What are we seeing here? 10%What countries are in red? 10% eachWhat country is in teal? 20%What countries are in yellow and blue? 25% each

CHRIS FOWLEROCTOBER 1ST 2010

Economic GeographyGeog 207

Lecture 2: The World Economy

Chapter 1 World Economy: An Introduction

Geographic PerspectivesEconomic Geography of the World EconomyWorld Development ProblemsFour Major Questions of the World EconomyPolitical EconomiesGeographical Information Systems

Geographic Perspectives

Barney Warf’s Style: anything goes Use what is useful

Key Points for this course: Why are activities located where they are?

- Requires a knowledge of economics, business practices, human behavior with regard to economic choices

- Interaction of space and time Why do these activities create such an uneven

(unequal) global landscape? Requires a knowledge of underlying inequalities and

differential access to resources of all types

Do we need space to understand the global economy?

WRONG!

Yes

How does space effect the economy at small scales?

Many, many answers to this question. No two geographers likely to agree.

This course takes much of economics as a starting point Homo economicus Supply and demand Opportunity costs Profit seeking

But geographers are, in general, much more willing to accept that these “rules” are just poor approximations. Behavioralism Humanism Just the tip of the iceberg….

How do we understand the economy at broader scales?

Interdependence What happens in one place or time will shape/influence

outcomes elsewhere Ex. U.S. housing crisis led to near collapse in several major

economiesDynamism

Relationships among places are constantly changing, and it is this change that makes space interesting

Ex. Low cost transportation is creating port cities in places with no history of economic activity at all

Structured The relationships among places need to be understood in

terms of historical processes like inequality, colonialism, racism, etc… because they will shape future relationships as well

Ex. Australia and Hong Kong have had very different economic trajectories despite their nominally similar colonial past.

Some specific areas of investigation

Technological change GeopoliticsCultural homogenization/localizationTransport & communication cost reductionsFall of centrally planned economiesRise of global capital marketsRise of institutions such as World Bank,

IMF, WTO, OPEC, OECD….

Four Major Questions of the World Economy

What should be produced, at what scale of output, and with what mix of inputs?

How should factors be combined? Labor, capital, resource factors, etc.

Where should production occur? Who should get output? How should it be

divided?

Figure 1.1 Cartogram of GNPAreas are (supposedly) proportional to GNP

Figure 1.2 GDP per capitaHighly variable among countries

Figure 1.3 The Global North and the Global South

Variations in Economic Structure Gross National Income

Source: World Bank (2010) World Development Indicators

Country GroupPopulation 2008

MillionsGNI/Capi

ta

GDI Growth

Rate per Capita

2007-2008

GNI/Capita at Purchasing

Power ParityLow Income 973 $564 4.1% $1,407Middle Income 4651 $3,260 5.0% $6,154High Income 1069 $39,345 zero $37,141World 6692 $8,613 0.8% $10,357

Accessed at http://www.time.com access date October 1st 2010

High income

Per capita Income:$41,674

Middle incomePer capita income Egypt: $5,049Per capita income Poland: $13,573

Accessed at http://www.time.com access date October 1st 2010

Low incomePer capita income: $1749

Global Shares of Population and Gross National Income (2008)

16%

70%

15%

73%

26%

1%

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

High Income

Middle Income

Low Income

GNIPopulation

Structure of Production (% of GDP)

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

Shar

e of

Out

put

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 TradeNote: 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

P.9 “processes that make the world, its economic system, and its society more uniform, more integrated, and more interdependent.” Some dispute uniform

Elements: culture, consumption, telecommunications, economy, transnational corporations, investment, labor, services, tourism. Role of IT.

Globalization & Local Diversity

Globalization and MNC’s

SampleU.S.

MNC’s Foreign Revenue

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

Another view of FDI

World Development Problems

Environmental constraintsThe cycle of poverty (Fig 1.9)

Low Real

IncomeUnemploymentUnderemployment

LowOutput /Productivity

RapidPopulationGrowth

Low LevelOf Saving

Low LevelOf Demand

Low levels ofInvestment inCapital deficiency

Four Major Questions of the World Economy

What should be produced, at what scale of output, and with what mix of inputs?

How should factors be combined? Labor, capital, resource factors, etc.

Where should production occur? Who should get output? How should it be

divided?

The Four Questions for the World Economy

Economics – Key Topics

Allocation of Scarce ResourcesMarkets for Production, Distribution, and

ConsumptionThe Division of LaborSolving What, How, What Price, What

Quantity, and Where Production Takes Place

Types of Economic SystemsNeoclassical versus Behavioral and

Structural Approaches

Political Economies

Alternative Systems: capitalism, command, and traditional – with systems of power & class that shape output

Capitalist System (Fig 1.11)Command EconomiesTraditional economiesThe general demise of command and

traditional economies in the face of globalization

The Circular Flow in the Capitalist System (set in space and time)

(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

Geographical Information Systems

Manifold applicationsdisplaying attributes-Examples in this figure-Many other layers possible-Display current patterns and changes-Integrated with data from remote sensed sources with human system data bases including geocoded economic information

Summary and Plan

The chapter planLearning objectives at beginning of each

chapterStudy questions at end of each chapterKey termsSuggested readingsWeb sites