops called railway

stations and not anywhere else.

6. Higher energy is consumed for pulling coaches/wagons on steep

slopes. One foot increase in height every 100 feet is called one per

cent grade. At one percent grade, railway engine is able to pull up

only 1/5th of the load it can pull on a plane surface. Thus,

sometimes two engines have to be used to pull the train. Andes

mountains have a 4 percent grade!

7. It requires digging of tunnels across non-negotiable mountains. It

is very costly.

(5) SPACE SHUTTLES/SPACE CRAFTS :

In future, space crafts are likely to transport human beings/commodities, etc. to other

planets and heavenly bodies like moon once colonisation of these celestial spheres takes

place.

A. POSITIVE/ADVANTAGES : 1. It makes easy to transport goods, and human beings to far distance

heavenly bodies like Moon.

2. It makes easy the space travel.

3. It helps put in sky the artificial satellites useful to human beings like

Remote sensing satellites , etc.

B. NEGATIVE/DISADVANTAGES : 1. Its economically a very costly affair.

2. It requires highly complicated crafts and sophisticated technology.

3. It carries a high degree of risk of failure.

4. There are little or no chances of human survival aboard a space craft, if it fails in

space.

(6) PIPE WAYS : Pipes have emerged as an important way of transportation. This mode of transportation helps in

carrying gas, oil and water over a large distance.

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A. POSITIVE/ADVANTAGES : 1. It is one of the best, efficient and economically cheap way of transporting liquids

across great distances.

B. NEGATIVE/DISADVANTAGES : 1. It is very costly to build, operate and maintain.

2. It carries high risk.

3. Pipelines under ocean can easily be tempered with without any one

having to bear responsibility for it.

4. Oil pipelines often face political problems, i.e., Iranian gas pipeline to

India through Pakistan found it difficult to take off due to unfriendly

relations between these two later countries.

(3) SIGNIFICANCE : A deep knowledge of different modes of transportation and their characteristics is quite

significant on many counts:

1. It helps in building the best possible efficient transportation network for a given

area or a region by utilising the strengths of different modes and avoiding their

inherent weaknesses. For Example, by constructing Suez and Panama canals,

human beings have taken advantage of water transportation in terms of its cheap

costs. Suez canal has helped connect Atlantic Ocean via Mediterranean sea to

Indian Ocean via red Sea. Likewise, Panama canal has connected eastern pacific

ocean with Western Atlantic Ocean. This has saved thousands of kilometers of

sailing around the cape of Horn, the southern tip of south America. This means

saving in fuel and other costs.

2. It helps a lot during times of crisis like natural hazards, war, epidemics, etc. by

timely rushing in of aid, relief material and other kind of logistics support.

3. It helps expand frontiers of human knowledge, skills, and abilities far beyond the

planet earth.

4. It helps in exploitation of natural and human resources of a given place or region

by providing appropriate and efficient modes of transportation.

5. It helps avoid building uneconomical transportation systems. For example,

in high mountainous regions, road transportation is more economical than

rail transport.

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8. ECONOMICS AND SCALE

8.1 INTRODUCTION :

In economics, effects of the increase in the amount of an input on total output

holding all other inputs constant is sometimes studied. This study is called the Law

of Diminishing returns. This law states that less and less extra output is obtained

with the addition of an additional dose of an input while holding other inputs fixed.

In other words, the marginal product of each unit of input will decline as the

amount of that input increases, holding all other inputs constant.

But, what if all the inputs are increased proportionately? Well, this leads to the

introduction of the concept of “scale”.

8.2 MEANING :

“Scale” means “an increase”. When scaling up of all inputs takes place

proportionately, there may be 3 outcomes:

i. Constant returns,

ii Increasing returns,

iii Decreasing returns.

These returns are called returns to scale, because these are the returns or (gains in

output) to an increase in inputs (scale). Thus, we have following 3 types of returns:

1.Constant Returns to Scale:

It is a situation in which a change in all inputs leads to a proportional change in

output i.e. if factors like labour, demand, etc. are increased by 3 times, the output

increases by 3 times ,also. Handloom operations in a developing country or

haircutting in U.S.A. are prime examples.

2. Increasing returns to scale :

It is a situation in which a change in all inputs leads to a more-than proportional

increase in the level of output. For example, in engineering field many

manufacturing processes get modestly increasing returns to scale for plants upto the

largest size, i.e., an engineer may get more than 15% proportional increase in output

by increasing inputs by 15%.

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3.Decreasing returns to scale :

It is a situation in which a proportional increase in all inputs leads to a less than

proportional increase in total output. It may happen due to increased costs of

management or the control. Prime examples are activities like growing wine

grapes, provision of clean drinking water to a city, electricity generation plants.

8.3 ECONOMIES OF SCALE

INTRODUCTION :

As a brief study of the concept of “SCALE” shows clearly, an increase in inputs

leads to an increase in output irrespective of it being just proportional, more than

proportional or less than proportional. This increase in output or production helps

reduce or minimise the cost of production by way of getting especially the fixed

costs spread over a larger number of units produced.

Mass production techniques require factories to be of certain minimum size. With

an increase in output, firms divide production into smaller steps, taking advantage

of specialization and division of labour. It also allows intensive use of specialized

capital equipment, automation and computerized designes and manufacturing to

do simple repetitive jobs easily and quickly. Once Economies of scale has been

achieved especially in terms of constant returns to scale, it can be maintained by

replicating or duplicating elsewhere the existing manufacturing processes

irrespective of the level of output.

8.4 TYPES:

Advantages of large scale production or economies of large scale production may

be grouped into 2 categories:-

(1) Internal Economics

(2) External Economics

8.5 INTERNAL ECONOMIES:

These are advantages of cost reduction of output obtained by a firm from its

own growth. These can further be subdivided as follows :

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a) ECONOMIES OF INCREASED DIMENSION:

Increasing of the dimension of the input leads to cost reduction per unit of

output in terms of increased output, i.e. ,use of machine leads to a larger

production.

b) ECONOMIES OF LINKING PROCESSES:

Linking processes give advantages. In large scale production, all the

processes right from beginning to end are linked with each other under single

control, thereby reducing the cost, i.e. , in a Sugar factory, all the processes

right from thrashing to sugar production are linked together under one

control.

c) ECONOMIES OF SUPERIOR TECHNIQUES:

Large-scale production requires use of superior techniques which may be

costly. But these superior techniques help increase production on a large

scale, thereby minimising the possible costs.

d) ECONOMIES OF SPECIALISATION AND DIVISION OF LABOUR:

With increase in production, a firm has to use division of labour and

specialisation. It has to divide or allocate different steps of the specialised

work/job to different workers specialising in their areas of competence.

Machines are employed to do highly specialised job. All this causes large

production leading to lower costs.

1. MANAGERIAL ECONOMIES :

With increase in the size of the production unit, one individual is unable to

look after all the aspects. It leads to delegation of authority and division of

labour. It in turn leads to better management resulting into a higher

efficiency. Higher efficiency generates a larger production.

2. MARKETING ECONOMIES:

A production unit has to incur marketing costs for its finished products

and raw material inventory. With a large market for products, it has to

maintain big stocks of raw materials. This raw material gets available at

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lower prices, because it is purchased in bulk or a big quantity. Low price

of raw material helps it to lower the cost of production. Plus, cost of

marketing (like by sample method) gets distributed over the total quantity

produced.

3. FINANCIAL ECONOMIES:

A large firm gets a goodwill in market, amongst financial institutions,

investors, stock exchanges. This all helps in mobilising required capital

from market at lower rates, which helps in increasing the production.

4. ECONOMIES OF RISK BEARING :

A large firm has the advantages of product and market diversification. It

can offer a mix of different products and in different spatial/geographical

markets. It reduces the risk of product failure. If one product fails, its

losses are compensated by profits in other products. Similarly, losses in

one sales territory are sustained by profits in other sales territories. With a

large production, costs of products goes down, too. This minimises the

risk of failure or uncertainty. This practice is called “Putting eggs in

different baskets” .

8.6 EXTERNAL ECONOMIES:

These advantages or the economies are those advantages or economies which a

production unit gets from outside due to concentration of other production units in

the same area.

These are further subdivided as follows:

i. ECONOMIES OF CONCENTRATION :

Concentration of production units in a area gives it a significant independent

industrial identity and standing causing setting up of different facilities in the area

like transportation, financial institutions, etc. This helps in large-scale production

by getting certain required inputs easily, cheaply and quickly like finances.

ii. ECONOMIES OF INFORMATION :

Production units may have advantages in an industrial cluster or belt like some

common platform to discuss their problems and share information.

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This helps in large-scale production by getting quickly, easily, cheaply the

requisite information ,i.e. ,Maharatta Chamber of Commerce located at Pune in

Maharashtra is such a forum.

iii. ECONOMIES OF DISINTEGRATION:

Large-scale production is made possible also by getting advantages of

disintegration in terms of existence of supporting or ancillary units. This avoids

wasting time, money and energy on some activities which are done by these

ancillary units. The saved time, money and energy are devoted to increasing the

production.

DISECONOMIES OF LARGE SCALE PRODUCTION :

Large scale production may lead to following disadvantages :

1. Decreasing returns to scale due to need for management and supervision.

2. Problems of management and co-ordination.

3. Ineffective management of increasing product lines and market areas

geographically.

4. Cutting off from the realities of market, etc. due to lesser time available to higher

controlling authorities with an increasing size of the firm involving delegation of

authority and spread of the functions over a large geographical/technical area.

5. Isolation from the reality causes slow responses to changes, i.e., General Motors

lost its much market share to smaller firms in the 1970s oil Prices Rise Crisis.

8.7 SPATIAL VARIATION IN DEMAND 1. INTRODUCTION:

What do we mean by spatial variation in demand? It means that the demand

for a product changes with a change in geographical space or area or

distance. With increasing distance from a market place, the demand for a product

goes on decreasing because the price goes on increasing. Price increases because

of other costs like the increased cost of transporting the products from market area

to the outside areas or the increased cost of transportation involved in travelling

from a place outside to the market area. In simple words, this is the meaning of

the phrase “Spatial Variation in Demand.”

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2. GEOGRAPHICAL PERSPECTIVE :

There are various theories to explain the reasons for location in space of various

industries. Some of these theories take demand as constant or unchanged. Such

theories consider the effects of variations in the cost of manufacturing due to

different spatial or geographical locations of factors of production like raw

materials, labour, technology, etc. These theories totally ignore effect of other

factors on the choice/decision /action of locating a particular industrial unit at a

particular geographical location like effect of demand by consumers, behaviors or

psychology of the consumer & so on. Alfred Waber’s theory of location of

manufacturing units (secondary production) is such a prime example.

So, to overcome the shortcomings of such theories considering only factors of

production, some economists/ geographers came up with the idea of location of

industries based on the demand for a particular product. Such theories have come

to be known as Maximum Revenue Theories, because of the tendency of

manufactures to locate their industrial units in such a strategic geographical

location as would maximise their revenue based on optimum demand by

consumers. Demand in turn depends on 3 important factors:

(1) Price of the product

(2) Transport costs

(3) The Possibility of the substitution.

3. EXAMPLE : H. Hotelling has given a classical example of the working of

maximum revenue theory. He tried to find the location that would give

maximum sales to 2 ice-cream sellers on a mile of beach as shown in the

following diagram:

A B

A1

M

Beach

eographyindiapuneshersinghparmar

com

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2 Vendors of ice – cream selling the same brand of ice - cream at the same price

would have ideal location at two points A and B, because M divides the beach

into 2 equal parts. One half has point ‘A’ as its centre. The other half has point

‘B’ as its centre. Naturally, both vendors can equally cover all the customers on

the beach. Now, supposing one vendor moves to point A1, here he/she will attract

‘B’ customers also. To avoid this, ‘B’ may move towards M. This may lead to a

situation wherein both A & B stand back to back to retain customers from their

areas and to avoid their customers going to the other vendor. But , it always may

not work. For example, one vendor may be selling superior quality brand to get

which a customer may be willing to travel more distance despite the same prices.

Thus, a location of a manufacturing unit affects and is affected by the location of

other units. This is also called locational interdependence.

4. THEORY:

The best known general theory of location giving more importance to demand

was proposed by August Losch in 1940. He tried to explain the size and shape

of market areas within which a location would command the largest revenue. To

simplify the matters, he assumed :

(1) Isotropic surface ( a flat uniform plain ).

(2) Constant Supply of products.

(3) Decrease in demand for a product within increase in its price.

(4) Decrease in demand with increasing distance owing to increased

transportation costs from the production centre to the market centre.

(5) Existence of monopolistic competition instead of perfect competition unlike

A. Waber.

(6) Non – Existence of economic discriminations amongst population. Open and

uniform career building opportunities to all individuals.

(7) Even distribution of population & self-sufficiency of area in agricultural

production.

(8) Uniformity in tastes, knowledge, andtechnical skill of people.

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(9) Uniformity and proportionality of transport costs in all directions.

(10) Limited Number of producers & Consumers.

(11) Satisfactory location to both producer and consumers.

(12) Equal serving of the entire area by factories .

(13) No entry of a new firm.

(14) Confirmity in the range and quantum of profit

A = No demand due to very high price

OP = Price at production point

PQ = Quantity sold at P

AQN = demand Curve

P = Production Point

(i)

(ii)

Demand Curve rotated around production point to get cone AQP

(Source: August Losch ,“ The Economics of Location” ,Yale University Press1954)

A

Q P

NO Quantity

Price

A

Q

P

Sales = Volume of Cone

Market area boundary

Distance

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As the figure (i) shows, demand decreases with an increase in price. This leads to

demand curve AQN. Now , let us suppose that price increases due to increasing

transportation costs, its clear that at price A, the demand is zero. Now, let us assume that

this price A is at the maximum distance beyond which there is negative demand! In other

words, we can assume PA as the distance from production point P. Now ,lets rotate the

curve around production point P, the shape of the market will be circular and the size of

the market will be volume of the cone AQP, i.e., 1/3πr2h (volume of a right circular cone)

as shown in Figure (ii).

Further, increasing competition on the plain causeS development of hexagonal market

areas to avoid overlap and under lap. Also, each market shrinks due to eating up of

revenue by competitors. Each product has different market area depending upon the

relative importance of transport costs in its price. Different patterns of market areas

develop. When such patterns are rotated around a common production center point, then

some of these patterns may coincide nearly, thereby giving indications of formation of

points of maximum demand. This in turn should develop as concentrations of industry.

CRITICISM :

Positive:

1) It has successfully explained the effect of demand on industrial locations.

2) It led to further theorising in the field of locational analysis of industries in terms

of demand.

3) Its failure to consider other factors led to emergence of theories like “Spatial

Margins to profitability theory “by D. M. Smith, “Sub – Optimal locations

theories”,Optimiser theory and satisfier theories.

4) He was first person to give importance to influence of demand on industrial

location.

5) Right & correct emphasis upon the role of competition.

6) Simple and easily applicable calculations.

7) Philosophical contributions on the motive of entrepreneur’s role.

8) Introduction of Equilibrium concept.

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9) More précised nature of the concept of “profit maximization” in sharp contrast

to the “least cost” concept of A.Waber.

How Market Areas become Hexagonal

(Source : August Losch, “The Economic of Locatio

Negative:

1) This theory is too abstract in nature.

2) It does not consider problems of locational int

3) It gives too much importance to one aspect,

given to supply by Alfred Waber.

4) It fails to consider other factors like human ps

5) It generalises human behavior in sharp contras

of “ heterogeneity, particularity and uniquenes

6) It is not universally applicable, when checked

7) It is too simplified a model of reality. It rarely

1 2 3 4

Firms Operate with Circular Market Areas

Competition increases to serve all the potential market

Final pattern of market areas

To avoid overlap of Circles and to serve all areas, the market areas become hexagonal

puneshersinghparmar

n, , Yales University Press, 1954)

erdependence.

that is the demand just as had been

ychology &human behavior .

t to postmodern geographical theme

s.”

against reality.

occurs in actuality.

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8) Its more of an intellectual exercise, because his assumptions are hardly present in

the real / decision making world.

9) Ignorance of “Political decision role “ in industrial location.

10) Neglect of factors like variation in the cost of raw materials and labour wages

rate.

11) Arbitrary dichotomy of the role of agriculture and industry.

12) Agriculture may show a play of the abstract and optimum situation, but industrial

location is a far more complex matter. This theory may be more practical in

agriculture rather than in industry.

13) Demand curve must be rotated around production point O, where there is

maximum demand ON. By taking P Production point , he has ignored the

maximum production at point O. The actual size of the market should be the

volume of the right circular cone ANO and not the volume of the right circular

cone AQP!

OTHER IMPORTANT THEORIES:

1. TRANSPORT COST THEORY OF EDGAR M. HOOVER:

It is an extension of A. Waber’s theory. It emphasizes on the role of 4 costs:

Procurement, production, distribution, transport.

2. BEHAVIONRAL THEORY:

It places emphasis on the role of individual behavior or entrepreneurial decisions

as chief determinants of industrial location. Allan Pred’s Matrix theory is the

most well known behavioral theory.

3. MARKET AREAS THEORY:

It emphasizes more on the competition with others as chief determinant of

industrial location . Frank Fetter is the most well known theorist of this

approach.

4. INTEGRAL THEORY:

It emphasizes on the integrated role of both factors supply and demand. Green

hut & Walter Isard are the well-known theorists of this approach.

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9. ECONOMIC DEVELOPMENT

9.1 CLASSIFICATION OF COUNTRIES Countries have variously been classified in economic geography by taking into consideration different criteria.

Here, we follow the classifications given by T.A. Hartshorne & J. W. Alexander in their

book “Economic geography” and the U.N.O.

1. CLASSIFICATION BY HARTSHORNE & ALEXANDER :

(A) FIRST WORLD COUNTRIES:

Highly developed countries of North American continent and Europe like U.S.A. ,

England excluding the communist block are called first world countries / Nations.

(B) SECOND WORLD COUNTRIES:

Countries having centrally planned economies like China and the erstwhile USSR,

besides other communist countries are called second world countries/ nations.

(C) THIRD WORLD COUNTRIES:

Countries which are developing areas lacking in a modern urban – industrial

structure are generally known as third world countries/Nations. For example, Kenya

,Pakistan etc.

2. CLASSIFICATION BY UNITED NATIONS :

To quote Asha A Bhende and Tara Kanitkar (in “Principles of Population

Studies”) , “The United Nations prefers to designate the economically advanced countries as

“more developed” and the economically backward countries as “less developed

countriess.”

Accordingly, following is the classification given by the U.N.O:

a) “More Developed” Countries

1. North America

2. Japan

3. Europe

4. Australia & New Zealand

5. Temperate South America

b) “Less Developed” Countries

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All other countries other than more developed countries mentioned above fall

into this category. 9.2 MEASURES OF ECONOMIC DEVELOPMENT

Economic development of a country/region can be measured in various terms called “Measures” .

These measure or indicators broadly include factors like population, gross domestic

product, Adult literacy and life expectancy.

Economically advanced countries have a low population growth rate, low birth and death rates,

high life expectancy and literacy rates besides a higher standard of living. On the other hand ,

less economically developed countries have still not reached the post demographic transition

population growth and these countries have a relatively higher rate of mortality, low life

expectancy ,low literacy and poor standards of living.

Output per worker is indicative of economic development,also. For example, since 1870,

in 16 high income category countries like USA, West European nations , Japan &

Australia, the output per worker grew by 2.4 % per annum ( a factor of 16 over 120

years) closely moving with increasing standard of living.

Following chart, quoted from “Economics” by Samuelson Nordhaus, illustrates it

amply:

Average growth rate (%)

Period GDP GDP/Person –Hours Labour Force Total Hours worked

1870 – 1913 2.5 1.6 1.2 0.9

1913 – 1950 1.9 1.8 0.8 0.1

1950 – 1973 4.9 4.5 1.0 0.3

1973 – 1990 2.5 2.7 1.1 - 0.1

WORLD DEVELOPMENT REPORT 1997 (world bank ,WASHINGTON 1997):

Nation states or countries are grouped by the world bank into 4 main groups based upon

their per capita incomes. Each includes important indicators of economic development

like , Adult illiteracy and life expectancy.

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GDP

Total Per Capita Per Capita

Country

/Group/

ECONOMIE

S

Population

In 1995

( in millions) Total

1995

($ billion)

Level 1995

($ billion)

Growth

(1985-95)

% per year

Adult

Illiterac

y

1995

( %)

Life

Expectancy

at birth

(Years)

Low income

China/India

others

2130

1050

1035

317

499

290

6.1

-1.4

32

46

66

56

LOWER

MIDDLE

INCOME

ECONOMIE

S

(Philippines,

Thailand)

1153

2026

1670

-1.3

20

67

UPPER

MIDDLE

INCOME

ECONOMIE

S

(Brazil,

Malaysia

etc.)

438

1982

4260

0.2

14

69

HIGH

INCOME

GROUP

ECONOMIE

S

(USA, Japan,

France, etc.)

902

22486

32039

1.9

<5

77

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Broadly speaking aforesaid discussion is enough to understand the measures of economic

development. Of course, one may enumerate a large number of other variables or

indicators, too as follows:

1. Gross national product/Net National product

2. Per Capita income

3. Per Capita Consumption of iron & steel

4. Population growth rate

5. Infant mortality rate

6. Birth rate

7. Death rate

8. Literacy rate

9. Occupational structures

a) Commercial activities – Developed countries

b) Substantive activities – Less Developed countries

10. Technological Levels

11. Migration trends

12. Religious influences

13. Food availability (malnutrition, etc.)

14. Health (good, poor, etc.)

15. Use of family planning devices

16. Proportion of Urban population

17. International trade.

For example, in 1995, the per capita GNP of USA was $ 26980, Germany $27,510 ,India-

$340, Bangladesh - $ 240, Ethiopia - $ 100.

FOLLOWING INFORMATION AMPLY ILLUSTRATES VARIOUS MEASURES

OF ECONOMIC DEVELOPMENT:

(A) World as a whole had a population of 5840 million in mid 1997, with more

developed countries having a share of 1175 million and the less developed

countries a share of 4666 millions (including china). World in mid 1997 had a

birth rate of 24, death rate of 9, an annual natural increase rate of 1.5 % in

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population, population doubling time of 47 years, infant mortality rate of 59, total

fertility rate of 3.0 , life expectancy of 64 years (males) 68 years (females), 32 %

below 15 years and 7 % above 65 years of age population, 43 % urban

population, 56 % of married women using contraception of all kinds and only 50

% of married women using modern methods of contraception, and world per

capita GNP (1995) of US $ 4920.

(B) Comparatively, More developed countries had a population of 1175 millions,

Birth rate of 11 per 1000 population, death rate of 10 per 1000 population, 0.1 %

of annual natural increase in population, 564 years of population doubling time,

infant mortality rate of 9 per 1000 population, total fertility rate of 1.6 % , 20 %

of < 15 years and 14 % of > 65 years of age population , life expectancy at birth

of 71 years for males and 78 year for females, 74 % of population as urban, 66 %

of married women using contraception of all methods and only 60 % of married

women using contraception of only modern methods, and per capita GNP of US $

19,310 ( as in 1995).

(C) Less developed countries ( including China) had a mid 1997 population of 4666

million, a birth rate of 27 pr 1000 population , a death rate of 9 per 1000

population , an annual increase of 1.8% in population growth, a population

doubling time of 38 years, infant mortality rate of 64 per 1000 population , total

fertility rate of 3.4 % , 35% of < 15 years and 5 % of above 65 years population,

life expectancy at birth of 62 years for males and 65 yeas for females, 36 % of

population as urban, 54 % of the married women using contraceptives of all kinds

and only 49 % of married women using modern methods of contraceptives, and a

per capita GNP of US$ 11,20 (as in 1995)

[Source: 1997 World Population Data Sheet, Population, Reference Bureau

Washington D.C.]

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9.3 GEOGRAPHICAL ACCOUNT OF W.ROSTOW’S NON-SPATIAL MODEL

1. INTRODUCTION:

The non-spatial model formulated by W. Rostow in 1955 identifies five

stages of economic development. This model was formulated to explain varying

economic development without reference to spatial (geographical) aspect. It is

called The Rostow Model of economic development ,also.

2. PRINCIPLE:

Economic development takes place in five stages, with take-off into self

sustaining growth coming about as one sector of the economy develops rapidly

and encourages the growth of other sectors.This way , the whole region develops.

The Classical Economic theory is the basis of this model. This theory assumes

existence of uniform costs, perfect competition, perfect mobility of capital and

labour in a given region. Further , it assumes that these assumed conditions shall

produce equilibrating forces to maintain inter-regional equality.

For example, excess labour migrate out from a region which has no employment

opportunities- thus, the given region loses labour to outside region-but, low labour

costs in the given region attracts new industry which helps develop economically

the given region – therefore, inter-regional equality is maintained.

3. EXAMPLES:

The great Industrial Revolution in U.K. was led by the cotton industry, which in

turn encouraged the textile machinery industry, transport improvements, service

industries in the expanding towns and so on.

4. CRITICISM:

i. Positive:

a) It is the best-known non-spatial model formulated to explain the

process of economic development.

b) It is easy to understand.

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ii. Negative:

a) The model is too simplistic overlooking complex spatial variation.

b) It does not specify time required to move from one stage to the next.

c) It does not tell any mechanism to find out the stage in which a

particular economy is.

d) Its not necessary that an economy has to go through the sequence

suggested by W.Rostow.

e) It is totally incorrect to assume existence of uniform costs, perfect

competition, perfect mobility of capital and labour in a given region.

Further , it is incorrect to assume that these assumed conditions shall

produce equilibrating forces to maintain inter-regional equality.

f) Regional inequalities is a global feature.

g) To quote KNOWLES & WAREING ,

“ If economic development affects the structure of the economy by

producing leading sectors, it may be inferred from Rostow Model that

the distribution of economic activity will be similarly affected, with

the emergence of leading regions.”

For example, in 19th century Britain, the leading sectors of the economy

such as cotton and iron were certainly characterised by regional

specialisation and concentration.

h) It is suggested by many economists that economic development

actually encourages regional inequalities.

i) Costs are never uniform, competition is never perfect, and capital and

labour are not perfectly mobile. These forces don’t maintain inter

regional equality.

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The ages of high mass Consumption

5

The drive to Maturity

4

Take - Off 3

The Preconditions for take - off

2

The Traditional Society

1

Decades

THE ROSTOW MODEL OF ECONOMIC DEVELOPMENT

1.

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9.4 G.MYRDAL’S SPATIAL MODEL OF ECONOMIC

DEVELOPMENT

INTRODUCTION :

The most important model attempting to explain spatial variations in economic prosperity

by G. Myrdal in 1956 is called Myrdal’s model of economic development.This is a

spatial model or a geographical model.

2. PRINCIPLE :

Contrary to classical theory, economic market forces increase regional differences rather

than decrease them. Two associated processes cause unequal growth. These are :

i. Cumulative Causation

ii. Spatial Interaction

i. Cumulative Causation: Economic development takes place in a region initially

because of the natural advantages offered by it, like raw materials, and presence

of power. Then, once such a region moves forward and ahead of others, a process

of cumulative causation takes place, as acquired advantages are developed to

reinforce the status of the region and ensure that it continues to grow and stay

ahead of others. One development leads to another development.

ii. Spatial Interaction: It occurs with movement of labour, capital and commodities

into the growing region. Such growth produces a backwash effect in the other

regions in that the other regions lose skilled labour and capital to the growth

region and their markets are flooded with goods, thereby preventing local

development.

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Consequently, growing and stagnating regions are

expansion of economy, the benefits of growth begi

Provision of better infrastructure for population and industrial development – roads, factory, sites, public utilities, etc.

Development of external economies for former’s development

Doiswe

Expansion of local government funds through increased local tax yield.

Expansion of service Industries and others serving local market.

Increase in local pool of trained industrial labour.

Expansion of local employment and population

Location of new Industry

evelopment f ancilliary ndustry to upply former ith inputs,

tc.

Attraction of capital and enterprise to exploit expanding demands for locally produced goods and services.

apuneshersinghparmar

born. On the other hand, with the

n to affect all regions and the spread

Expansion of general wealth of Community

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effect of an expanding economy may encourage the process of cumulative causation to

occur and self – sustaining growth to take place in other regions.

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3. STAGES OF REGIONAL DIFFERENTIATION:

A region passes through 3 stages of regional differentiation in the Myrdal Model :

i. Pre-industrial : There are few regional inequalities.

iii. Second : Great inequalities are produced by cumulative causation and its

backwash effect as the economy “takes off” and expands rapidly.

ii. Third : The spread effect of growth operates to reduce regional

imbalances or differences.

4. CRITICISM :

A. Positive :

a. It successfully explains the development processes in the underdeveloped countries.

B. Negative :

1. To quote KNOWLES AND WAREING “…the forces

producing regional inequalities are much more powerful than

the spread effects operating to reduce them” .

For example, despite government action ,regional inequality

persists in U.K.

2. It does not fully explain the process of development in more developed

economies for which other theories like export base theory, regional

multiplier (input-output analysis), growth poles ,etc. have been advanced.

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10. INTERNATIONAL TRADE

10.1 INTRODUCTION

1.) MEANING :

The trade carried on an international level is called international trade.It can be

bilateral(BETWEEN TWO COUNTRIES) or multilateral(AMONGST MORE THAN

TWO COUNTRIES).

2.) BACKGROUND :

International trade has been going on since ancient times. For example, condiments and

pepper were exported from India to cold temperature European countries to make the

meat tasty there. Similarly, silk route was famous for trade between countries of west and

the Far East china. Presently, big multinational companies are involved in international

trade besides local national players.

Examples : Bilateral Trade

India and china – US $ 3 billion (2000 A.D.)

Foreign Exchange Reserves

India reported foreign exchange reserves of US $ 50 billion (2002 A.D.)

The value of goods in world trade since 1938 (Exports in million of US $)

Economics 1938 1950 1960 1970 1980

Developed market 15,100 37,026 85,845 224,908 1,270,323

Developing market 6,000 19,163 27,067 55,684 5,40,353

OPEC 1,000 4,014 7,792 18,032 296,376

Centrally planned 1,600 4,596 15,363 33,2786 177,329

World Total 22,700 60,785 128,275 313,868 1,988,005

SOURCE : UN STATISTICAL YEARBOOK

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CERTAIN FACTS AND FIGURES ABOUT

INTERNATIONAL TRADE/GLOBAL ECONOMY:

1. In a single day all over the world, 40%

of the goods and services produced is

traded and nearly 1.5 trillion US $ gets

exchanged in the world exchange

markets.

2. World trade stood at US $ 3.4 trillion

in 1999 and 6.2 trillion in 2000.

3. Value of world output was US $ 24.4

trillion in 1994 and 31.4 trillion in

2000(Source:IMF).

4. Following table gives trend in growth

of the world output: PERIOD AVERAGE VALUE (US $ trillion ) GROWTH RATE

1983-1992 18 3.4 %

1993-2000 29.6 3.6 %

5. USA was the largest importer and

exporte with imports and exports

worth $ 1060 billion and $ 695 billion .

15 member EU had exports worth US $

799 billion , but its imports were of less

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value than USA’s .China ranked 10th in

exports.India ranked 30th in

exports.Indian exports were primarily

directed to USA(21%) and EU(20-

25%).Figures given here are for the

year 2000.

6. World trade grew at the rate of 5.4%

in 1980s and 7.5% in 1990s. As per

W.T.O. , this growth was 12.5% in the

year 2000.

7. Increase in the world trade was more

than the increase in world GDP at the

rate of 5.4% in 1980s and 7.5% in

1990s.

8. Indian exports grew from US $ 32366

million in 2000 (April-Dec.) to US $

32572 million in 2001 ( April-

Dec.).Indian imports rose from US $

38242 million in 2000( April-Dec.) to(

April-Dec.) US $ 38362 million in 2001(

April-Dec.).Thus,exports showed a

growth of 0.64% and imports

0.31%.During the same period , Indian

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IT software and services exports rose

by 25% in value.

9. Export of cashew held the third

position with a contribution of 0.93%

(Rs.1882.23 crore)of the total export

earnings of India in 2000-01. 10. Bilateral trade between India and China

during January-Novembar period of 2001

amounted to 3.27 billion US $ ,up 26% over

the same period in 2000.Indian exports to

China during 2001 was 1.56 billion dollars

and China’s exports to India was 1.71 billion

dollars .

11. Following table gives the yearwise value in

indian rupees (crores) of Indian Imports and

Exports since 1950-51:

Year imports exports total value balance of trade

1950-51 581,17 606,81 1187,98 + 25,64

1960-61 1121,62 642,39 1764,01 - 479,23

1970-71 1634,20 1535,16 3169,36 - 99,04

1980-81 12,549,15 6710,71 19,259,86 - 5838,44

1986-87 20,083,53 12,566,62 32,650,15 - 7516,91

1990-91

2000-01

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As the above table shows, Indian imports and exports grew by

27 times in value from 1950-51 to 1986-87. However, imports

grew by 34 times and exports by 20 times during this period.

India had a trade deficit of 100 crore rupees in 1970-71 and

7516 crore rupees in 1986-87.Such unfavourable trade is a

cause of concern to India.

Indian exported mainly raw materials and imported

manufactured products before 1951. But, after independence,

this trend has got changed.The following 6 commodities

formed main items exported from India in 1951:

1. Cotton thread and

apparels.

2. Jute products.

3. Tea.

4. Vegetable oil and

products made from it.

5. Leather and skins.

6. Tobacco and products

made from it.

The following 6 new commodities formed main items exported

from India in 1983-84,1984-85,1985-86:

1.Precious jems and jewellery.

2.Cotton apparels , readymade garments.

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3.Tea.

4.Machines and transport equipments.

5.Iron ore.

6.Leather, leather products and shoes.

TREND: Since 1980s , Indian trade has shown a tremendous change

in its structure.Now, the items mainly exported are no more raw

materials or semi-manufactured products. The products being exported

are mainly those which have value addition through excellent Indian

craftsmanship and skill ,i.e.,jems and jewellery, readymade cotton

garments, leather products and shoes,etc.Other main export items are:

ores and engineering products.India imports certain items like Cashew

and Jems and exports these items after increasing their value through

excellent Indian craftsmanship and skill .Thus, Indian exports consist of

services ,also. Recently, Information Technology exports has become a

major item of Indian exports.

12. Following table gives the structure of world

economy in the year 2000: ECONOMIES % SHARE IN GLOBAL

OUTPUT TRADE

1.DEVELOPED 57.1 75.7

2.DEVELOPING 37.0 20.0

3.CENTRALLY PLANNED 5.9 4.3

WORLD 100.0 100.0

4. USA $ 6 other big nations 45.4 47.7

5.Asia 21.6 9.2

6.China 11.6 3.7

7.India 4.6 0.8

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9. Global economy witnessed

4.8% growth in 2000 and it weakened in 2001 mainly due to a

slow down of USA’s economy which grew at the rate of 1-2%

in the first half 2001 against 5% in 2000.The USA SLOW

DOWN hit several East and South East Asian countries

dependent on the American market for their exports of

electronics and computer products.In a 10 years’ period , the

year 2000 was the peak of growth.Industrial countries had an

average growth of 4.1% and developing countries 5.8% during

this period.IMF projected a global economic growth of 3.2% in

2001 in the hope of USA economic recovery in the second half

of 2001 and emerging of Japan out of its longest recessionary

period.Though there have been many cuts in interest rates by

US Federal Reserve Bank , yet 11th September , 2001 event of

collapsing of the World Trade Centres in Newyork by

terrorists adversely affected the whole global economy

including the American economy.The only beneficiary was

Pakistani economy which saw huge inflow of American Aid

meant to wipe out AFGHANI TALIBANS , besides

remittances by Pakistanis settled abroad anxious to avoid

getting their financial assets frozen due to any suspicion on

them by USA for their any possible role in the 11th September

2001 Tragedy! “The World Economic Situation and Prospects

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for 2002” report released by the United Nations says that the

terrorist attacks in New York and Washington caused the

lowest growth in Gross World Product ( GDP ) in a decade.The

GWP fell from decade high of 4% in 2000 to 1.3% in 2001.The

report foresees a gradual recovery in 2002 with GWP expected

to grow by 1.5% and world trade by 3%.It means limited

growth in 2002 with no growth in per capita world output for 2

consecutive years.

ADVANTAGES OF INTERNATIONAL TRADE :

1. John Stuart Mill says ,“ the benefit of international trade – a more efficient

employment of the productive forces of the world. ”

2. Mc Kinsey Study (Mc Kinsey Global Institute) 1990 identified following benefits

a. Competitiveness leads to increased real income.

b. Globalization increases productivity by improvement through introduction of

leading cutting edge technologies and stimulating competition.

c. High productivity leads to high living standards in terms of trade, capital, and ideas

from advanced countries and consequent competition.

d. The so called much hyped economies of scale/manufacturing techniques and

workers’ skill level/education are of little significance. Large differences exist

within firms in the same industry.

3.) CAUSE OF INTERNATIONAL TRADE :

International trade is carried on due to demand and supply factors involved in

goods and services produced, exchanged and consumed with reference to spatial

aspect on the earth. Countries deficit in certain goods and services import them.

Simultaneously, countries having surplus export them. This is the basic primary

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cause generating international trade. However, there are other compelling reasons,

too like the need to earn foreign exchange or repay for goods and services purchased

from other countries.

10.2 BASIC CONCEPTS 1. TRADE :

Exchange of goods, services or information. 2. TRADE BALANCE :

The part of a nation’s balance of payments that deals with merchandise (or

visible) imports or exports, including such items as foodstuffs, capital goods,

and automobiles. 3. BALANCE ON TRADE ACCOUNT :

When services and other current items are included in a nation’s balance of

payments, this measures the balance on trade account. 4. BALANCE OF INTERNATONAL PAYMENTS :

A statement showing all of a nation’s transactions with the rest of the world

for a given period. It includes purchases and sales of goods and services,

gifts, government transactions, and capital movements. 5. BARTER :

The direct exchange of one good for another without using anything as

money or as a medium of exchange. 6. OPEN ECONOMY :

An economy that engages in international trade is called an open economy. 7. FOREIGN EXCHANGE RATE :

It is the price of one currency in terms of another currency. 8. FOREIGN EXCHANE MARKET :

A market in which currencies of different countries are traded and foreign

exchange rates are determined.

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9. FLEXIBLE EXCHANGE RATES :

A system when exchange rates are completely flexible and move purely

under the influence of supply and demand. 10. FIXED EXCHANGE RATES :

A system when governments specify the rate at which their currency will be

converted into other currencies. 11. DEPRECIATION :

A fall in the price of one currency in terms of one or all other currencies. 12. APPRECIATION :

A rise in the price of a currency in terms of another currency. 13. DEVALUATION :

A situation in which a country has officially set or, “pegged” its exchange

rate relative to one or more other currencies and the pegged rate or parity is

changed by lowering the price of the currency.

14. REVALUATION :

When the pegged rate or parity is changed by raising the price of the

currency. 15. CREDIT :

If a transaction earns foreign exchange currency for the country, it is called a

credit and is recorded as a plus item. 16. DEBIT :

If a transaction makes a nation loose foreign exchange currency, it is called a

Debit and is recorded as a negative item. 17. BILATERAL TRADE :

Trade between two countries which is generally unbalanced. 18. MULTILATERAL TRADE :

Trade amongst more than two countries, which is generally beneficial.

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19. TARIFF :

It is a tax levied on imports. 20. QUOTA :

It is a limit on the quantity of imports. 21. PROHIBITIVE TARIFF :

A tariff so high that it chokes off all imports. 22. NON PROHIBITIVE TARIFF :

A tariff which is so low as to injure but not kill off trade.

23.TERMS OF TRADE: -

It is the ratio of export prices to import prices. 24. OPTIMAL TARIFF :-

The set of tariffs that maximizes domestic real incomes is called the optimal

tariff. 25. PROTECTIONISM :-

Any policy adopted by a country to protect domestic industries against

competition from import (most commonly, a tariff or quota imposed on such

imports ). 26 ECONOMIES OF SCALE :-

Increase in productivity, or decreases in average cost of production, that

arises from increasing all factors of production in the same proportion. 27. MONETARY UNION :-

Adoption of a common currency by a groups of nations ,i.e.,,”Euro” by

European countries under the maastricht Treaty of 1991. 28. GLOBALIZATION :-

Exposure of a region/country to competition with the world leader in a

particular industry.

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29. COMPETITIVENESS :-

The extent to which a nation’s goods can compete in the world market place. 30. PRODUCTIVITY :-

It is the output per unit of input. 31. REAL NET EXPORTS :-

The quantity of exports minus the quantity of imports, both measured in

constant prices. 32. OVERVALUED CURRENCY :-

A currency whose value is high relative to its long run or sustainable level. 33. IMPORT :-

Bringing in of a product, services or information on payment from a foreign

country. 34. EXPORT :-

Selling to another country on payment products, services or information. 35. FAVOURABLE TRADE :-

When Exports are more than imports. 36. UNFAVOURABLE TRADE :-

When Exports are less than imports.

10.3 FACTORS INFLUENCING THE INTERNATIONAL TRADE :

A combination of different GEOGRAPHICAL AND NON- GEOGRAPHICAL factors Influence international trade. These factors may act as encouraging or discouraging one from time to time and may vary in degree of importance spatially.GEOGRAPHICAL FACTORS SHOW PRIMACY IN THE SHORT RUN.HOWEVER, NON-GEOGRAPHICAL FACTORS BECOME MOST IMPORTANT IN THE LONG RUN.

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International trade is totally dependent on transport Network or systems. Without

transportation , no movement or flow of goods and services can take place. 2 important

theories/ models have been advanced to explain this flow of goods and services system or

transport network:

1. FLOW THEORY :

E.L.Ullman has identified 3 basic factors influencing interaction between

regions: Complementarily, intervening opportunity and transferability.

(a) COMPLIMENTARITY :

First, there has to be a demand in one region that can be met from other region.

Secondly, the area of demand must be able to pay for the supply of goods and services to

generate a two- way movement of the same. This demand and supply region develops a

complimentary relationship. Earlier, tropical regions would supply primary goods to

temperate regions in exchange for manufactured goods. Regional specialization

strengthens complimentarity. Of course, buyers and sellers may have alternative options.

So, it’s just one of the factors.

(b) INTERVENING OPPORTUNITIES :

With the development of synthetic rubber, interaction between tropics and temperate

regions has decreased due to decrease in demand for natural rubber. Likewise, depletion

of lake superior iron ore deposits has resulted in the use of South American and African

ores in the U.S.A. Thus, the principle of intervening opportunity in economic context,

determines/influences international trade.

(c) TRANSFERABILITY :

Interaction between complimentary regions can take place only if the

products/services/informations are transferable. Transferability decreases as economic

distance increases and any intervening opportunity will be taken , if it reduces this

distance. Transferability changes from time to time since intervening opportunity and

economic distance are not constants.

To quote KNOWLES & WAREING in “ Economic and Social Geography”,

“ The development of transport systems must be seen as a process in which

complementarity operating to encourage movement between regions, is balanced

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against intervening opportunity and transferability, which operate to discourage

movement.”

2. GRAVITY MODEL :

Applying gravity model, one may conclude that the amount of economic

interaction/international trade depends on the product of the economic size (purchasing

power) of the two regions divided by the result of the economic distance between them.

Or in other words, it’s the operation of distance decay theory, meaning that the

interaction decreases with increasing economic distance.

3. NETWORK REVOLUTION :

The network revolution that began in the great age of discovery in Europe

influenced international trade. Europeans were originally marginalised due to fall of

Constantinople to the Turks in 1453 and the venetian monopoly of eastern trade.

However ,during the renaissance period, revival of Greek ideas of a spherical earth,

navigational aides like compass, improvements in ship design encouraged the search

for alternative routes to bypass the Mediterranean. Discovery of India in 1498,

America in 1492, China in 1513 through sea and Magellan’s expedition around the

world in 1519-22 changed Europe’s position from relative isolation to being centre

of the world trade.

New patterns of trade emerged. Trade Winds helped trade leading to development

of a triangular or quadrangular Atlantic trade in manufacturing goods from Britain

to West Africa in exchange for slaves to the West Indies or American Colonies in

Exchange for sugar, rum, Cotton & Tobacco back to Britain. Cargo changed,also .

Tea, Sugar & Tobacco entered World Trade, yet it was essentially in high value low

bulk goods.

4. THE CARGO REVOLUTION:

The process of industrialization using steam power and mechanical methods of

manufacturing to increase production, creating a demand for large quantities of

raw materials and a supply of manufactured goods caused cargo revolution leading

to the large scale transfer of bulk cargoes. Increased complimentarity ,growing

population ,increased urbanization ,high demand for food staffs leading to new

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methods of finance like extension of credit by the new commercial banks, free trade

philosophy ,improved methods of transport, settling of Europeans in Americas and

Australia, creating new sources of supply and demand ; the scramble for Africa in later

19th century led to a search for materials and market. All this influenced nature and

structure of World Trade.

5. WARS AND ECONOMIC SCENARIOS: Wars and prevailing economic scenario influenced world ,too, i.e, two world wars and the

great depression of the 1930’s have greatly changed the structure and direction of world

trade especially since 1945.

6. POPULATION GROWTH :-

Growth in population since 1945 especially great “baby boom” of 1950s has greatly

stimulated demand for international products services and information.

7. EMERGENCE OF ECONOMIC BLOCKS :-

Emergence of syndicates or blocks amongst countries influences world trade.

Generally, countries of a block encourage trade amongst its members only and

discourage trading activities with outsiders by way of reduced and increased tariffs

respectively.

8. DIVERSITY IN NATURAL RESOURCES :-

Noted economist Samuelson Nordhams says ,

“ Trade may take place because of the diversity in productive possibilities among

countries”.

These productive possibilities in part reflect endowment of natural resources ,i.e.,

Saudi Arabia is blessed with Petroleum, whereas India has a fertile land producing

enough food grains to spare for trade.

To quote Knowles & Wareing,

“Trade arises mainly from regional economic difference and serves to balance

production and consumption by moving goods and services from areas of surplus to

areas of deficiency”.

9. DIFFERENCES IN TASTES :-

Even if conditions of production were identical in all regions , countries might still

engage in trade if their tastes for goods were different , i.e , Indians and Pakistanis

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produce sugar and movies. But ,lets say Indians have fondness for sugar more than

cotton and Pakistanis for movies than the sugar. In such a situation both can

maximise happiness by mutually exchanging sugar and movies.

10. ECONOMIES OF SCALE OR THE DECREASING COSTS :-

To quote Samuelson Nordhaus (Economics) ,

“Perhaps the most important reason for trade is difference among countries in

production costs”.

The economies of scale gives a country high volume- low cost products in the areas of its

cumulative acqusitions advantages of a headstart. It gives it a comparative advantage

over the other country in terms of cost effectiveness. Thus, David Ricardo’s (1817) law

of comparative advantages comes into play. This factor influences trade.

11. FOREIGN EXHANGE REGIME :-

If the exchange rate of a currency goes higher relative to other currencies , it

encourages imports by making them cheaper & discourages exports by making

them costly to buyers abroad. Reverse happens with a decrease in the value of a

currency, i.e,depreciation or devaluation. This factor affects the composition of the

trade, its structure and flow of commodities , services and information.

10.4 STRUCTURE OF INTERNATIONAL TRADE

Structure of International trade can be approached from 2 perspectives:

1. Volume of Trade

2. Composition of commodity flows

1. Volume of trade :

a) World trade has been growing at a rate of 8% per annum since 1950. It has

increased almost 50 times since 1938 ,i.e. ,to 1,988005 million US $ (1980)

from US $ 22,700 millions (in 1938). Its still 6 fold increase after allowing for

currency inflation.

b) Period since 1945 has seen rapid economic growth.

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c) Despite destruction of productive capacities of much of Europe, USSR &

Japan in 2 world wars, these regions have witnessed rapid economic growth at

a level higher than 1938s due to economic upsurge sweeping all advanced

economies.

d) There is a reduction in Tariff barrier since 1945.

e) High population growth, increased standard of living and enhanced

demand for materialistic comforts has stimulated volumes.

f) Increase in volumes of trade is not uniform.

Following chart shows it :

% SHARE OF WORLD TRADE

Countries/Economics 1938 1972 1980 2000

Developed 69.6 - 75.1 75.7

Developing 23.0 - 12.3

OPEC - 6.6 14.9

20.00

Centrally paired 7.4 - 8.9 4.3

World 100.00 100.00 100.00

2. COMPOSITION:

1938 1980 2000

Primary 50% 33%

Secondary 46% 63%

Tertiary and Others 4% 4%

100% 100% 100%

b) The above table shows decreasing importance of primary products in the world trade.

Type of commodity has changed. In 1980, Wool, Rubber, Fruit dropped out from

top 20 commodities. Tin, Lead, Zinc have increased in importance. Petroleum has

constituted 50% of total tonnage of the world trade since 1960.

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Primary reasons for decrease in the importance of primary products are:

1.Development of synthetic for rubber silk and cotton.

2.Application of scientific methods to agriculture in the developed countries

increasing their primary production.

3.Population increase in food exporting countries leading to less availability of

surplus food for trade.

4.Protection of agriculture by tariffs on imports despite the GATT (1947).

5.Decreased irrigation in agricultural sector in developed countries due

to comparatively higher price of water diversion for irrigation leading to a drop in the

agricultural products.

3. TRENDS/DIRECTION:

A. Direction of commodity flows from the pattern established in the 19th

century has changed. Earlier in the 19th century, manufactured goods from

developed countries were exchanged for the food stuffs and raw materials

from the less developed countries.

To quote KNOWLES &WAREING (Economic & Social Geography),

“Now most trade is in manufactured goods between developed

countries and 60% of trade takes place between 2 leading areas,

Anglo-America and Western Europe, although there are important

traders such as Japan elsewhere.”

B. Britain,s share of exports has declined, especially to Latin America,

Commonwealth countries like Australia and New Zealand. This has

reduced London’s role as the hub of trade.

C. Other exporters have developed to fill up the gap left by Britain’s ouster :

1. USA is now the world’s leading exporter with extensive markets in

Europe, Japan & Canada.

2. Germany has been able to increase its exports due to removal of tariff

barriers in the EEC.

3. Japan has carried out aggressive policies in USA & Europe.

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4. Asian Dragons are a force to reckon with.

D. Trade has increased between Erstwhile USSR & its European allies/satellites with

smaller increases to Western Europe and developing countries.

E. There is a small increase in the trade of a few small number of primary products,

largely restricted to minerals.

F. Role of the 3rd world countries has decreased due to developing economies

increasingly trading among themselves.

G. Formation of several duty free areas made up of several countries too has altered

the direction of trade . Following are some of the most important trading blocs

mentioned against their year of formation:

i. 1957 – EEC

ii. 1959 – European free trade Area (EFTA)

iii. 1959 – Central American Common Market (CAMT)

iv. 1960 – Latin American free trade Association (LAFTA)

v. 1960 - Organisation of Petroleum Exporting Countries (OPEC)

These areas/unions increase trade between members, restrict trade between

members and non-members and encourage trade between non-members ,i.e.,

Britain’s entry into the EEC in 1972 increased its food imports from Europe and

decreased the same from traditional suppliers like New Zealand. New Zealand in

turn directed its exports to new markets like Japan.

H. To quote KNOWLES & WAREING, “Flows of international trade are therefore

large and complex and are constantly growing and changing and this is reflected

in the complex transport networks that have been built to make these exchanges

possible.”

10.5 PROBLEMS OF INTERNATIONAL TRADE : Following are the problems related to International trade :

1. PAST 2. PRESENT 3. FUTURE

Despite temporal or time veriation aspect, most of these problems remain the same

whether we study contemporary international trade, past trade or the future trade.

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PROBLEMS :

1.Imbalance in the volume of trade amongst countries.

2.Imbalance in terms of composition of commodity flows.

3.Imbalance in terms of direction of commodity flows.

4.Prohibitions, restrictions.

5.High import tariff rates /protection.

6.Foreign Exchange Problem.

7.Balance of International payments.

8.Non-Tariff Barriers.

9.Subsidies to domestic production areas like agriculture.

10. Wars and bad diplomatic ties amongst countries.

1.Foreign Exchange Rate Problem.

To avoid a repetition of the Great Depression of 1929,the noted

economist John Maynard Keynes & others made conceted efforts. Their efforts led

to the setting up of Bretton Woods system(1944) at New Hampshire. Under this

system, each currency was linked to Gold or Dollar terms or both. Later on,

International Monetary Fund (IMF) was established as a central bank to solve the

problem of Balance of payments faced by member nation states so as to mitigate

/discourage inflation and attendant problems. It administers International

monetary system. The World Bank was established to finance economically sound

projects & it disbursed loans worth US $ 21 billion in 1996. However, Presently,

Hybrid System is in vogue which consists of

1.Free floating currencies

2.Managed but flexible currencies

3.Pegging to basket currencies (gliding /crawling peg)

4.Currency-bloc currencies

5.Intervention by countries.

2.Balance of Payment Crisis :

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India had to face this crisis in 1990 when it had to mortgage to London 250 tonne of

Gold!

PROBLEMS OF INTERNATIONAL TRADE

OR

THE FACTORS INFLUENCING INTERNATIONAL TRADE

1.INTRODUCTION :-

International trade has faced several problems in the past. It is facing problems

even presently. It shall continue facing one or the other problem in future ,too,

Thus,problems are a part and parcel of international trade.

2) PROBLEMS :-

Problems of international trade can broadly be classified in the following two categories:

i.) General ii) special or immediate

i) GENERAL :-

These problems generally exist at all points of time in varying degrees of

importance. These may be summarised as follows:

1) HISTORICAL:

Historicity acts as a problem, sometimes. For example, African countries over a fairly

long period of history have been drained of their precious human resources by

European countries. Consequently, Agricultural and other developments in Africa

suffered. Comparatively, European countries with their historical stock of financial,

technological and other resources experienced a higher stage of economic growth and

came to dictate terms of trade in the international market. This has created problems

for smaller and less developed countries of Africa which can’t compete on an equal

footing with European Nations due to later’s superiority in technology, management,

finances, etc.

2) POLITICAL:

World politics creates problems ,too. For example, the creation of trade blocks

encourages trade amongst member countries and discourages trade with non members

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countries. European Nations (EU), a trade block comprising of 15 European nations,

experiences intratrade to the tune 61% and only 39% of its trade takes place with non

member countries.The following table gives a clear idea about % of intra -block

exports(exports within the block members)as in 2000 A.D.:

TRADE BLOCKS PERCENTAGE OF INTRA-BLOCK EXPORTS

NAFTA 52.0

ASEAN 20.6

SAARC 4.5

In world politics, enemy nation state tries to protect its enlightened national self

interests through various means like diplomacy, war, negotiations, trade restrictions,

high import tariff rates, etc. This creates problems. For example, World War I and II

adversely affected world trade from 1919 to1950. On the other hand, existence of peace

encourages international trade, because traders are able to carry out trade activities

without fearing any losses due to war or armed clashes.

3) ECONOMIC: -

Certain economic factors create problems . For example ,poor means of transportation

and communication; poor demand and supply of goods, services and information;

recession; lack of goodwill in the market; poor financial conditions; Lack of foreign

exchange resources to pay for imports, fluctuation in the foreign currency exchange

rates, Economic Distance, existence of same selling price of a product, etc. we can get

an idea of the significance of this factor by discussing the impact of recession on

trade. During recession , supply outstrips the demand leading to a piling up of a huge

inventory/stocks. This causes loss of employment because manufacturers try to cut

down on costs by retrenching the workers on all levels. This triggers a chain reaction

by restricting the purchasing power of the general public, which in turn causes a drop

in the demand for products whether indigenously manufactured or imported from

outside. This drop in the demand causes a drop in the volume and value of

international trade, because no one would like to incur losses by trading in products

which have no demand! Great Depression of 1929 in U.S.A is a classic example.

Even as recently as 2001, South Asian and East Asian Countries supplying computers

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related products to U.S.A could not do much trading of these items due to a poor

demand in U.S.A owing to a slow down of U.S.A domestic economy.

4) GEOGRAPHICAL / PHYSICAL :-

Physical or natural factors like geographical location, relief features, climate, soil, etc.

hampers trade, too. For example, Nepal, Bhutan, Mangolia and Afghanistan are land

locked countries with no direct access to cheap sea routes. Consequently, these

nations have to incurr heavy transportation costs in moving their cargoes through

land routes of neighbouring countries for further onward shipping through seas!

Alternatively, transportation by air becomes costly, thereby reducing their

competitiveness in international markets. This in turn may sometimes discourage

them from undertaking trade activities on an international trade.

5) CULTURAL :-

Cultural factors like race, religion, caste, creed, language, etc. may hinder

international trade. For example, in medieval India, it was forbidden and considered

a sin to travel across the seas to other lands inhabited by the so-called “Malechhas”.

Consequently, Indians could not take advantage of contemporary international trade.

Whereas foreigners like Arabs and Europeans with no such social / religious

restrictions indulged in international trade and reaped the benefits. Islam enjoins upon

its practitioners to travel far and wide. Consequently, Arabian Muslims travelled far

and wide which encouraged trading activities in the Middle East and other Muslim

dominated regions. Till the beginning of Renaissance in Europe, the church

discouraged international trade indirectly by disapproving material comforts of life.

One can’t trade in pork with Muslim countries and in beef with Hindu country like

Nepal because pork and beef eating are forbidden in their respective

religions/regions.

6) TECHNOLOGICAL :

Non-availability of appropriate scientific and technological aides hampers

international trade, too. For example, it was only after the introduction of

freezing/cold storage facilities aboard ships that beef could be exported to

European countries from Argentina. Highly perishable and delicate items

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require a high degree of sophistication in packing and handling.Availability of

such facilities has made it possible to export to the gulf countries from

Maharashtra in India the highly perishable items like grapes and “Hapus

Mangoes” by air.

7) NATURAL HAZARDS:

Sometimes, natural hazards block the carrying out of trade

Activities. The Great Bubonic plague of 1348 wiped out a large

number of European population leaving little scope for

international trade to prosper due to reduced demand for products.

Famines and Epidermic cause vast devastation and loss of life,

thereby reducing the population having requisite purchasing

power. Low purchasing power and a lower number of people mean

a lower demand for goods, services and information.

(ii) SPECIAL OR IMMEDIATE FACTOR:

Although the general factors mentioned above go on affecting international trade all

the time in varying degree, yet their impact may not vary dramatically. From the point

of view of the present time, it is the immediate factor which makes the most powerful

impact on international trade. This special or immediate factor varies from time to

time. For example, the division of the world into communist and capitalist blocks

during cold war era was the most important factor which inhibited the growth of trade

amongst countries of these two blocks. This factor has lost its importance with the

disintegration of the erstwhile USSR and the emergence of U.S.A. as the global super

power. The year 2001 saw the emergence of threats by international terrorism as the

immediate factor, which hampered the recovery of U.S.A. and the global economy

and consequently the international trade. The collapse of the “North” and “South

Towers” of World Trade Center (WTC) at New York on 11th September 2001 by

terrorists through hijacked aeroplanes caused a loss of thousand of billions US

Dollars in terms of economic growth and trade by sending the whole global economy

into a panic, because WTC was the nerve centre of the World Financial Market.

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10.6 PROSPECTS OF INTERNATIONAL TRADE: 1. Taking into consideration contemporary development in the world, it seems

reasonably well to see bright prospects on the horizon for international trade, since the

world is inching towards integrated global dynamic spatial economy by slowly removing

tariff barriers in the direction of a perfectly balanced world economic landscape.

2. The period from 1950 to 2000 has witnessed a mixed picture, with some successes and

some failures. However, an overall impartial assessment would show that international

trade has grown faster than output for every major country.

Having learned the dangers of protectionism in the 1930’s ,nations have now joined

together in multinational trade treaties and agreements to overcome the temptation to

impose trade restrictions, i.e. ,1993 Uruguay round which extended the principle of free

and open trade to new sectors and new nations.

3. MAASTRIHT TREATY (1991) which usheredd in “Euro ” currency and the resultant

1992 crisis have shown that :-

A country can’t have simultaneously :-

1. a fixed but adjustable exchange rate.

2. Open capital market.

3. Independent domestic monetary policy.

10.7 DAVID RICARD’S CLASSICAL THEORY

1. INTRODUCTION :

David Ricardo, the British Economist in 1817 gave the law of comparative

advantages. This law shows that international specialization benefits a nation. In

other words, international trade benefits all trading nations.

2. BACKGROUND :

Around 1800, questions were raised whether nations should import nothing and

‘protect’ their markets with tariffs or quotas. For example, will America import

nothing if its labour (or resources) is absolutely more productive than European

Labour? Is it economically wise for Europe to “protect” its markets with tariffs or

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quotas? David Ricardo answered these questions by his classical theory of

comparative advantages.

3. EXPLANATIONS :

David Ricardo considered two types of advantages :

i. Absolute

ii. Comparative

For simplicity, he took two regions and only two goods. He chose to measure all

production costs in terms of labour-hours. He analysed food and clothing for

Europe and America.

In America, it takes 1 hour of labour to produce a unit of food and 2 hours of

labour to produce a unit of clothing. In Europe, it takes 4 hours of labours to

produce a unit of food and 3 hours of labour to produce a unit of clothing.

Clearly, America has absolute advantage in both goods, because it takes less time to

produce these in America compared to in Europe. However, America has comparative

advantage in food compared to clothing because it takes less time to produce food than

the clothing. Europe has comparative advantage in clothing, because it takes less time to

produce clothing than the food. From these facts, Ricardo proved that both regions will

benefit, if they specialize in their areas of comparative advantage, i.e., if America

specializes in the production of food and Europe specializes in the production of clothing.

Thus, America will export food to pay for European clothing and Europe will export

clothing to pay for American food.

American and European Labour Requirements for Production

Necessary Labour for production

(labour-hours)

Product In America In Europe

1 unit of food 1 4

1 unit of clothing 2 3

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Comparative Advantages Depends only on Relative Costs. In a hypothetical example,

America has lower labour costs in both food and clothing. American Labour productivity

is between 1½ and 4 times Europe’s (1½ times in clothing and 4 times in food).

Now, there are two situations :

i. Before trade

ii. After trade

i. Before trade : The real wage of the American worker for an hour’s work is 1

unit of food or 1/2 unit of clothing. The real wage of the European worker for an

hour’s work is 1/4 unit of food and 1/3 unit of clothing per hour work. With

perfect competition, in America clothing will be 2 times as expensive as food

,because it takes twice as much labour to produce a unit of clothing as it does to

produce a unit of food. In Europe, clothing will be only 3/4ths as expensive as

food.

ii. After trade : After trade, the relative prices of food and clothing must be

somewhere between the European Price Ratio (4/3 = food to clothing ratio) and

the American Price Ratio (1/2 = food to clothing ratio) which is assumed to be

2/3. So, 2 units of clothing trade for 3 units of food, because it takes more hours

to produce clothing than food (i.e. 3 hours) : In one hour, only 1/2 unit of food is

available. In one hour, only 1/3 unit of clothing is available. 1 unit of clothing is

completed in three hours as follows :

1/3 +1/3+1/3=3/3 = 1 unit

In three hours, following unit of food is ready =

1/2+1/2+1/2=3/2 units

Thus, to get 1 unit of clothing prepared in 3 hours ,the other one has to give 3 hours of

food which is 3/2 units of food. Or to get 2 units of clothing , 2 times the 3/2 units of food

have to be exchanged. Therefore

3/2 * 2 = 3 units of food

2 units of clothing = 3 units of food

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ECONOMIC GAINS FROM TRADE:

Initially American worker was required to work for 3 hours and European 7 hours to get

one unit each of food and clothing.

After opening of trade, the American has still to produce food (within 1 hour) and has to

work for another 1 ½ hour to get a unit of clothing (assuming that price of food is $2 per

unit and $3 for clothing per unit) Thus, he has to work only for 2 ½ work, thereby

saving ½ hour or gaining real wage by 20%. Similarly, European worker has still to work

for 3 hours to produce one unit of clothing. However, he has to work to get one unit of

food. Since food cost is $ 2 and his each hour’s work is equal to $ 1, he has to work for

another 2 hours. Thus, he has to work only for 3+2=5 hours, thereby saving 2 hours. It

means an increase of 40% in the real wages.

Then workers and consumers can obtain a large quantity of consumer goods for the same

amount of work, when they specialize in the areas of comparative advantage and trade

their own production for goods in which they have relative disadvantage.

4. IMPORTANCE :

This theory can be applied to trade between and amongst countries. When countries

produce products in which they have comparative advantage, then they are better off.

Free trade allows the world to move to its production – possibility frontier as shown

below :

Bilateral, multilateral trade in numerous

the law of comparative advantages. Bila

Production Possibility Frontier

Food

E

Before Trade

X

Clothing

500

After Trade

500

ndiapuneshersinghparmar

commodities benefit from operation of

teral balancing of trade leads to severely

Z

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reduced economic gains. Trade between a single country and “the rest of the

world” stands to gain numerous benefits for its operators.

Following Figure shows it:

Or

Following example:

India ‘s Pakistan’s

Comparative wheat engineering products sugar Comparative

Advantage Advantage

5. CRITICISM :

i. Positive : It clearly shows the importance/significance/advantages of

International trade. Other sectors will gain more than the injured sectors

will lose. Over long periods of time, those displaced from low-wage

sectors will move towards higher-wage jobs.

ii. Negative :

a)Classical assumption : Classical assumption of a smoothly working

competitive economy with flexible prices and wages and voluntary

unemployment is quite wrong. Imports may lead to unemployment of

workers in that particular sector due to cheaper imports compared to

domestic products.Overvalued foreign exchange rate may reduce demand

Consumer Electronics Machinery

Developing Countries

Japan

America

Oil

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for workers who may not find comparable jobs in other sectors. Nation

may be pushed inside its PPF with rising unemployment and falling GDP.

1930s depression led to Tariff walls inU.S.A.

To quote Samuelson Nordhaus (in Economics),

“The classical theory of comparative advantage is strictly valid only

when exchange rates, prices, and wages are at appropriate levels and

when macro economic policies banish major business cycles and trade

dislocations from the economic scene.”

c) Income distribution : People, sectors or factors of production or regions

may get harmed due to substitution of people, sectors or factors of high

income countries by low-wage developing countries or regions. This

leads to loss of wages in the receiving country due to availability of cheap

foreign products rendering local labour or factors incompetitive.

d) Those who are temporarily injured by international trade are genuinely

harmed and are vocal advocates for protection and trade barriers.

6. CONCLUSION:

To quote Samuelson Nordhaus,

“Notwithstanding its limitations, the theory of comparative advantage is one

of the deepest truths in all economics. Nations that disregard comparative

advantage pay a heavy price in terms of their living standards and economic

growth.”

“Petition of the Candle Makers,”Written by French economist/Satarist Frederic

Bastat aptly sums up the whole truth of comparative advantage and protectionism

in the following paragraph,

“To the chamber of Deputies:We are subject to the intolerable competition of a

foreign rival, who enjoys such superior facilities for the production of light that

he can inundate our national market at reduced price. This rival is no other than

the sun. Our petition is to pass a law shutting up all windows, openings, and

fissures through which the light of the sun is used to penetrate our dwellings, to

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the prejudice of the profitable manufacture we have been enabled to bestow on

the country.

Signed : The Candle Makers,”

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