topic 1 – overview of economic geography

GEOG 135 – Economic GeographyProfessor: Dr. Jean-Paul Rodrigue

Hofstra University, Department of Global Studies & GeographyHofstra University, Department of Global Studies & GeographyHofstra University, Department of Global Studies & Geography

Topic 1 – Overview of Economic Geography

A – Approaching Economic GeographyB – Theories in Economic GeographyC – GlobalizationD – Economic Development

The world is not random… the spatial order of the economy

What is located where, why, how?

An Economic Hierarchy of Activities

Quaternary• Information and research• Management and decision making

Tertiary• Retail and wholesale• Personal services

Secondary• Manufacturing and processing• Power generation

Primary• Agriculture• Gathering and extractive industries

The Primary Sector (Agricultural Fields in Paraguay)

The Primary Sector (Open Pit Coal Mine, Utah)

The Secondary Sector (Chicago)

Tertiary Sector (West Edmonton Mall)

The Tertiary and Quaternary Sectors (Hong Kong Skyline)

The Tertiary Sector: (Container Yard, Veracruz)

A - APPROACHING ECONOMIC GEOGRAPHY1. Defining Economic Geography2. Economics and Economic Geography3. Space, Place and Scale4. Themes for Approaching Economic Geography

Defining Economic Geography

■ Subdiscipline of geography concerned about:• The spatial organization and distribution of economic activities:

• Production (primary, secondary, tertiary).• Transportation.• Communication.• Consumption.

• The use of the world’s resources.• The geographic origins, structure, and dynamics of the world

economy.• Patterns: Where activities are and how are arranged.• Processes: Why and how activities have located.• Impacts: How activities have an impact on each-other and geography.

Explain what economic geography is and provide an example of a spatial characteristic of economic activities.

Global Manufacturing, 2009

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World’s Largest Cities, 2010

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World’s Major Container Ports, 2012

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Passenger Traffic at the World’s Largest Airports, 2010

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Global Submarine Cable Network

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Economics and Economic Geography

Economics

• People are behaving in a rationale manner (homo economicus).

• People and firms are competing on markets where supply and demand reach an equilibrium.

• A market economy operates according to laws and principles.

• Universalism: laws and principles work everywhere.

Economic Geography

• People are behaving differently according to their context (homo geographicus).

• Markets have locations and geography is influencing supply and demand.

• Laws and principles are disrupted by geographical, social and political factors.

• Geographical diversity challenges universalism.

Discuss the main differences between economics and economic geography.

Economics and Economic Geography

■ Similar problems; different approaches• Economic geography:

• Conceptualize economic issues in terms of space, place and scale.• ‘Economies must take place’.• Tends to be empirically based.

• Economics:• Tends to homogenize the economic world (universalism).• The “market” is often considered as “aspatial”.• Tends to be theoretically based.

Space, Place and Scale

■ Space• Includes physical distance and area.• Where an activity is occurring.• Involves territory, location, flows and unevenness.

■ Place• Specificity or uniqueness of particular places.• Involves an embeddedness of economic processes in

environmental, social, cultural, institutional and political contexts.■ Scale• Help understand the hierarchy of places.• From local to global scale.• Lived scale.

Explain the differences between space, place and scale in economic geography.

Themes for Approaching Economic Geography

■ (1) Historical specificity of geography• Difficult to separate spatial and temporal processes.• The current situation the outcome of past decisions:

• Firms.• Individuals.• Organizations.• Governments.

• Economic geography is spatially and temporarily constructed.

Spanish and Portuguese Empires (1581-1640)

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■ (2) Interconnectedness of regions• Places do not exist in isolation from one another.• Networks of locations; implies links.• Types of linkages:

• Biophysical (e.g. winds, sea currents, pollution).• People (e.g. migration, commuting).• Capital (e.g. investments, remittances).• Goods (e.g. trade, supply chains).

• Power relations (e.g. trade agreements).

Global Net Migration (2010-2015)

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■ (3) Interpenetration of human and biophysical systems• Natural resources impact economic opportunities:

• Climate, topography, soils, vegetation, minerals, water resources.• Agriculture, Mining, Logging.

• People and economic activities also impact biophysical systems:• Irrigation.• Deforestation.• Desertification.• Pollution.• Climate change.

• Long history of interdependencies since the agricultural revolution.

Most Suitable Cereal

■ (4) Importance of culture in the creation of social and spatial relations• Influence of culture on economic behavior.• Culture dictates what is desirable and acceptable; consumption

norms.• Political economy reflective of culture; distribution of power and

wealth.• Gender relations (workforce participation).

World’s Major Cultural Regions

WesternSlavic-Orthodox

Latin American African

Islamic

Western

Confucian

Islamic

Essay: The Themes of Economic Geography

Elaborate about the four main themes of economic geography.

B – THEORIES IN ECONOMIC GEOGRAPHY1. Location Theory2. Political Economy

Main Theoretical Foundations in Economic Geography

Location theory Explaining the distribution and patterns of economic activity across space.Quantitative perspective.

Behavioral economics Range of factors influencing decision making.Impacts of culture and psychology (irrational behavior).

Political economy Importance of social and political relations (concentration and distribution of wealth).Marxist perspective (role of the state as an economic agent).

New economic geography Look at economic globalization.Location of production in space (relations).Role of factors such gender, race, age, religion and culture.

Location Theory

■ Concept of location• Absolute location (coordinate system).• Relative location (referring to other locations).

■ Definition• Analyzing location decisions of firms and individuals.

• What locates where?• Looking for a formulation / rules of behavior.

• Why?

Location

Basic Location Factors

Accessibility

Socioeconomic Environment

Land, utilities, visibility, transportation (local access), amenities

Labor, materials, energy, markets, suppliers / customers

Capital, subsidies, regulations, taxation, technology

Macro (national)

Micro (local)

Meso (regional)

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Location Theory

■ Relevance of geography• Location is a resource multiplier:

• Using resources more effectively.• A city is a more effective production and consumption structure.• Some locations have higher sale potential; they differ mainly because of

their accessibility.• Accessibility can be a proxy for the value of space.

• A location can be a resource in itself:• Bottleneck rent effect on flows (canals, bridges, tunnels).• Capturing rent for right of passage (plus construction and maintenance of

infrastructure).

What is location theory and what are the main location factors?

Political Economy

■ Political economy• Power structure and wealth distribution within a society.• “Who gets what, when, where and why”.• Institutions behind this structure and distribution.

■ Main systems• Capitalist System: Power (suffrage), wealth (private).• Command Economies: Power (bureaucracy), wealth (state).• Traditional economies: Power (monarch), wealth (feudalism).

Political Economy

■ The rise of capitalism• The general demise of command and traditional economies in the

face of globalization.• Economic geography as the study of capitalist landscapes:

• Private property.• The search for innovation and efficiency.• Profit as a driver (capital accumulation).• Competition through processes and locations.

• Capitalism emerged in the 15th century, diffused with colonialism and accelerated with globalization.

Explain the nature of capitalism and the circular flows of capital.

The Circular Flow in the Capitalist System

(sales)ResourceMarket(prices)

(consumption - resources)Businesses & Government(production)

(sales)ProductMarket(prices)

(production - labor)Households(consumption)

Goods &Services

$ to pay for consumption$ from product market

Goods &Services

Goods& Services Labor

Income from work

Savings &Investment:Capital Markets

Public Goods: Taxation & Provision

$ to pay for resources

C – NEW ECONOMIC GEOGRAPHY (GLOBALIZATION)1. Economic Globalization2. Transnational Corporations

Major Forms of Globalization

Form Cultural / Social Political EconomicNature How globalization

changed human behavior?

What forms of regulation or control are linked with globalization?

How globalization influences wealth creation and distribution?

Outcomes HomogenizationHybridizationRejection

International agreements (global or regional).Multiple layers of governance.

Trade, new markets, new products

Issues Is a global culture emerging?

Are forms of global governance suitable? Will supranationalism prevail?

Is globalization promoting inequalities?

Economic Globalization

■ Growing interdependencies• Individuals and corporations impacted by processes taking place

elsewhere.■ Key trends impacting interdependencies• International finance.• The role of transnational corporations.• Foreign direct investments.• Global value chains.• Outsourcing and offshoring in the service sector.• Global tourism.

What is economic globalization and what are its main driving forces?

The Drivers of Economic Globalization: Connecting Different Chains

IntegrationRegulatory

chains.Harmonization of

regulatory regimes.

Trade agreements.

ProductionSupply chains.

Offshoring.Global

production networks.

TransportationTransport chains.Containerization.

Transborder transportation.

TransactionsInformation chains (ICT).Capital for

investments.Credit for

transactions.

Economic Integration Levels, 2011

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Examples of Globalization in the Service Sector

Sector Driver ResponseRetail Increase in disposable income

Cultural homogenizationEmergence of brand names

Chain storesGlobal products

Tourism Increase in disposable incomeAvailable leisure timeAffordable air travel

Mass tourismChain hotels / resort areas

Telecommunication Technological innovations (WWW, mobile)Privatization (mostly)

Ubiquitous networks and accessGlobal telecom carriers

International Tourists Arrivals and Receipts, 1950-2016

1400Arrivals (millions)

Receipts (billions of $US)

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Diffusion of Telecommunication Services, 1985-2016

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

7,000,000,000

8,000,000,000Cellular Phone Subscribers

Fixed Broadband Subscriptions

Mobile Broadband Subscriptions

Internet Users

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Corporations in the Global Economy

■ Multinational corporation (MNC)• Provides goods and/or services.• A corporation that takes a global approach for:

• Its inputs (raw materials, parts).• Its outputs (customers).

• Different parts of the industrial system are located in places where they are the most productive.

Inputs OutputsMNC

What Multinational Corporations are Trying to Achieve to Compete?

Lower production costs• One of the main goals of a corporation. Exploitation of comparative

advantages.

Stability of prices and deliveries• The rationale of low costs must also take account of price changes of raw

materials and parts. Risky to relocate (long-term investment) to take advantage of conditions that can change on the short term.

Product quality• Performance, service and maintenance. A quantitatively competitive product

has limited advantages if not qualitatively competitive.

Production and distribution flexibility• Facing changes in the demand confers a notable advantage.

Types of Multinational Corporations by Strategy

Raw Materials Seekers• Lower input costs• Resource acquisition• First MNCs to emerge

Market Seekers• Achieve economies of scale• Expand market• Large investors

Minimal Cost Seekers• Look for comparative advantages• Lower production and distribution costs• Remain competitive

The World’s 20 Largest Corporations by Revenue, 2017 ($US millions)

Walmart

State Grid

Sinopec Group

China National Petroleum

Toyota Motor

Volkswagen

Royal Dutch Shell

Berkshire Hathaway

Exxon Mobil

McKesson

UnitedHealth Group

CVS Health

Samsung Electronics

Glencore

Daimler

General Motors

EXOR Group

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000

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Explain what are multinational corporations, their role and function.

D – ECONOMIC DEVELOPMENT

1. The Notion of Development2. Wealth Disparities

The Notion of Development

■ What is development?• Development is a process; a mean towards an end.• Improvement of the welfare of the population:

• Development is about people, not necessarily the economy.• Create an enabling environment for people; economic opportunities.• Long term process; takes place over decades.

• Different societies can have different development goals:• Promote private accumulation of wealth.• National and collective interests.• Reducing national inequalities.• “Hard” (e.g. infrastructure) versus “soft” (e.g. education) approaches.

■ Development goals• Adequate food and water supplies.• Healthcare system.• Sanitation and disease control.• Providing transport and communication infrastructure.• Employment opportunities.• Educational opportunities.• Rule of law and protection of rights and private property.• Access to housing.• Low environmental impact of society.

■ Conditions• Appropriate social, political, legal and economic conditions.

Physical Capital• Infrastructures and resources that can be used in a productive manner.• Public utilities:

• Energy, telecommunications, water supply and waste disposal.• Public works:

• Roads, dams, irrigation canals.• Transport infrastructures:

• Ports, airports, railways, public transit systems.

Human Capital• The total population and its qualification level.• Development of human capital:

• Supported by education systems.• Reproduce and improve the productivity of the labor force.

• Information economy:• Human capital a resource that differentiates nations.• Not always because of wage differences, but because of differences in

capabilities.

Conditions Outcomes

-Health-Education

-Quality of life

-Rights-Equity

-Rule of law

-Employment-Surplus

Human Capital

Physical capital

Development

Social Political

Economic

Explain the main conditions and outcomes of economic development

Waves of Development

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1785 1845 1900 1950 1990

Water powerTextilesIronMechanizationCommerce

SteamRailSteelCotton

ElectricityChemicalsInternal combustion engine

PetrochemicalsElectronicsAerospace

Digital networksSoftwareNew MediaBiotechnology

60 years 55 years 50 years 40 years 30 years (?)

1st Wave 2nd Wave 3rd Wave 4th Wave 5th Wave

2. Wealth Disparities

■ Inequalities• Large differences in wealth and quality of life around the world.• Differences between nations (mostly between developed and

developing countries).• Differences within societies.• Inequalities not linked with a particular political system, but

capitalism appears to be reinforcing inequalities.■ Trends• Economic development is linked with global inequalities:

• Reinforces the differences between countries and even within countries themselves.

• 1% of the global population accounts for about 44% of the world’s wealth.• Difference between those contributing to the generation of wealth and the

excluded.• Ethnic origin, language, skills, etc.

Distribution of Global Wealth, 2014

Global Gross Domestic Product and Human Development Index, 2010

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Share of the World GDP, 2016 (Current USD)

United States25%

European Union22%

China15%

Japan7%

Germany5%

United Kingdom3%

France3%

Rest of the world21%

World Nominal GDP, 2007, 2016 (in billion USD)

United States

China (PRC)

Germany

United Kingdom

France

Brazil

Russia

Canada

Australia

South Korea

Mexico

0 4,000,000 8,000,000 12,000,000 16,000,000 20,000,000

2007 2016

Countries with More than Half of Population in Extreme Poverty, 2011 (less than $1.25 per day)

LiberiaBurundiRwanda

MalawiTanzania

MadagascarNigeriaZambia

SwazilandCentral African Republic

ChadMozambique

Dem. Rep. of CongoBurkina Faso

NepalHaiti

AngolaRepublic of Congo

Sierra LeoneMali

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

Essay: Inequalities

Economic inequalities are a controversial issue. Provide some evidence about how inequalities are taking place between and within societies.

topic 1 – overview of economic geography

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