DevelopmentDevelopment

Chapter 10Chapter 10

Global EconomicsGlobal Economics • Enormous gaps between the rich and poor countries of the world

• Some states are still subsistence based while others have moved beyond manufacturing to tertiary economies.

• Even within the wealthy or First World nations there are often areas of economic disparity within regions

Measuring Development

Gross National Product (GNP) Measure of the total value of the officially recorded goods and services produced by the citizens and corporations of a country in a given year. Includes things produced inside and outside a country’s territory.

Gross Domestic Product (GDP) Measure of the total value of the officially recorded goods and services produced by the citizens and corporations of a country in a given year.

Gross National Income (GNI) Measure of the monetary worth of what is produced within a country plus income received from investments outside the country. ** Most common measurement used today.

Concepts & ApproachesConcepts & Approaches• Gross National Product-all goods & services produced

by the economy per year both inside & outside the nation• Gross Domestic Product-all goods & services produced

by the economy per year with in the nation • GNP or GDP does not reflect regional variations-it also

doesn’t count the informal economy-black market, illegal drug trade & underground economy

• Developed Countries-(DCs) have high levels of industrialization, urbanization & standard of living

• Underdeveloped (UDCs) or Developing Countries are moving toward developed status-not as highly industrialized or urbanized with a lower standard of living

Measures of DevelopmentMeasures of Development• National Product per person-the total

income divided by total population-Core (developed) about $25,000 while Periphery (developing) as low as $100.

• Occupational Structure of the Labor Force-% of workers in each section-high number in agriculture signals low development

• Consumption of Energy per Person-the greater the use of electricity-the higher the development

• Productivity per Worker-production of all goods divided by the total labor force

Measures of DevelopmentMeasures of Development• Transportation & Communication per

person-railroad, road miles and airline connections per person as well as telephone, radio, television or computers per person.

• Consumption of Manufactured Metal per Person-the greater the amount of steel, iron, copper, aluminum etc. used per person

• Other Rates-– Literacy

– Caloric intake

– % of income spent on food

– Amount of savings per person

Issues with Measuring Issues with Measuring Economic DevelopmentEconomic Development

• All measurements count the:– Formal Economy – the legal economy that

governments tax and monitor.

• All measurements do not count the:– Informal Economy – the illegal or uncounted

economy that governments do not tax or keep track of.

Core-Periphery ModelCore-Periphery Model• Immanuel Wallerstein proposed the World Systems

Theory with promoted the Core-Periphery concept.• Unlike the term-developed and developing, the Core-

Periphery Model does not imply that change will occur.• Core-Periphery regionalism got its start during the period

of colonialism was re-enforced by the Industrial Rev. and continues in the age of globalization.

Core-Periphery ModelCore-Periphery Model• New approach to developed or

underdeveloped idea• Core-Periphery also used in a

political context• Core-the nations with a high

level of prosperity with dominant economies globally

• Periphery-poor nations that are dependent on the core as markets for raw materials and sources of technology

• Semi-Periphery-better off than periphery, but still dominated by the core to some degree

Global Economic DisparitiesGlobal Economic Disparities• Much of the disparity

existed as Colonialism was established by European nations.

• The Industrial Revolution increased the need for raw materials and markets for finished goods.

• Neo-colonialism refers to the economic dominance of the core over the former colonial nations-economic rather than political control

Conditions in the PeripheryConditions in the Periphery• High birth rates, moderate death rates and low life

expectancy• High infant mortality rates-large population under age 15

yrs.• Poor health care & shortage of doctors-disease is common• Poor sanitation and lack of fresh, clean water• Poor nutrition and protein deficiency• Low per capita income with many women & children doing

hard manual labor• High illiteracy rate with low levels of education• Great disparity between rich & poor, small middle class• Urban areas overcrowded, lack of services, rapid urban

migration• Subsistence farming on small landholdings

Conditions That Hamper DevelopmentConditions That Hamper Development• Political instability and

corruption• Exploitation of natural

resources and workers regardless of consequences

• Dependence of agricultural products or primary products such as mineral resources

• Misuse of foreign assistance

• Misguided priorities• Cultural resistance to

modernization

Costs of Economic DevelopmentCosts of Economic Development

• Industrialization– Export Processing Zones (EPZs), maquiladoras,

and special economic zones (SEZs).

• Agriculture– Subsistence and agricultural conglomerates– Desertification-especially in Africa – Soil erosion

• Tourism-may have serious negative consequences – Use of scarce commodities– Foreign investors make the profit

Tourism: Boom or BustTourism: Boom or Bust• Tourism contributes little to

a nation’s development & may have serious negative effects on the culture

• Hotels & other facilities are often owned by transnational corporations which take the profits out of the country

• Tourism jobs can be demeaning & dehumanizing or even insulting

• Tourism jobs pay minimal wages for menial tasks

Tourism: Boom or BustTourism: Boom or Bust• Profits are reinvested in

airports, cruise ship ports & other infrastructure to serve tourists

• Tourists use up valuable resources such as food & fresh water

• Tourism can debase or change a local culture

• An invasion by wealthy foreigners can breed hostility and resentment

• Harsh contrast between gleaming modern tourist hotels and poor workers housing

Levels of IndustrializationLevels of Industrialization• Some countries like the

Soviet Union industrialized quickly with central planning-Stalin’s Five Year Plans

• All decisions were made in Moscow-no local control

• Focus on heavy industry-steel, electrical, chemical, military hardware

• Little emphasis on consumer goods

• Little concern for worker safety or environmental problems

Models of DevelopmentModels of Development• There are two broad models of

economic development;

– Liberal Models based on the assumption that all countries pass through the same stages of economic development and disparity is the result of short term inefficiencies

– The Liberal Model assumes that all nations are capable of the same level of economic development

Development ModelsDevelopment Models

Modernization ModelWalt Rostow’s model assumes all countries follow a

similar path to development or modernization, advancing through five stages of development, climbing a ladder of development.

- traditional

- preconditions of takeoff

- takeoff

- drive to maturity

- high mass consumption

Models of DevelopmentModels of DevelopmentWalt Rostow created this liberal model of development in

the 1960s

1. First Stage-Traditional1. Subsistence farms-limited technology

2. Rigid social structure

3. Resistance to change-transition triggered by external influence

2. Second Stage-Preconditions for Take-Off1. Progressive Leadership-commercial exploitation of agriculture

& extractive industries

2. Greater flexibility-installation of infrastructure-roads, railways, etc.

3. Greater openness to new technology

4. Greater Diversity of products produced

Models of DevelopmentModels of Development3. Third Stage-Take Off

1. Experiences industrial growth2. Urbanization3. Industrialization, technology & mass production

4. Drive to Maturity1. Diffusion of technology2. Industrial specialization3. International trade4. Modernization at the core5. Population growth is reduced

5. Fifth Stage-Final Stage1. Mass consumption-widespread production of goods & services2. High incomes3. Majority of workforce in service sector

Rostow’s Ladder of DevelopmentRostow’s Ladder of Development

Models of DevelopmentModels of Development• Structuralist Model this is

the alternate to the Liberal Model that states disparities are inevitable due to structural features of the global economy.

• These disparities can not be easily changed-it is misleading to assume that all areas will go through the same economic process of development

Models of DevelopmentModels of Development• Dependency Theory is

another Structuralist Model• Political & economic

relationships between nations & regions limit the development of the less well off areas

• Colonial dependencies are still in place from long ago.

• Dependency theory sees little hope for economic prosperity in some traditional parts of the world

Dependency TheoryDependency TheoryThe political and economic relationships between countries and regions of the world control and limit the economic development possibilities of poorer areas.

-- Economic structures make poorer countries dependent on wealthier countries.

-- Little hope for economic prosperity in poorer countries.

Dependency Ratio by Country, 2005Dependency Ratio by Country, 2005

A measure of the number of people under the age of 15 and over the age of 65 that depends on each working-age adult.

A Changing WorldA Changing World• Until 1980s there were 3

Blocs– First World-The Capitalist

West-the most advanced nations-democratic & capitalist

– Second World-The Communist East of the Soviet Union & its Eastern European Satellites, Red China, N. Korea & Vietnam

– Third World-non aligned nations with mixed economies and state control-now an obsolete term

Three Tier StructureThree Tier Structure

Core Processes that incorporate

higher levels of education, higher salaries, and more technology

* Generate more wealth in the world economy

Semi-periphery Places where core and periphery processes

are both occurring. Places that are exploited by the core but then exploit the periphery.

* Serves as a buffer between core and periphery

Periphery Processes that incorporate lower

levels of education, lower salaries, and less technology

* Generate less wealth in the world economy

Differences in Communications

Connectivity Around the World

Dollarization –Dollarization –

Abandoning the local currency of a country and adopting the dollar as the local currency.

El Salvador went through dollarization in 2001

Commodity ChainCommodity Chain

Dolomite stone from Jerusalem covers a fireplace in Beacon Hill, Boston, Massachusetts.

Series of links connecting the many places of production and distribution and resulting in a commodity that is then exchanged on the world market.

Barriers to Economic DevelopmentBarriers to Economic Development• Low Levels of Social Welfare

– Trafficking-bullied into poor working conditions– High birth rates, Low life expectancy, large number of

dependents– Lack of proper health care– Poor water supply & sanitation– Widespread Disease vectored diseases-spread by a host – Malaria-kills 150,000 children each month

• Political Instability-military dictatorships, corruption, revolution

• Foreign Debt– World Bank or International Monetary Fund – Structural adjustment loans-economic reform required

Foreign Debt ObligationsForeign Debt Obligations Total interest payments compared to the export of

goods and services.

Foreign Debt and Economic Collapse

in Buenos Aires, Argentina, 2001

Foreign Debt Obligations Foreign Debt Obligations

Widespread DiseaseWidespread Disease

• Malaria kills 150,000 children in the global periphery each month.

Tamolo, India

This baby sleeps under a mosquito net distributed to villagers by UNICEF workers.

Global Distribution of Global Distribution of Malaria Transmission RiskMalaria Transmission Risk

Areas Threatened by DesertificationAreas Threatened by Desertification

How Government Policies How Government Policies Affect DevelopmentAffect Development

• Governments – get involved in world markets– price commodities– affect whether core processes produce wealth– shape laws to affect production– enter international organizations that affect trade– focus foreign investment in certain places– support large-scale projects

Export Processing Zones

Governments & Corporations can create Islands of DevelopmentPlaces within a region or country where foreign investment, jobs, and infrastructure are concentrated.

Africa Map

• Be able to locate major countries: such as-South Africa, Nigeria, Sudan, Kenya, Ethiopia, Rwanda, Somalia and so forth

Government-created Island of Government-created Island of DevelopmentDevelopment

Malaysian government built a new, ultramodern capital at Putrjaya to symbolize the country’s rapid economic

growth.

Corporate-created Island of DevelopmentCorporate-created Island of DevelopmentThe global oil industry has created the entire city of Port

Gentile, Gabon to extract Gabon’s oil resources.

Nongovernmental Nongovernmental Organizations (NGOs)Organizations (NGOs)

entities that operate independent of state and local governments, typically, NGOs are non-profit organizations.

Each NGO has its own focus/set of goals.

Microcredit program:

loans given to poor people, particularly women, to encourage development of small businesses.

The EndThe End