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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 The utility and demand of the product can influence value
Manufacturing can be divided into several groups
Durable- goods that are intended for use of more than a year 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
Not all services are valued equally
Low-benefit services are sectors where the labor force tends to be hourly employees who receive few if any additional work benefits
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 NICsNIC 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
Japan
Foreign aid programs such as the Macarthur
Plan1950s-1970s
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
Foreign direct investment(FDI) 1980s-1997
India
Indonesia
Malaysia
Thailand
Vietnam
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. Traditional society
Economy is focused on primary production
Limited wealth is spent internally on items that do not promote economic development
Low technical knowledge
2. 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
3. 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
Theory of Industrial Location, 1909
Stated that the location of factories is related to the minimization of land, labor, resource, and transportation cost
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
