Download Analyzing Economical Geography

AP Human Geography
Analyzing Economical
Geography
Parts taken from the 2012 AP Princeton Review Human
Geography
Sectors of Production
 The economy can be divided into several different
categories known as sectors
 Can be grouped by its stage in the production process,
from primary production onwards
 Three to five categories
 Can be grouped by the types of products or services they
create
Sector Categories by Stage of
Production



Primary production

Agriculture, mining, energy, forestry, and fisheries

Extraction of natural resources from the earth
Secondary production

The processing of raw materials drawn from the primary sector

Secondary productions reflect all forms of manufacturing
Tertiary production

Transportation, wholesaling, and retailing of finished goods to consumers

Can include other types of services that could be categorized as quaternary or quinary

Quaternary and quinary are categorized as services in the tertiary sector


Quaternary production

Wholesaling, finance, banking, insurance, real estate, advertising, and marketing

“business services”
Quinary production

Retailing, tourism, entertainment, communications, government, or semi-public services such as health,
education, and utilities

“Consumer services”
Agriculture
 Economically, the combined cash value of what is
produced is measured
 Not the volume or weight of the goods
 In less developed portions of the world, subsistence
agriculture is very common, with agriculture supporting
the family and local people
 In more developed countries, farming is most commonly
done on a commercial basis
Commodity Chain
 Exist from the small-scale, family-based producers selling
directly from the farm or through farmers’ markets to
transnational supply networks selling to an international
base
Natural Resources
 Mining and energy extraction can be valuable depending on
the global commodity prices
 Oil based economies can rise and crash with radical price
changes
 Price volatility is difficult for both producers and consumers
 Fisheries and timber markets are not as volatile, but have
increased in price and value over the years to reduced supply
 Due to increasingly protected natural resources, companies
must use more technology and larger processing facilities to
remain profitable and meet growing consumer demand
Renewability
 Resources can be classified by their renewability
 Minerals and fossil fuels are nonrenewable


The earth cannot reproduce them
Some mineral products can be recycled

In some cases, it is cheaper to buy scrap metal to recycle than to mine
new metal
 With the exception of hydroelectricity, alternative energy sources as
often much more expensive to harness than fossil fuels

This makes them less common
 Alternative energy is used to shift energy usage away from
nonrenewable resources
Sustainability
 Fisheries and forestry involve renewable resources
 We rely on the sustainable use of the resource
 Fish cannot be overfished, and forests cannot be cut
without replanting
 Using large nets for fishing and clear cutting of forests are
not sustainable practices
Manufacturing

Factory-made products far out-value agricultural based products

Manufactured goods are farm products and natural resources that have been taken through value-added processing

The more complex and technology-driven the manufacturing is, the more expensive the final product is


Manufacturing can be divided into several groups

Durable- goods that are intended for use of more than a year



The utility and demand of the product can influence value
Greater value and represent a more lucrative form of production
Nondurable- goods that are intended for use of less than a year
Can also be divided by product type

Resource processing- oil refineries, metals, plastics, chemicals, lumber, paper, food and beverage, concrete and cement, glass

Textiles- clothing, shoes and leather products, artificial fibers and thread

Furniture- home, office, bedding

Appliances- home appliances, commercial equipment, power tools, lighting

Transport- automotive, rail, aerospace, shipbuilding, recreational vehicles,

Health- pharmaceuticals, medical devices, personal care products

Technology- computers and laptops, servers, industrial control devices, phones, television and audio entertainment
Services

Intangible products

Most valuable form of economic production


Low-benefit services are sectors where the labor force tends to be hourly employees who
receive few if any additional work benefits



Not all services are valued equally
EX: hotel and food services, retail, customer services, contract agricultural labor, and
construction
High-benefit services are sectors in which pay tends to be salaried and include additional
work benefits including health, dental, vision, vacation, sick days, etc…

Benefits are provided by other high-benefit service industries such as insurance companies

EX: business services, health care, government, and education
Service sectors organized by type of firm

Retailing, labor and workforce services, hospitality, government, education, transportation and
delivery services, environmental, construction, engineering, utilities, media, advertising and
marketing, medical and health care, finance and banking, insurance, real estate, accounting,
legal services, computer, and research and development
Deindustrialization
 The shifting away from manufacturing as the main source of economic
production
 In the 1970s and ’80s, when deindustrialization was occurring across
North America and West Europe, millions of factory workers lost jobs
and many old industrial cities suffered from the economic downturn

Workforce had to adjust to new service sector employment that paid less
and had fewer benefits compared to factory jobs

Manufacturing had to focus on highly priced goods to keep profits and
investments up amid foreign competition and to keep the remaining
First World manufacturing labor force paid and employed
 Services became important as investors in new businesses are looking to
maximize their returns on investment

Services are the most valuable investments
Levels of Development
 Countries can be categorized based on their level of
economic development
 First World
 Industrialized or service based
 Free market, high level of productivity value per person
and a high quality of life
 EX: U.S., Canada, Norway, Switzerland, Iceland, Israel,
Australia, New Zealand, Japan, South Korea, Singapore,
Taiwan, Saudi Arabia, Kuwait, United Arab Emirates,
Oman, and Bahrain
Levels of Development
 Second World
 Describes Communist countries
 Cuba and North Korea

Still have centrally planned economies
 Former Communist states that are restructuring their
economy to free-market systems
 Newly industrialized countries that are still controlled by
Communist parties, but have adapted free-market reforms
 China and Vietnam
Levels of Development
 Third World
 Mainly agricultural and resource-based economies that
have low levels of productivity and a low quality of life
 Some Third World countries
 Made an economic shift towards industrialization and
urbanization
 Remain firmly in a rural, agricultural economy
 The poorest Third World countries
 Haiti, Niger, Malawi, Tanzania, Madagascar, Nepal,
Kyrgyzstan, and Tajikistan
Levels of Development
 Fourth World
 Experienced an economic crisis that has immobilized the
national economy
 Crash in banking system, devaluation of currency, failed
taxation system, or events that have disrupted the economy
such as warfare or natural disasters
 Sierra Leone and Liberia
 Civil wars
 Myanmar
 Cyclone
Levels of Development
 Fifth World
 Lack both a functioning economy and have no formal
national government
 Somalia and the West Sahara
More Developed Countries(MDCs) and Less Developed
Countries(LDCs)
 First and Second World are considered MDCs
 Third, Fourth, and Fifth World are considered LDCs
 Even if they are NICs
 Dividing Line
 $10,000 GNP per capita
 Above- MDCs
 Below- LDCs
Newly Industrialized
Countries
 Third World states that have economics that have made a
distinct shift away from agriculture and towards
manufacturing
 Industrialization is a long-term process that can last longer
in larger countries
 Constant process of building infrastructure that facilitate
the construction and operation of factories
 Rapid population growth and are located on the border of
stage two and three on the Demographic Transition Model
 Industrialization and Urbanization
A list of NICs
NIC
Important Sector(s)
Mexico
Manufacturing, oil, tourism
Brazil
Manufacturing, services
Dominican Republic
Manufacturing, tourism
Nigeria
Oil, chemicals
Gabon
Oil
Indonesia
Manufacturing, oil, tourism
Vietnam
Manufacturing
China
Manufacturing, technology, industry,
finance, transport
India
Manufacturing, pharmaceuticals,
technology, computing services
Thailand
Manufacturing, medical services
Malaysia
Manufacturing, technology
Philippines
Manufacturing
NIC Development Funding
 Funding to develop infrastructure and factories can come from
 Internal sources
 Foreign aid
 Provided by donor states in First World Economies; do not expect
money to be returned
 Donations rarely go to building for-profit businesses

Instead, it provides the means to create schools, nutrition, health
programs, etc…
 Can also be a technology transfer

Technical knowledge, training, and equipment is provided to NIC
governments to increase business efficiency
 Foreign direct investment(FDI)
Foreign Direct Investment
(FDI)
 Money from private investors or investment firms that are
looking to earn a profit
 Use money to start a new business or build a new factory in a
NIC
 Over time, investors are paid back plus a portion of the profits
 If unprofitable, investor may gain less money back, or nothing at
all
 In cases of high demand, investors can have returns of 10 to 15
percent within a few years
Development Loans
 To attract FDI, some NICs seek international
development loans from organizations such as the World
Bank
 Loans are most often given to advance infrastructure
 These new services can charge fees(trains, toll roads, etc…)
that will be used to pay back the loan
 Criticism
 The loans don’t make the positive impact on the economy
as intended
 Costly and significant environmental problems
India, a Growing NIC
 Until the 1990s, India’s exports have been focused on manufactured goods
such as textiles and steel

During the 1990s, high-tech markets in software development and
computing services began to open in India because of India’s comparative
advances


A country has the ability or resources to produce a good or service at less cost
and more efficiently than other states
India’s colonial history with Britain gives India several advantages against
other competitors

Access to the American technology markets



High amount of English speakers in India
Large number of educated workers
Dell and Microsoft have opened factories and customer service centers in
India recently

These are examples of off-shoring of computer services from the United States
to NICs
China’s Demand for Energy
 Industrial development and the newly earned wealth of Chinese
citizens have combined to create a large demand for energy in
industry and transportation
 Coal is the primary source for electric production
 High oil demand; fuels cars and trucks
 China does not have much oil and has invested in oil exploration
and production in Third World countries
 Problems
 Pollution

Acid rain, smog
 Greenhouse gas emissions
North versus South analogy
 Used to describe the developed world(North) and the
less developed countries(South)
 Inaccurate because Australia and New Zealand are First
World countries that are in the Southern Hemisphere
 Most of the world’s LDCs are on or north of the equator
The Old Asian Tigers
 The term “Asian Tiger” is used to describe the industrial economies of
Asia that have been aggressive in terms of economic growth rates and their
ability to compete with consumers
 The Old Asian Tigers were seen as free-market bastions against the spread
of Communism

The U.S. and Britain had no choice but to give foreign aid money to
support democracy in the region
 By the 1970s, the Asian countries had become competitive with the United
States and Britain for global markets in manufacturing goods
 By the 1980s, efficient factories and a focus on product quality in Japan
and Korea created significant market share in the American auto and
electronics markets

Foreign competition and the oil shocks of the 1970s have caused the
deindustrialization in the United States, Canada, and Western Europe
The Old Asian Tigers
Old Asian Tigers
Source of Development
Funding
Manufacturing
Redevelopment Period
Foreign aid programs such
as the Macarthur Plan
1950s-1970s
Japan
South Korea
Taiwan
Hong Kong
Singapore
The New Asian Tigers
 Manufacturing development was mainly funded through FDI that
came from the United States and Britain as well as from the Old
Asian Tigers
 Profitable investments
 The New Asian Tigers offered
 Cheap labor
 Low-cost land and resources
 Little labor and environmental regulations
 In low-end product lines, such as clothing or shoes, the New Asian
Tigers proved to be the only profitable manufacturing locations
 China had the lowest costs and a large labor force
The New Asian Tigers
New Asian Tigers Source of Development Funding
Manufacturing Development
Period
China
India
Indonesia
Malaysia
Thailand
Vietnam
Foreign direct investment(FDI)
1980s-1997
The Asian Economic Crisis
(1997)
 A banking crash in South Korea resulted in a credit crisis
 Because of banks and investors holding back on industrial
loans and investment
 Money to develop new factories and infrastructure disappeared
 Prompted the deindustrialization of the Old Asian Tigers
 Payrolls were cut and workers were laid off by the hundreds of
thousands
 Like First World economies, the Old Asian Tigers now focus
on services rather than manufacturing
 Manufacturing still exists, but only for high profit manufactured
goods such as cars and medical devices
Measures of Development
 Help us to understand the levels of development and
measure uneven development in various countries
Gross Domestic Product
(GDP)
 The dollar value of all goods and services produced in a
country in one year
 Measures the total volume of a country’s economy
 Formula
 Goods + Services (G+S)
Gross National Income
(GNI)
 The dollar value of all goods and services produced in a
country plus the dollar value of exports minus imports in the
same year
 Adjusts for national wealth lost when imported goods are
purchased from abroad
 In countries where export value exceeds import value, there is a
trade surplus
 In countries where import value exceeds export value, there is a
trade deficit
 Formula
 Goods + Services + (Exports – Imports) (G+S)+(E-I)
Per Capita
 Means “for every head” in Latin; for every person
 Calculated by dividing the volume of the economy by the
population
 GDP per capita- (Goods + Services) / Population
 GNI per capita- [(Goods + Services) + (Exports – Imports)] /
Population
 Answer calculated is not an indicator of the average salary of
each worker
 Answer calculated is a measure of the country’s collective
wealth or productivity and indicates a relative standard of living
Gross National Income
Purchasing Power Parity
(GNI PPP)
 An estimate that takes into account the differences in
prices for countries
 Gross National Income per capita can make First World
countries seem more prosperous and can make Third
World countries seem less prosperous
 Doesn’t factor the cost of living in each country
Human Development Index
(HDI)
 Designed by the United Nations to measure the level of
development of states based on social indicators and
economic productivity
 Indexed score ranges from 0.00 to 1.00 by combining
GDP per capita, the average literacy rate, average level of
education, and total life expectancy
Economic Indicator Data for Selected Countries
State
GNI per
capita
GNI
PPP
HDI
Categories
United States
46,040
45,580
.950
First World, MDC
Canada
39,420
35,310
.967
First World, MDC
United Kingdom
42,740
33,800
.942
First World, MDC
Russia
7,560
16,085
.806
Second World, MDC
China
2,360
5,370
.762
Second World, NIC
India
950
2,740
.609
Third World, NIC
Kenya
680
1,540
.532
Third World, LDC
Haiti
560
1,150
.521
Third World, LDC
Nepal
340
1,040
.530
Third World, LDC
•Recommended to know more than three of the above countries’ statistics
•At minimum, one MDC, one NIC, and one LDC
The Gini Coefficient
 Measures the level of income disparity between the
country’s richest and poorest population groups on a
scale from 0 to 100
 High numbers indicate a wide gap between the rich and
the poor and suggest problems with wealth distribution
 Low numbers indicate a large middle class population
where wealth is more equally divided
The Gender-Related Development
Index(GDI)
 Uses same indicators that calculate HDI, except it
replaces GDP per capita with income
 The male and female data is compared by dividing the
female score by the male score
 The closer the result is to 1.00, the role of women in society
is greater
 The closer the result is to 0.00, the role of women in society
is minimal
 Can be an effective indicator of social development
Women in Development
 Women work more hours/day than men in every country in the
world except in Anglo America and Australia
 Women in the paid workforce are also growing in numbers
across the world in both developed and developing countries
and regions
 Role in society is improving as opportunities for education,
childcare, and maternity benefits increase
 In Third World countries, access to microcredit give women the
chance to start their own business and provide for their families
 The UN developed a mandate called the Millennium
Development Goals(MDGs) designed to erase poverty by 2015
 These eight development goals promote gender equality and an
empowering of women in the work force
Rostow’s Stages of Growth
 Developed by Walter Rostow in the 1950s
 Proposed that countries went through five stages of
growth between agricultural and service-based economies
 Assumed that each country had some form of a
comparative advantage that could be utilized in
international trade and fund the economy
 There are five stages
Rostow’s Stages of Growth
1.
2.
3.
Traditional society

Economy is focused on primary production

Limited wealth is spent internally on items that do not promote economic
development

Low technical knowledge
Preconditions for takeoff

The country’s leadership begins to invest the country’s wealth in infrastructure
that promotes economic development and international trade relations

More technical knowledge; helps to stimulate the economy
Takeoff

Economy begins to shift focus onto a limited number of industrial exports

Labor force begins to switch from agriculture to manufacturing

Technical knowledge is gained through industrial production and business
management
Rostow’s Stages of Growth
4. Drive to maturity
Technical advancements diffuse throughout the country
Advancements in industrial production
Workers become increasingly skilled and educated, and fewer
people are engaged in primary production
5. Age of mass consumption
 Industrial trade economy develops where highly
specialized production has a major role in the economy
 Technical knowledge and education is high
 Agriculture is mechanized, thus employing a smaller work
force
Criticism of Rostow’s Stages
of Growth
 Based on the historical development of many First World,
industrialized countries
 Not all countries have had the ability to utilize comparative
advantages
 Colonial legacy, government corruption, and other factors are
not included in Rostow’s theory
 He assumed that all countries could progress through the stages

However, the world economy leaves many countries behind as
foreign aid mostly goes to only the most developed of the NICs
Dependency Theory

States that most LDCs(including all NICs) are dependent on trade owned factories,
foreign direct investment, and technology from MDCs to provide employment and
infrastructure


A continuous cycle of dependency would continue, giving no real gains to the LDCs
Concerns were first raised by economist Raul Prebisch in 1950

Stated that money made by LDCs from the sale of manufactured goods and natural
resources is used to pay off loans and to buy manufactured products

In the end, LDCs are left with little money, MDCs, richer


Thus continuing the cycle of dependency
Dependency creates additional economic risks, as Third World economies are also
subject to the levels of demand for LDC-made products and the global economy
staggers

If demand and investment decline, LDCs suffer job layoffs, and loan payments are not
able to be made


Risk is magnified if the LDC is a one-commodity nation
Can be catastrophic for economy and harm the quality of life
Breaking the Cycle of
Dependency

Various methods, the purpose of these methods is to gain national wealth that
is recycled in the country’s economy to help local businesses and improve the
quality of life through funding for public services and utility infrastructure

Internalization of economic capital

Requires companies to deposit profits from factories in LDC banks and invest
locally

Used to prevent capital flight



When earnings are sent to banks in First World countries where they cannot be used to
advance local development
Wealthier citizens may be required to keep their money in national banks instead
of off-shore banks
Import Substitution

Instead of buying products from First World countries, LDCs would produce these
products where profits would then be put into local economy
Breaking the Cycle of
Dependency
 Nationalization of natural resource-based industries

International mining companies take away minerals and oil that
could be sold by local companies

With the expelling of such companies, profit made from the local
companies can be used for local economic development
 Profit-sharing agreements

In China and Vietnam(and a few other countries), foreign companies
are given permission to build new factories on land leased to them by
the government

In exchange, foreign companies share a portion of the profit
 Technology development programs

Using funds to invest in technological equipment and employee
training for local manufacturers

These companies can then compete globally for contracts to produce
goods as sub-contractors to First World corporations

Factory profits stay with the local companies
Tourism
 Countries can gain large inputs of wealth from foreign
countries without having to export manufactured goods
 Tourism countries must have hospitality and be viewed as
safe from crime and warfare
 To attract tourists, the country must have some degree of
historical value, natural beauty, sport recreation centers, or
combinations of these
 In the past 20 years, ecotourism has become popular
 Rainforests, marine reef, savannah grassland, and polar
habitats have became prime tourist locations
Free-Trade Agreements
 Free-trade zones have made regional economies of multiple states
stronger and have lead to the development of their less developed
neighbors

Helped former Communist states develop their free-market
economies faster
 NAFTA Treaty



Signed in 1991; full effect in 2001
Full removal of tariffs between Mexico, United States, and Canada
Benefitted Mexico

Allowed several hundred firms to build factories and contract with local
firms in Mexico to produce goods

Maquiladoras, northern factory cities, have grown rapidly in terms of
population and manufacturing


Tijuana, Mexicali, Ciudad Juarez, etc…
Helped to improve quality of life
Free-Market Reforms
 In the 1980s, Communist states began to reform the command
economy
 Reforms
 Allowed farmers to sell surplus agricultural goods in local and
regional markets for profit
 Allowed people to open privately owned businesses
 Free movement of labor
 The ability to purchase private real estate
 Allowing foreign companies the option of opening factories and
retail services in these countries
China and Vietnam
 China established the first special economic zones(SEZs) in 1980


Foreign companies were allowed to build factories in coastal port cities
SEZs are a type of export processing zone, port locations where foreign
firms are given tax privileges to provide incentives for trade
 By the late 1990s, all the coastal provinces in China and Vietnam had been
opened to foreign manufacturing firms

Labor, land, and utilities were in large demand by transnational
corporations wanting to maximize profits, which would be shared with the
Chinese and Vietnamese government
 China has been able to integrate itself into the global economy through
their corporations that have purchased Western product lines, such as
Whirlpool
 Chinese banking and financial firms increase trade integration with export
markets

Especially in the US; US sells some of its treasury bonds to China
Location Theory

Devised by Alfred Weber


Stated that the location of factories is related to the minimization of land, labor, resource,
and transportation cost


Theory of Industrial Location, 1909
Manufactured goods have a variable-cost framework that affects the location of factories
Stated that in terms of location, manufactured goods can be classified into two categories
based on the relation of inputs to product output


Weight-losing (bulk-reducing)

A large amount of inputs are reduced to a product that weighs less or has less volume than the
inputs

Factories are generally located nearest to the input that loses the most bulk in the manufacturing
process
Weight-gaining (bulk-gaining)

Inputs are combined to make a product with more weight or volume

Factories are located closer to consumers to aid with transportation costs
Supply Chains
 Parts are assembled into components that are then assembled together
to create larger products

EX: Automobiles, computers, etc…
 As price and corporate profit benefits have increased over time, supply
chains have expanded
 Fordist production(Fordism) relied on a single company owning all
aspects of production

In 1903, when Henry Ford opened his River Rouge plant in Detroit,
every part(except tires) was made in the factory and assembled in an
assembly line
 In the Post-Fordist era, car companies changed and became dependent
on large networks of regional supply chains that stretch throughout
the United States with some specialized parts coming from overseas
 To minimize inventory costs and keep factories efficient, car
companies utilize just-in-time production methods, where items are
sent to the factories on an as-needed basis
Retail Location Theory
 States that market area of a city varies depending on two factors

Threshold


The minimum number of people required to support a business
Range

The maximum distance people are willing to travel to buy a product
 The location of retail services is spatially dependent on the
relationship between variable cost and revenue surfaces based on
local geography

Business owners try to find the location that will maximize profit
 The spatial margin of profitability is the area where local demand
for a service creates revenues higher that the cost of business
Service Location Theory

A footloose industry is a business whose location is not tied to resources, transportation, or consumer locations

EX: Customer-Service Call Centers, Research and Development Centers, Software Development Centers, etc…

There are a number of factors that influence placement of service-industry offices

Richard Florida has proposed that there is a creative class of high-benefit service industry firms and workers


Economic development has become focused on attracting

Creative firms

Creative class employees
Factors include

Language of the workforce

Education level of the workforce

Climate and natural environment

Entertainment venues

Tolerant community
Agglomeration and
Deglomeration
 Agglomeration
 The concentration of human activities around a central location
 Agglomeration economies

Firms with related products located together in a region

Advantages

Shared skilled labor pool

Specialized suppliers

Service providers
 Deglomeration
 A location is overloaded with similar firms and services

Some firms may seek a change in location to expand, or move
entirely

EX: Auto production in Detroit
Economics of Scale
 Producers expand their operations but incur lower per
unit costs in the process
 When a company increases production of a product, it
can save money by buying in bulk, managing more
workers under a single management staff, financing larger
sums of credit at lower interest rates, and negotiate
discounts for transportation costs
 More goods are sold without increasing advertising,
accounting, research, etc…
Economics of Scope
 Companies benefit from the increase of products under a
single brand name
 Products can be produced by the same work force in the
same factories, etc…
 Larger economics of scope are useful when one product
is at the end of its product cycle and is replaced by a
new/alternative device