Industrialization and Economic Development

Lecture NotesChapter 11

• Industrialization – The growth of manufacturing

activity in an economy or a region

– Usually accompanied by a decrease in the number of subsistence farmers in a country or region as they leave the agricultural sector in favor of manufacturing jobs

• Economy– The system of production,

consumption, and distribution in a region

Major Economic Classifications

• Primary Sector- the part of the economy in which activities revolve around getting raw materials from the Earth– 75% of LDC

Major Economic Classifications• Secondary Sector- deals with

processing raw materials into finished products with greater value– Factories or Manufacturing

Major Economic Classifications• Tertiary Sector- services are those

that move, sell and trade the products made in primary and secondary activities– Also involve professional services

Major Economic Classifications• Quaternary Sector- involves

information creation and transfer– Assemble, distribute, process information– Manage businesses– University researchers/professors, Doctors,

Scientists, Investment analysts.

Explaining and Predicting Industrial Locations

• Alfred Weber’s Least Cost Theory of Industrial Location– Wanted to predict and explain where factories

would choose to locate and grow– Called Least Cost Theory because it predicted

where industries would locate based on the places that would be lowest cost to them

– Industries used to criteria: • 1. The distance of transportation to the market• 2. The weight of the goods being transported

Material (per case)

Rail Transport Cost

Road Transport Cost

Hops & Grain $.10/mile $.11/mile

Spring Water $.05/mile $.03/mile

Bottled Beer $.25/mile $.27/mile

Assumptions in Weber’s Model• The heavier the good and/or the farther the

distance, the more expensive it is to ship• Industries are competitive and aim to

minimize their costs and maximize their profits

• Markets are in fixed locations• Labor exists only in certain places• Assumes a uniform landscape with equal

transportation paths and routs throughout the space (no mountains, lakes, rivers)

Critics of Weber’s Model

• Weber’s theory does not identify the fact that markets and labor are often mobile and that the labor force varies in age, skill sets, gender, language and other traits

• Some transportation costs, unlike in his model, are not directly proportional to distance

Concepts related to Least Cost Theory

• Early factories also had to consider their proximity to raw materials

• Spatial-variable costs- costs that change depending on the factories location– Example- Fish (perishable) packing factory

would be built as close to the boats to eliminate the cost of transporting to the factory

Weight Gaining vs. Weight Losing Industries

• Weight Gaining Processes take raw materials and create a heavier final product– Beverage bottling- take the

liquid and fill into glass, aluminum, tin….

– Factories are usually built near the marketplace because the product is heavy to transport in its final form

– “Market Orientation”

• Weight Losing Processes are those manufacturing processes that take raw materials and convert them into a product that is lighter than the original raw materials.– Paper production- paper mills

are located near forests, trees convert to paper which is lighter and can be shipped long distances

– “Material Orientation”

Footloose Industries

• Industries which are not restricted in where they can locate because of transportation costs

• Spatially Fixed Costs- industries which maintain the same cost of transportation regardless of location– Often produce lightweight products which

have extreme value– Ex) computer chips

Agglomeration

• Occurs when industries clump together in the same geographic space

• Factories that are in the same area can share costs associated with resources, such as, electrical lines, roads, pollution controls

• Agglomeration Economies occur when the positive effects of agglomeration result in the lower price for consumers

• Example- High Tech Corridors such as Silicon Valley, California or Austin,Texas

Deglomeration

• The “unclumping” of factories because of the negative effects and higher costs associated with industrial overcrowding

• Occurs when agglomerations become too congested and cause extensive pollution, traffic congestion, strained resources, strained labor

Core-Periphery Model• States tat the world’s counties are divided into three groups• 1. the Core consists of industrialized countries with the highest

per capita incomes and standards of living– US, Canada, Australia, Japan, Western European countries

• 2. The Semi-periphery consists of countries that are newly industrialized and have not yet caught up to core countries in the level of development or standards of living– Brazil, India, China

• 3. The Periphery consists of LDCs with the low levels of industrialization, infrastructure, per capital income and standards of living– Most African countries (not South Africa), Parts of Asia, Parts of South

America

Wallerstein’s World System Analysis

• Looks at the world as a capitalistic system of interlocking states connected through economic and political competition

• Linked to the core-periphery model because it assets that the unequal positions of countries grew out of early exploration and colonization

• Argues that colonization led to economic and political interactions among different regions in the world and the inequalities that resulted from the domination and exploitation be core countries of the semi peripheral and peripheral countries

• Theorized that the global core, semi periphery and periphery grew out of the competitive interactions among different countries

Rostow Modernization Model

• Tried to explain and predict countries; patterns of economic development

• Model consists of five stages

• MDCs exists in stage 4 and 5

• LDCs exists in stage 1, 2 and 3

• Once a country starts building factories (investing in capital) it will begin to develop

Critics of Rostow’s Model

• Based on projections on patterns of western European and Anglo-American countries

• Does not consider structural issues that might limit a country’s ability to develop

• Considers each country as independent rather than one piece of interlocking system of countries

• Stage 5 assumes that higher economic productivity leads to high mass consumption of goods and services.

Approaches to improving Economic Development

• Self Sufficiency Approach– Pushes LDCs to provide for

their own people, independent of foreign aid

– LDCs should spread investments and development equally across all sectors of its economy

– LDCs should limit and heavily tax imports

– Critics argue that the approach stifle competition, which decreases efficiency and innovation

International Trade (Export-Oriented) Approach

• This approach pushes LDCs to identify what it can offer the world and then direct investments toward building that industry

• A country has a “comparative advantage” when it is better at producing one product than other countries

Structural Approach

• The movement to improve socioeconomic development in LDCs involves supranational organizations like the World Bank and the International Monetary Fund that regulate international trade and supply money to LDCs

• Structural Adjustments are requirements attached to a loan from a lending agency that force the country receiving the loan to make economic changes in order to use the loan– Increase privatization, sell public industries, become

more market oriented

Non Governmental Organizations

• Charities and private organizations that provide money, supplies and resources to LDCs

Globalization

• Term used to describe the increasing sense of interconnectedness and spatial interactions among governments, cultures, and economies

Multinational Corporation• Businesses with headquarters in one country and

production facilities in one or more other countries• “Transnational Corporations”• Primary agents of globalization• Conglomerate Corporations- that one massive

corporation owns and operates a collection of smaller companies that provide it with specific services– Coca-Cola might own the

bottling company and the food coloring company

Outsourcing

• Practice of a Multinational Corporation relocating a piece or all of its manufacturing operations to a facility in another country

• Idea is to take advantage of low labor costs, low tax rates, cheaper land prices– Nike headquarters is in the USA but

their shoes are made in factories through Asia

– Even though transportation costs are higher they make more money with the savings of outsourcing

Asian Tigers• Taiwan, Singapore, South Korea, and Hong Kong• Development of high tech products made in these

countries led to rapid economic growth in late 20th century

• The Pacific Rim Economic Region is Taiwan, Singapore, South Korea, Hong Kong, China and Japan

US Corporations

Special Economic Zones• Regions that offer special tax breaks,

eased environmental restrictions, and other incentives to attract foreign business.

Export Processing Zones• Regions that offer tax breaks and

loosened labor restrictions in LDCs to attract export driven production processes– Often referred to as Free Trade Zones

Maquiladoras Zones• Economic zones on the Mexican-USA

border• Multinational corporation outsource labor

to these maquiladoras, taking advantage of low labor costs

• Due to NAFTA, the goods are shipped to the US tariff free

Free Trade vs. Fair Trade• Free trade is the concept

allowing Multinational corporations to outsource without any regulation except for the basic forces of market capitalism

• Fair Trade involves oversight of foreign direct investment and outsourcing to ensure that workers throughout the world are guaranteed a living wage for their work– Critics argue that

women are the most exploited for their work and pay

Globalization and the Environment

• Sustainable Development- the rate of growth and resource consumption that can be maintained from one generation to another

Ecotourism• Tourist operations that aim to do as little

harm to the environment as possible– Instead of tearing down a forest to build a

theme park, they incorporate the forest into the park

– Instead of tearing down the Sugarmill, they retool it into a shopping and movie area