Economic Geography

Economic Geography:
Economic Change or GLOBALIZATION
3 OVERLAPPING COMPONENTS:
All over the world, economies are undergoing an economic adjustment process.
This process is described by many different names like structural adjustment,
globalization, export oriented industrialization, and sometimes simply economic
development. Generally these changes involve a movement from more government
involvement in the economy to less government involvement, or from command
economies to capitalist economies.
We do not have the time to study this subject in depth, but I feel that you should
should at least be introduced to the issue. to do this we will look at 3
OVERLAPPING COMPONENTS of this worldwide adjustment process.
(1) A Move Toward Capitalism
CAPITALISM
An economy where economic resources are privately owned and economic

decisions are answered by the marketplace with a limited role for government
COMMAND ECONOMY
An economic system where economic resources are owned by the government and
the government makes all economic decisions
MIXED ECONOMIC SYSTEM
 ALL economic systems are mixed systems containing features of both

command econoies and capitalist economies
 PURE capitalism and PURE command economies do not exist
 Economies vary along a continuum between pure capitalism and pure
command economies. some a closer to pure capitalism and some are closer
to a pure command economy.
SUMMARY: CAPITALISM vs. COMMAND ECONOMY
Structural Adjustment
DEFINITION
A series of economic policies designed to reduce the role of government in

economy replacing government control with market incentives [figure]. It is hoped
that these policies will promote private initiative and private investment, thereby
creating jobs and economic growth.
POLICIES
1. Privatization (selling government owned assets to private owners)

2. Promotion of Competition
3. Limited and Reoriented Role for Government
4. Price Reform - removing government price controls, letting the market set
prices
5. Joining the World Economy through freer trade
6. Macroeconomic Stability - lower government budget deficits and less
government spending to reduce inflation and promote private investment
BENEFITS
A market-based economic system achieves efficiency. Fewer resources are wasted
PROBLEMS
Common problems associated with structural adjustment programs include:
 initial periods of inflation

 unemployment
 a less equal distribution of income
Because of these problems, structural adjustment policies have become quite

controversial.
Please read this article from the Christian Science Monitor on structural adjustment
policies in Africa: http://www.csmonitor.com/durable/1998/04/01/p7s1.htm
(2) Free Trade
On the discussion forum respond to these questions:
1. Should the United States have free trade with Mexico?

2. Why or why not?
3. Most economists agree that free results in greater efficiency. What do
you think?
Why do economists favor free trade?

See: http://www.ncpa.org/pd/trade/pdtrade/pdtrade10.html
OPTIONAL: http://www.ncpa.org/bg/bg135.html
Again, we don't have the time to study the benefits and costs of free trade. Just let
me say that all recent US presidents, a majority of the US Congress, and a majority
of the US public have supported the removal of trade barriers. Some very vocal
groups do often argue that free trade will hurt the US, but they are definitely in the
minority.
Suffice it to say that countries around the world are lowering their trade barriers.
Many are signing bilateral and multilateral free trade agreements with their
neighbors.
MORE
(3) Economic Development
Economic Development is a difficult concept to define and to achieve. Economists

often use and increase in GDP per capita as the measure of economic development.
We have reviewed the Measures of Economic Development already. Here we will

briefly focus on:
 the role of international aid in third world development

 export oriented industrialization vs. import substitution industrialization
The role of international aid in Third World development
Take this one question quiz: QUIZ / Answer.
The present trend in economic development aid is often stated as:
TRADE, NOT AID
which favors the removal of restrictions on trade with poorer countries (LDCs)
rather than increased financial aid.
As a percent of GNP, the US is NOT a leader in foreign aid donations. foraidg
Export Oriented Industrialization vs. Import Substitution Industrialization
EXPORT ORIENTED INDUSTRIALIZATION:
 an economic development strategy which emphasizes production for export

and few restrictions on imports
 the leading development strategy today
 EXAMPLE: South Korea
IMPORT SUBSTITUTION INDUSTRIALIZATION:

 an economic development strategy which restricts imports to generate a
domestic market for the country's products
 common in the past, less common today
 EXAMPLES FROM THE PAST: India, Sri Lanka
SUMMARY
 all over the world countries are moving to a more capitalistic economic
system
 these structural adjustment policies include:
o freer trade
o privatization of industries
o allowing markets to set prices
o smaller role for government
 The goal of these structural adjustment policies is greater efficiency and
economic growth
 the hazards of these structural adjustment policies include economic
instability (unemployment and inflation) and inequities
 free trade results in a more efficient use of resources and therefore greater
production
 export oriented industrialization has resulted in higher rates of economic
growth than import substitution policies
 some of these policies are controversial mainly because they may
contribute to greater economic inequality
English, Economics, and Trade
Most economies are increasingly powered by trade, which

represented 56% of world GDP in 2015, up from 44% in 1995.
Overwhelmingly, the common language required for these global
transactions is English. Not surprisingly, there is a strong
correlation between English proficiency and many import and
export-related indicators, including logistics performance (Graph A),
documents to export, and time to import.
A BETTER ENVIRONMENT FOR BUSINESSES
Every edition of the EF EPI has found a strong correlation between

ease of doing business and English proficiency (Graph B). While
small-time entrepreneurs and artisans may not need English to do
business locally, a growing proportion of businesses operate
internationally – as part of a global supply chain, as customers of
finished products, or as competitors with similar businesses abroad.
According to Professor Tsedal Neeley of Harvard Business School,
close to 60% of all multinational organizations already operate in
English. Those that do not will find it difficult to catch up to the first-
movers.
THE CORPORATE LANGUAGE
It takes time to develop a workforce with strong English skills, but

multinational companies are increasingly convinced of its necessity.
Rakuten, the Japanese e-commerce giant, began the transition to
using English as their worldwide corporate language in 2010. Today,
80% of the new engineers in their Tokyo offices are non-Japanese,
and the company has gone from 200 million users to 1.1 billion by
expanding outside its home market. Honda, Nissan, Renault,
Siemens, Nestle, Sodexo, and many other multinationals
headquartered in non-English-speaking countries have also adopted
English as their corporate language in order to remain competitive.
Integrating an international workforce demands a common
language.
ENGLISH AND ECONOMIC DEVELOPMENT
For economies around the world, higher English proficiency comes

with significant benefits. English proficiency correlates with higher
gross domestic product, higher average gross income (Graph C), and
growth in other key economic indicators. In developing economies,
the transition from agriculture or manufacturing to a knowledge-
based economic model requires not only technological
infrastructure but also skilled adults who are able to sell their
services internationally. Accordingly, there is a strong correlation
between English proficiency and service exports (Graph D), as well
as between English proficiency and productivity. In many places,
retail is the single biggest private employer, but with e-commerce
growing at an average rate of 20% per year globally, not even this
quintessentially local sector is guaranteed to remain local. The
future of the workplace is international, and speaking English is one
of the basic skills required to gain access.

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Economic Geography:

Economic Change or GLOBALIZATION

(1) A Move Toward Capitalism

An economy where economic resources are privately owned and economic

MIXED ECONOMIC SYSTEM

 ALL economic systems are mixed systems containing features of both

SUMMARY: CAPITALISM vs. COMMAND ECONOMY

A series of economic policies designed to reduce the role of government in

1. Privatization (selling government owned assets to private owners)

A market-based economic system achieves efficiency. Fewer resources are wasted

Common problems associated with structural adjustment programs include:

 initial periods of inflation

Because of these problems, structural adjustment policies have become quite

(2) Free Trade

On the discussion forum respond to these questions:

1. Should the United States have free trade with Mexico?

Why do economists favor free trade?

(3) Economic Development

Economic Development is a difficult concept to define and to achieve. Economists

We have reviewed the Measures of Economic Development already. Here we will

 the role of international aid in third world development

The role of international aid in Third World development

Take this one question quiz: QUIZ / Answer.

The present trend in economic development aid is often stated as:

TRADE, NOT AID

As a percent of GNP, the US is NOT a leader in foreign aid donations. foraidg

Export Oriented Industrialization vs. Import Substitution Industrialization

EXPORT ORIENTED INDUSTRIALIZATION:

 an economic development strategy which emphasizes production for export

IMPORT SUBSTITUTION INDUSTRIALIZATION:

Most economies are increasingly powered by trade, which

A BETTER ENVIRONMENT FOR BUSINESSES

Every edition of the EF EPI has found a strong correlation between

THE CORPORATE LANGUAGE

It takes time to develop a workforce with strong English skills, but

ENGLISH AND ECONOMIC DEVELOPMENT

For economies around the world, higher English proficiency comes

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