Analyzing Economical Geography

AP Human Geography Analyzing Economical GeographyParts taken from the 2012 AP Princeton Review Human GeographySectors of ProductionThe economy can be divided into several different categories known as sectorsCan be grouped by its stage in the production process, from primary production onwardsThree to five categoriesCan be grouped by the types of products or services they createSector Categories by Stage of ProductionPrimary productionAgriculture, mining, energy, forestry, and fisheriesExtraction of natural resources from the earthSecondary productionThe processing of raw materials drawn from the primary sectorSecondary productions reflect all forms of manufacturingTertiary productionTransportation, wholesaling, and retailing of finished goods to consumersCan include other types of services that could be categorized as quaternary or quinaryQuaternary and quinary are categorized as services in the tertiary sectorQuaternary productionWholesaling, finance, banking, insurance, real estate, advertising, and marketingbusiness servicesQuinary productionRetailing, tourism, entertainment, communications, government, or semi-public services such as health, education, and utilitiesConsumer servicesAgricultureEconomically, the combined cash value of what is produced is measuredNot the volume or weight of the goodsIn less developed portions of the world, subsistence agriculture is very common, with agriculture supporting the family and local peopleIn more developed countries, farming is most commonly done on a commercial basisCommodity ChainExist from the small-scale, family-based producers selling directly from the farm or through farmers markets to transnational supply networks selling to an international baseNatural ResourcesMining and energy extraction can be valuable depending on the global commodity pricesOil based economies can rise and crash with radical price changesPrice volatility is difficult for both producers and consumersFisheries 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 demandRenewabilityResources can be classified by their renewabilityMinerals and fossil fuels are nonrenewableThe earth cannot reproduce themSome mineral products can be recycledIn some cases, it is cheaper to buy scrap metal to recycle than to mine new metalWith the exception of hydroelectricity, alternative energy sources as often much more expensive to harness than fossil fuelsThis makes them less commonAlternative energy is used to shift energy usage away from nonrenewable resourcesSustainabilityFisheries and forestry involve renewable resourcesWe rely on the sustainable use of the resourceFish cannot be overfished, and forests cannot be cut without replantingUsing large nets for fishing and clear cutting of forests are not sustainable practicesManufacturingFactory-made products far out-value agricultural based productsManufactured goods are farm products and natural resources that have been taken through value-added processingThe more complex and technology-driven the manufacturing is, the more expensive the final product isThe utility and demand of the product can influence valueManufacturing can be divided into several groupsDurable- goods that are intended for use of more than a yearGreater value and represent a more lucrative form of productionNondurable- goods that are intended for use of less than a yearCan also be divided by product typeResource processing- oil refineries, metals, plastics, chemicals, lumber, paper, food and beverage, concrete and cement, glassTextiles- clothing, shoes and leather products, artificial fibers and threadFurniture- home, office, beddingAppliances- home appliances, commercial equipment, power tools, lightingTransport- automotive, rail, aerospace, shipbuilding, recreational vehicles,Health- pharmaceuticals, medical devices, personal care productsTechnology- computers and laptops, servers, industrial control devices, phones, television and audio entertainmentServicesIntangible productsMost valuable form of economic productionNot all services are valued equallyLow-benefit services are sectors where the labor force tends to be hourly employees who receive few if any additional work benefitsEX: hotel and food services, retail, customer services, contract agricultural labor, and constructionHigh-benefit services are sectors in which pay tends to be salaried and include additional work benefits including health, dental, vision, vacation, sick days, etcBenefits are provided by other high-benefit service industries such as insurance companiesEX: business services, health care, government, and educationService sectors organized by type of firmRetailing, 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 developmentDeindustrializationThe shifting away from manufacturing as the main source of economic productionIn 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 downturnWorkforce had to adjust to new service sector employment that paid less and had fewer benefits compared to factory jobsManufacturing 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 employedServices became important as investors in new businesses are looking to maximize their returns on investmentServices are the most valuable investmentsLevels of DevelopmentCountries can be categorized based on their level of economic developmentFirst WorldIndustrialized or service basedFree market, high level of productivity value per person and a high quality of lifeEX: 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 DevelopmentSecond WorldDescribes Communist countriesCuba and North KoreaStill have centrally planned economiesFormer Communist states that are restructuring their economy to free-market systemsNewly industrialized countries that are still controlled by Communist parties, but have adapted free-market reformsChina and VietnamLevels of DevelopmentThird WorldMainly agricultural and resource-based economies that have low levels of productivity and a low quality of lifeSome Third World countriesMade an economic shift towards industrialization and urbanizationRemain firmly in a rural, agricultural economyThe poorest Third World countriesHaiti, Niger, Malawi, Tanzania, Madagascar, Nepal, Kyrgyzstan, and Tajikistan

Levels of DevelopmentFourth WorldExperienced an economic crisis that has immobilized the national economyCrash in banking system, devaluation of currency, failed taxation system, or events that have disrupted the economy such as warfare or natural disastersSierra Leone and LiberiaCivil warsMyanmarCycloneLevels of DevelopmentFifth WorldLack both a functioning economy and have no formal national governmentSomalia and the West SaharaMore Developed Countries(MDCs) and Less Developed Countries(LDCs)First and Second World are considered MDCsThird, Fourth, and Fifth World are considered LDCsEven if they are NICsDividing Line$10,000 GNP per capitaAbove- MDCsBelow- LDCsNewly Industrialized CountriesThird World states that have economics that have made a distinct shift away from agriculture and towards manufacturingIndustrialization is a long-term process that can last longer in larger countriesConstant process of building infrastructure that facilitate the construction and operation of factoriesRapid population growth and are located on the border of stage two and three on the Demographic Transition ModelIndustrialization and Urbanization

A list of NICsNICImportant Sector(s)MexicoManufacturing, oil, tourismBrazilManufacturing, servicesDominican RepublicManufacturing, tourismNigeriaOil, chemicalsGabonOilIndonesiaManufacturing, oil, tourismVietnamManufacturingChinaManufacturing, technology, industry, finance, transportIndiaManufacturing, pharmaceuticals, technology, computing servicesThailandManufacturing, medical servicesMalaysiaManufacturing, technologyPhilippines ManufacturingNIC Development FundingFunding to develop infrastructure and factories can come fromInternal sourcesForeign aidProvided by donor states in First World Economies; do not expect money to be returnedDonations rarely go to building for-profit businessesInstead, it provides the means to create schools, nutrition, health programs, etc Can also be a technology transferTechnical 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 profitUse money to start a new business or build a new factory in a NICOver time, investors are paid back plus a portion of the profitsIf unprofitable, investor may gain less money back, or nothing at allIn cases of high demand, investors can have returns of 10 to 15 percent within a few yearsDevelopment LoansTo attract FDI, some NICs seek international development loans from organizations such as the World BankLoans are most often given to advance infrastructureThese new services can charge fees(trains, toll roads, etc) that will be used to pay back the loanCriticismThe loans dont make the positive impact on the economy as intendedCostly and significant environmental problemsIndia, a Growing NICUntil the 1990s, Indias exports have been focused on manufactured goods such as textiles and steelDuring the 1990s, high-tech markets in software development and computing services began to open in India because of Indias comparative advancesA country has the ability or resources to produce a good or service at less cost and more efficiently than other statesIndias colonial history with Britain gives India several advantages against other competitorsAccess to the American technology marketsHigh amount of English speakers in IndiaLarge number of educated workersDell and Microsoft have opened factories and customer service centers in India recentlyThese are examples of off-shoring of computer services from the United States to NICsChinas Demand for EnergyIndustrial development and the newly earned wealth of Chinese citizens have combined to create a large demand for energy in industry and transportationCoal is the primary source for electric productionHigh oil demand; fuels cars and trucksChina does not have much oil and has invested in oil exploration and production in Third World countriesProblemsPollutionAcid rain, smogGreenhouse gas emissionsNorth versus South analogyUsed 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 HemisphereMost of the worlds LDCs are on or north of the equatorThe Old Asian TigersThe 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 consumersThe Old Asian Tigers were seen as free-market bastions against the spread of CommunismThe U.S. and Britain had no choice but to give foreign aid money to support democracy in the regionBy the 1970s, the Asian countries had become competitive with the United States and Britain for global markets in manufacturing goodsBy the 1980s, efficient factories and a focus on product quality in Japan and Korea created significant market share in the American auto and electronics marketsForeign competition and the oil shocks of the 1970s have caused the deindustrialization in the United States, Canada, and Western EuropeThe Old Asian TigersOld Asian TigersSource of Development FundingManufacturing Redevelopment PeriodJapanForeign aid programs such as the Macarthur Plan1950s-1970sSouth KoreaTaiwanHong KongSingaporeThe New Asian TigersManufacturing development was mainly funded through FDI that came from the United States and Britain as well as from the Old Asian TigersProfitable investmentsThe New Asian Tigers offeredCheap laborLow-cost land and resourcesLittle labor and environmental regulationsIn low-end product lines, such as clothing or shoes, the New Asian Tigers proved to be the only profitable manufacturing locationsChina had the lowest costs and a large labor forceThe New Asian TigersNew Asian TigersSource of Development FundingManufacturing Development PeriodChinaForeign direct investment(FDI)1980s-1997IndiaIndonesiaMalaysiaThailandVietnamThe Asian Economic Crisis (1997)A banking crash in South Korea resulted in a credit crisisBecause of banks and investors holding back on industrial loans and investmentMoney to develop new factories and infrastructure disappearedPrompted the deindustrialization of the Old Asian TigersPayrolls were cut and workers were laid off by the hundreds of thousandsLike First World economies, the Old Asian Tigers now focus on services rather than manufacturingManufacturing still exists, but only for high profit manufactured goods such as cars and medical devicesMeasures of DevelopmentHelp us to understand the levels of development and measure uneven development in various countriesGross Domestic Product (GDP)The dollar value of all goods and services produced in a country in one yearMeasures the total volume of a countrys economyFormulaGoods + 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 yearAdjusts for national wealth lost when imported goods are purchased from abroadIn countries where export value exceeds import value, there is a trade surplusIn countries where import value exceeds export value, there is a trade deficitFormulaGoods + Services + (Exports Imports) (G+S)+(E-I)Per CapitaMeans for every head in Latin; for every personCalculated by dividing the volume of the economy by the populationGDP per capita- (Goods + Services) / PopulationGNI per capita- [(Goods + Services) + (Exports Imports)] / PopulationAnswer calculated is not an indicator of the average salary of each workerAnswer calculated is a measure of the countrys collective wealth or productivity and indicates a relative standard of livingGross National Income Purchasing Power Parity(GNI PPP)An estimate that takes into account the differences in prices for countriesGross National Income per capita can make First World countries seem more prosperous and can make Third World countries seem less prosperousDoesnt factor the cost of living in each countryHuman Development Index (HDI)Designed by the United Nations to measure the level of development of states based on social indicators and economic productivityIndexed score ranges from 0.00 to 1.00 by combining GDP per capita, the average literacy rate, average level of education, and total life expectancyEconomic Indicator Data for Selected CountriesStateGNI per capitaGNI PPPHDICategoriesUnited States46,04045,580.950First World, MDCCanada39,42035,310.967First World, MDCUnited Kingdom42,74033,800.942First World, MDCRussia7,56016,085.806Second World, MDCChina2,3605,370.762Second World, NICIndia9502,740.609Third World, NICKenya6801,540.532Third World, LDCHaiti5601,150.521Third World, LDCNepal3401,040.530Third World, LDCRecommended to know more than three of the above countries statisticsAt minimum, one MDC, one NIC, and one LDCThe Gini CoefficientMeasures the level of income disparity between the countrys richest and poorest population groups on a scale from 0 to 100High numbers indicate a wide gap between the rich and the poor and suggest problems with wealth distributionLow numbers indicate a large middle class population where wealth is more equally dividedThe Gender-Related Development Index(GDI)Uses same indicators that calculate HDI, except it replaces GDP per capita with incomeThe male and female data is compared by dividing the female score by the male scoreThe closer the result is to 1.00, the role of women in society is greaterThe closer the result is to 0.00, the role of women in society is minimalCan be an effective indicator of social developmentWomen in DevelopmentWomen work more hours/day than men in every country in the world except in Anglo America and AustraliaWomen in the paid workforce are also growing in numbers across the world in both developed and developing countries and regionsRole in society is improving as opportunities for education, childcare, and maternity benefits increaseIn Third World countries, access to microcredit give women the chance to start their own business and provide for their familiesThe UN developed a mandate called the Millennium Development Goals(MDGs) designed to erase poverty by 2015These eight development goals promote gender equality and an empowering of women in the work forceRostows Stages of GrowthDeveloped by Walter Rostow in the 1950sProposed that countries went through five stages of growth between agricultural and service-based economiesAssumed that each country had some form of a comparative advantage that could be utilized in international trade and fund the economyThere are five stagesRostows Stages of GrowthTraditional societyEconomy is focused on primary productionLimited wealth is spent internally on items that do not promote economic developmentLow technical knowledgePreconditions for takeoffThe countrys leadership begins to invest the countrys wealth in infrastructure that promotes economic development and international trade relationsMore technical knowledge; helps to stimulate the economyTakeoffEconomy begins to shift focus onto a limited number of industrial exportsLabor force begins to switch from agriculture to manufacturingTechnical knowledge is gained through industrial production and business managementRostows Stages of Growth4. Drive to maturityTechnical advancements diffuse throughout the countryAdvancements in industrial productionWorkers become increasingly skilled and educated, and fewer people are engaged in primary production5. Age of mass consumptionIndustrial trade economy develops where highly specialized production has a major role in the economyTechnical knowledge and education is highAgriculture is mechanized, thus employing a smaller work force

Criticism of Rostows Stages of GrowthBased on the historical development of many First World, industrialized countriesNot all countries have had the ability to utilize comparative advantages Colonial legacy, government corruption, and other factors are not included in Rostows theoryHe assumed that all countries could progress through the stagesHowever, the world economy leaves many countries behind as foreign aid mostly goes to only the most developed of the NICsDependency TheoryStates that most LDCs(including all NICs) are dependent on trade owned factories, foreign direct investment, and technology from MDCs to provide employment and infrastructureA continuous cycle of dependency would continue, giving no real gains to the LDCsConcerns were first raised by economist Raul Prebisch in 1950Stated that money made by LDCs from the sale of manufactured goods and natural resources is used to pay off loans and to buy manufactured productsIn the end, LDCs are left with little money, MDCs, richerThus continuing the cycle of dependencyDependency creates additional economic risks, as Third World economies are also subject to the levels of demand for LDC-made products and the global economy staggersIf demand and investment decline, LDCs suffer job layoffs, and loan payments are not able to be madeRisk is magnified if the LDC is a one-commodity nationCan be catastrophic for economy and harm the quality of life

Breaking the Cycle of DependencyVarious methods, the purpose of these methods is to gain national wealth that is recycled in the countrys economy to help local businesses and improve the quality of life through funding for public services and utility infrastructureInternalization of economic capitalRequires companies to deposit profits from factories in LDC banks and invest locallyUsed to prevent capital flightWhen earnings are sent to banks in First World countries where they cannot be used to advance local developmentWealthier citizens may be required to keep their money in national banks instead of off-shore banksImport SubstitutionInstead 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 DependencyNationalization of natural resource-based industriesInternational mining companies take away minerals and oil that could be sold by local companiesWith the expelling of such companies, profit made from the local companies can be used for local economic developmentProfit-sharing agreementsIn China and Vietnam(and a few other countries), foreign companies are given permission to build new factories on land leased to them by the governmentIn exchange, foreign companies share a portion of the profitTechnology development programsUsing funds to invest in technological equipment and employee training for local manufacturersThese companies can then compete globally for contracts to produce goods as sub-contractors to First World corporationsFactory profits stay with the local companiesTourismCountries can gain large inputs of wealth from foreign countries without having to export manufactured goodsTourism countries must have hospitality and be viewed as safe from crime and warfareTo attract tourists, the country must have some degree of historical value, natural beauty, sport recreation centers, or combinations of theseIn the past 20 years, ecotourism has become popularRainforests, marine reef, savannah grassland, and polar habitats have became prime tourist locationsFree-Trade AgreementsFree-trade zones have made regional economies of multiple states stronger and have lead to the development of their less developed neighborsHelped former Communist states develop their free-market economies fasterNAFTA TreatySigned in 1991; full effect in 2001Full removal of tariffs between Mexico, United States, and CanadaBenefitted MexicoAllowed several hundred firms to build factories and contract with local firms in Mexico to produce goodsMaquiladoras, northern factory cities, have grown rapidly in terms of population and manufacturingTijuana, Mexicali, Ciudad Juarez, etcHelped to improve quality of lifeFree-Market ReformsIn the 1980s, Communist states began to reform the command economyReformsAllowed farmers to sell surplus agricultural goods in local and regional markets for profitAllowed people to open privately owned businessesFree movement of laborThe ability to purchase private real estateAllowing foreign companies the option of opening factories and retail services in these countries

China and VietnamChina established the first special economic zones(SEZs) in 1980Foreign companies were allowed to build factories in coastal port citiesSEZs are a type of export processing zone, port locations where foreign firms are given tax privileges to provide incentives for tradeBy the late 1990s, all the coastal provinces in China and Vietnam had been opened to foreign manufacturing firmsLabor, land, and utilities were in large demand by transnational corporations wanting to maximize profits, which would be shared with the Chinese and Vietnamese governmentChina has been able to integrate itself into the global economy through their corporations that have purchased Western product lines, such as WhirlpoolChinese banking and financial firms increase trade integration with export marketsEspecially in the US; US sells some of its treasury bonds to ChinaLocation TheoryDevised by Alfred WeberTheory of Industrial Location, 1909Stated that the location of factories is related to the minimization of land, labor, resource, and transportation costManufactured goods have a variable-cost framework that affects the location of factoriesStated that in terms of location, manufactured goods can be classified into two categories based on the relation of inputs to product outputWeight-losing (bulk-reducing)A large amount of inputs are reduced to a product that weighs less or has less volume than the inputsFactories are generally located nearest to the input that loses the most bulk in the manufacturing processWeight-gaining (bulk-gaining)Inputs are combined to make a product with more weight or volumeFactories are located closer to consumers to aid with transportation costsSupply ChainsParts are assembled into components that are then assembled together to create larger productsEX: Automobiles, computers, etcAs price and corporate profit benefits have increased over time, supply chains have expandedFordist production(Fordism) relied on a single company owning all aspects of productionIn 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 lineIn 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 overseasTo 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 basisRetail Location TheoryStates that market area of a city varies depending on two factorsThresholdThe minimum number of people required to support a businessRangeThe maximum distance people are willing to travel to buy a productThe location of retail services is spatially dependent on the relationship between variable cost and revenue surfaces based on local geographyBusiness owners try to find the location that will maximize profitThe spatial margin of profitability is the area where local demand for a service creates revenues higher that the cost of businessService Location TheoryA footloose industry is a business whose location is not tied to resources, transportation, or consumer locationsEX: Customer-Service Call Centers, Research and Development Centers, Software Development Centers, etcThere are a number of factors that influence placement of service-industry officesRichard Florida has proposed that there is a creative class of high-benefit service industry firms and workersEconomic development has become focused on attractingCreative firmsCreative class employeesFactors includeLanguage of the workforceEducation level of the workforceClimate and natural environmentEntertainment venuesTolerant communityAgglomeration and DeglomerationAgglomerationThe concentration of human activities around a central locationAgglomeration economiesFirms with related products located together in a regionAdvantagesShared skilled labor poolSpecialized suppliersService providersDeglomerationA location is overloaded with similar firms and servicesSome firms may seek a change in location to expand, or move entirelyEX: Auto production in DetroitEconomics of ScaleProducers expand their operations but incur lower per unit costs in the processWhen 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 costsMore goods are sold without increasing advertising, accounting, research, etc

Economics of ScopeCompanies benefit from the increase of products under a single brand nameProducts can be produced by the same work force in the same factories, etcLarger economics of scope are useful when one product is at the end of its product cycle and is replaced by a new/alternative device