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Chapter 3 Global Economic Development

Chapter 3 Global Economic Development. Introduction Nature of Technology, Global Distribution of Technology, Elements in Economic Development World Levels of Development Regional Growth Problems of Development

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Chapter 3 Global Economic Development

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  1. Chapter 3 Global Economic Development • Introduction • Nature of Technology, Global Distribution of Technology, Elements in Economic Development • World Levels of Development • Regional Growth • Problems of Development • Regional Economic Change, Growth Pole Theory, Circular and Cumulative Causation, The Bell Shaped Development Model • Concluding Thoughts and Summary

  2. Introduction • The Nature of Technology “technology … refers to the application of scientific knowledge and methods to economic activity, resulting in changes in productivity” p. 35 • The basic problem in engineering economics and management science - defining products/services, and optimal combinations of factor inputs to produce them • Component technologies: (1) transport & communications, (2) manufacturing, (3) agriculture, (4) urban-service • Energy consumption as an indicator of the stock of technology (Table 3.1); vehicles per capita (Figure 3.2)

  3. Elements in Economic Development Cultural Attributes Population Characteristics Economic Development Energy and Resource Base Technology

  4. World Levels of Development • Figure 3.4 • Regional Growth: Rostow’s stages of growth model (1) traditional societies, (2) preconditions for takeoff, (3) takeoff, (4) drive to maturity, (5) high mass consumption • The process of diffusion of development • ? Inevitability of Rostow’s sequence?

  5. Changing Composition of Employment in the U.S.

  6. Development of the U.S. Service Sector

  7. Decomposition of Services

  8. Development: The Circular Model of Capital Flow • Interest rates • Tax policy & public • investment Stock of Productive Capacity Industrial Output Final Consumer Demand Investment “Savings” Business Income (Value Added) Payments to Households “Savings” - retained earnings, household savings, institutional investors, international capital sources

  9. Regional Economic Change: Initial Triggers to Development Vance’s model - contrast of “old model” of endogenic development (internal growth theory) - versus “new model” of exogenic growth Local examples: fur trade Hudson’s Bay Co trading posts Oregon Trail settlers Puget Sound timber trade Jacksonville OR gold mining

  10. Vance’s Exogenic And Endogenic Model

  11. Internal Development after Initial Triggers to Development Retail and other service functions ? Location relative to export activity? Crossing thresholds with growth, substituting local production for imports, exploiting scale economies Static versus dynamic relations

  12. Impact of Scale Economies on Market Division B A Market Division Market Division P t P t P P t a a a a I II I II distance

  13. Impact of Transport Improvement C Market Division P P I II

  14. Process of Regional Specialization Region B Region A Initial Condition: No Interregional Trade Local Production Equals Location Consumption

  15. Process of Regional Specialization, Continued Exports to A Exports To B Region A Region B Imports from A Imports from B

  16. Process of Regional Specialization, Continued Interregional Exports Production for Local Use Production for Local Use Interregional Imports

  17. Perroux’s Growth Pole Model “Growth does not appear everywhere at the same time; it becomes manifest at points or poles of growth, with variable intensity; it spreads through different channels with variable terminal effects on the whole economy.” Growth Poles versus Growth Centers Propulsive Industries & Lead Firms - large size; fast growth; strong linkages; innovative ? Geographic clustering of pole components? ? Use of I/o data to identify poles??

  18. Uneven Development: Spatial Outcomes at varying scales Role of lead industries, growth poles Regional economic base as a platform for development over time The outcome of Perroux’s arguments: uneven development, where there is: (1) a dominant center or core, and (2) a subdominant periphery that materializes (a) locally; (b) nationally, (c) globally

  19. Core-Periphery: Shifting Scales Global: Nation State Level: Developed-Developing Urban Perspective: Global Cities (New York, London, Tokyo) - peripheral cities - e.g. Seattle National: The Industrial NE Vs. the agriculture & resource dependent South and West Regional: Seattle & Portland as central-place core cities, rural peripheries Local: Seattle CBD Vs. lower order urban centers

  20. The classic core-periphery model: Myrdal & Friedmann Demands from center for goods/services yields payments to periphery Abundant Labor Supply of materials and products Periphery Center Scarce Capital Abundant Capital Capital flows to periphery Shortage of labor in center creates stimulus for labor migration from periphery Scarce Labor Supply of labor from periphery will create labor shortage in periphery and raise wages and incomes Adequate Labor Adequate Capital

  21. Core-periphery Model: Spread Effects Demands by Center for goods & services; labor movements; capital flows to meet investment needs: ? “Trickle-Down” leading to equilibrium? BUT: (1) Distance attenuating effects - related to transportation & communications (2) Hierarchical impacts with stronger access to resources in higher order places

  22. Core-Periphery Model: Backwash/ Polarizing Effects Overtake Spread Effects 1. Goods/Service purchase in periphery (a) inelastic demand for peripheral goods (historically owned by core industrialists) (b) Offset by peripheral demand for goods and services produced in the core 2. Migration: historically selective 3. Capital: net flows often favor the core Result: Convergence, Divergence, Persistent Imbalance

  23. Backwash Circuits Capital Investment Migration and Employment Capital attracted to center Young workers migrate to center Wider Gap C-P Lack of investment in periphery Aging labor force in periphery Wider Gap C-P Retarded growth in periphery Decreased attraction for new activity Services and Infrastructure Reduced Investment and new jobs in periphery Smaller local market, pur- chasing power Widened gap between C-P Decline in local services

  24. Pred’s Model of Circular and Cumulative Growth Enhanced chance of invention and innovation Entry of new industry or expansion of existing industry Initial Multiplier Effect Attraction of linked industries: forward linkages backward linkages New Construction Activity Expanded Tertiary Sector Expanded Public Utilities New local or regional threshold Secondary multiplier effects Invention or Innovation

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