Ch. 1 Introduction, continued

• Economic Geography of the World Economy

• Globalization

• Globalization versus local diversity

• Problems of World Development

GDP Per Capita

GDP = Consumption + Investment + Government

Figure 1.7 The Global North and the Global South

Variations in Economic Structure Gross National Income

Source: World Bank (2012) World Development Indicators

GNI (Gross National Income) = GDP + foreign income receipts(such as dividends and interest) – foreign income payments

Population GNI/Capita

% Growth per capita income

2008-2009

GNI at Purchasing

Power ParityLow Income 846 $509 2.4% $1,220Middle Income 4813 $3,397 1.5% $6,730High Income 1117 $37,990 -3.9% $36,213World 6775 $8,732 3.0% $10,594-

Income Inequality

Source: Wikipedia, but attributed to the World Bank

Calculating Gini Coefficient

The graph shows that the Gini coefficient is equal to the area marked A divided by the sum of the areas marked A and B. that is, Gini = A / (A + B). It is also equal to 2*A due to the fact that A + B = 0.5 (since the axes scale from 0 to 1).

Global Shares of Population and Gross National Income (2009)

1%

28%

72%

12%

71%

16%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Low Income

Middle Income

High Income

% of Population

% of GNI

Structure of Production (% of GDP)

Growing Inequality

Hollowing ofIndustry Decrease in

Agriculture, Services Growth

Share of Global GDP/GNI Agriculture Agriculture Industry Industry Services Services

1965 2008 1965 2008 1965 2008 2003 2008Low 9% 3% 44% 25% 28% 29% 28% 46%Middle 12% 28% 19% 10% 34% 37% 45% 53%High 79% 69% 5% 1% 43% 26% 54% 73%World $1,759 $60,587 10% 3% 40% 28% 51% 69%

The Clark-Fisher Model of Structural Change

Time

Share

of

Ou

tpu

t

Agriculture

Manufacturing

Services

Is This Model Inevitable?

Distribution of Gross Domestic Product (%)

Why so high &why the decline?

GDP = Final Sales to Government, Consumers & Investment

GlobalIncrease in Trade

Note: 2008 Exports includes services

Consumption Investment Government Exports1965 2008 1965 2008 1965 2008 1965 2008

Low 70% 75% 19% 27% 11% 9% 7% 29%Middle 67% 56% 22% 30% 11% 14% 17% 29%High 61% 62% 17% 21% 22% 18% 13% 26%Japan 59% 57% 28% 24% 12% 18% 11% 14%U.S. 63% 70% 12% 19% 25% 16% 6% 11%World 63% 61% 18% 22% 19% 17% 12% 27%

Imports/Exports 2006 ($ billions)

High Income havemuch stronger tradein services than Low and Middle Income

The U.S. Share ofServices Trade isvery high

Total Merchandise ServicesExports Imports Exports Imports Exports Imports

Low 434 512 323 389 111 123Middle 3771 3456 3312 2958 459 498High 10651 10955 8451 8985 2200 1970Japan 765 714 650 580 115 134U.S. 1436 2227 1038 1919 398 308World 14852 14908 12085 12327 2767 2581

Structure of Merchandise Exports (%)

Fuels,Minerals,Metals

OtherPrimary

Commodities

Machinery&

TransportEquipment

Other Mfg. Textiles &Clothing

1965 1992 1965 1992 1965 1992 1965 1992 1965 1992LowIncome

16 21 60 17 1 9 23 53 12 26

MiddleIncome

27 32 46 19 14 18 13 31 3 10

OilExporters

80 92 16 2 0 1 3 5 0.1 1

HighIncome

9 7 21 11 31 43 39 39 7 5

U.S. 8 6 27 14 37 48 28 32 3 2J apan 2 1 7 1 31 66 60 31 17 2World 15 13 26 13 25 37 34 38 7 6

Food FuelsOtherPrimaryCommodities

Machinery&TransportEquipment

Other Mfg.

1965 1992 1965 1992 1965 1992 1965 1992 1965 1992LowIncome

20 9 5 9 8 9 31 34 34 40

MiddleIncome

15 11 8 10 11 6 30 38 34 35

OilExporters

22 15 2 2 5 5 32 40 40 39

HighIncome

19 10 11 9 20 6 19 35 31 41

U.S. 19 6 10 11 20 4 14 41 36 38

Structure of Merchandise Imports (%)

IndustrialMarket

Economies

NonreportingNonmember

High Income OilExport

DevelopingCountries

(From/To) 1965 1985 1965 1985 1965 1985 1965 1985All Trade:Developing 67 63 8 7 1 2 25 30High Income OilEx.

70 59 (.) (.) 3 1 27 40

IndustrialMarket

70 71 2 2 1 3 27 24

ManufacturesDeveloping 47 56 19 8 2 4 32 32High Income OilEx.

30 47 0 0 21 16 49 36

IndustrialMarket

66 70 2 2 1 3 31 25

Origin and Destination of Merchandise Exports (%)

Globalization

• “Essentially an expansion in the scope, scale, and velocity of international transacations” p. 12

• Culture and consumption

• Telecommunications

• Economic Dimensions – finance, TNC’s, FDI, regional specialization in production, tertiary sector, office activity, tourism

TNC Sales and Selected Country GDP

FDI in the U.S. – similar diagram could be drawn for any country

Another view of FDI

An Example of Global Trade –United’s Business First Amenity Kit

China, USA, Thailand

Globalization vs. Local Diversity

• The desire to preserve local diversity

• But the inevitable outside pressures

• Producing “glocalization”

Problems In World Development

• Structural changes in low, medium & high income countries

• Environmental Constraints

• Disparities in wealth and well-being– Internal trends: growing income disparity in

many nations– The cycle of poverty– The Core-Periphery Model – developed in

chapter 14

The Cycle of Poverty in Third-World Countries