Road to Development. Comparative vs. Absolute Advantage – d0 d0.

Road to Development

• Comparative vs. Absolute Advantage– http://www.youtube.com/watch?

v=Vvfzaq72wd0

• U.S. Health Worse Than Nearly All Other Industrialized Countries

• Bin Laden blames Industrialized countries for climate change

• These are headlines from past news stories. What is meant by the word industrialized?

• What does it mean for a country to be called industrialized?

• What does it mean to a developed country?

• Can all countries become developed countries?

• Do you think all countries will have a large number of factories?

Schools of Thought

• Basketball – man-to-man or zone?• Goals of education – prepare everyone for college or

different options of technical classes• There are 2 schools of thought about economic

development– Liberal Models

• All countries can become developed• A liberal model is Rostow’s Model

– Structuralist Models• There is a structure in place which prevents LDCs from achieving

development• A structuralist model is Dependency Theory

Models of Development

• Liberal Modernization Models by definition– All countries are capable of development– Economic disparities are a result of short term

inefficiencies in local or regional market forces– Focus on International trade

Rostow’s Modernization Model of Development

• Developed by W.W. Rostow (1950s)

• develop economically by concentrating scarce resources on expansion of its distinctive local resources – to trade internationally

• aka Ladder of Development

Rostow - Stages of Growth1. Traditional Society• Characterised by

– subsistence economy – high levels of

agriculture and labor intensive agriculture

– Wealth allocated to nonproductive activities (religious, military)

Village in Lesotho. 86% of the resident workforce in Lesotho is engaged in subsistence agriculture.

Copyright: Tracy Wade, http://www.sxc.hu/

Rostow - Stages of Growth

2. Pre-conditions:– An elite group

initiates development

– Investments in technology and infrastructure

– Commercialization of agriculture

The use of some capital equipment can help increase productivity and generate small surpluses which can be traded.

Copyright: Tim & Annette, http://www.sxc.hu


3. Take off:– Increasing industrialization

in limited areas (food or textiles)

– Foreign investment increases

– Infrastructure improvements

– Some regional growth– Economy still dominated by

traditional practices

At this stage, industrial growth may be linked to primary industries. The level of technology required will be low.

Copyright: Ramon Venne, http://www.sxc.hu


4. Drive to Maturity:– Develops broad

manufacturing and commercial base

– Industry more diversified

– Increase in levels of technology utilized

As the economy matures, technology plays an increasing role in developing high value added products.

Copyright: Joao de Freitas, http://www.sxc.hu


5. High mass consumption– High output levels– Mass consumption of

consumer durables– High proportion of

employment in service sector

Service industry dominates the economy – banking, insurance, finance, marketing, entertainment, leisure and so on.

Copyright: Elliott Tompkins, http://www.sxc.hu

USA Path to Development

• Stage 5: early 20th century

• Stage 4: late 19th century

• Stage 3: middle of 19th century

• Stage 2: first half of 19th century

• Stage 1: prior to independence

• Possible 6th stage – Postindustrial– Service replaces industry– Information replaces energy as key resource

• Origin of common use “industrialized” country

• All countries follow the same model of development – For countries that have developed in modern

times – only China has followed THE model of development

Criticisms

• Western bias that urban and industrial = a better life. Development does not necessarily lead to high consumption, can mean social welfare

• Assumes LDCs will achieve each level of development before advancing

• Uneven resource distribution (Zambia’s one commodity market of copper developed trouble when world copper price fell)

Criticisms

• Does not account for– Colonialism– Culture– Deindustrialization

• Increased dependence on MDCs – when concentrating resources in a “takeoff” industry, then buy necessities from MDCs

Balanced Growth

• through Self-Sufficiency• A country should spread investment as

equally as possible across all sectors of its economy and in all regions. – Incomes in rural areas keep pace with urban

incomes– Businesses remain independent of foreign

corporations– Limit imports through tariffs and quotas

• India followed this policy– Made imports difficult– Discouraged Indian businesses from

exporting– Could not convert Indian money into other

currencies– Encouraged production of consumer goods

for Indian citizens– Provided subsidies for struggling companies

Problems

• Inefficiency: without true competition, companies have little incentive to improve techniques, technology, products, etc

• Large Bureaucracy: needed to administer the controls – complex and corrupt

International Trade Approach

• Some countries have switched from self-sufficiency approach to international trade– according to the World Bank – international trade

countries have seen 4% growth, self-sufficiency countries 1%

• LDCs are exporting more manufactured goods rather than agriculture or mining goods

• Dollarization: abandoning existing currency in favor of an industrialized countries (In 2001, El Salvador abandoned the colon and now uses American dollars)


• Foreign Direct Investment (FDI) – investment made by a foreign company in the economy of another country

• Only 1/3 of investments went from a MDC to a LDC (only 10% went to African nations)

• Transnational Corporations are major sources of FDI

PBS learning media – Ethiopia Going Global


What is the term used for the factories located here?

Models of Development

• Structuralist Models– Dependency Theory– Regional disparities are a structural feature of

the global economy • Neo-Colonialism

– Gabon – interior forest (plywood producing region) connected by rail with capital; 2nd largest city and capital are not connected by road or rail (deBlij 247)

– Old method of industrializing is no longer possible because other factors have changed

Dependency Theory

• Dependency helps sustain the prosperity of the dominant regions and the poverty of the lesser regions

• Based on generalizations that pay little attention to regional differences in culture, politics, and society

World-Systems Theory

• Immanuel Wallerstein

• A development theory that includes geography, scale, place and culture in addition to economics

• Divide world into – Core– Semi-periphery– Periphery

Three Tier Structure

Core Processes that incorporate higher

levels of education, higher salaries, and more technology

* Generate more wealth in the world economy

Semi-periphery Places where core and periphery

processes are both occurring. Places that are exploited by the core but then exploit the periphery.

* Serves as a buffer between core and periphery

Periphery Processes that incorporate lower

levels of education, lower salaries, and less technology

* Generate less wealth in the world economy

Core Periphery Model

• Core Regions– High levels of socioeconomic prosperity– Dominant players in global economic game

Anglo America HDI .94Japan and the South Pacific HDI .93Western Europe HDI .92


• Periphery– Poor regions– Dependent on the core– Do not have much control over their own

affairs

Southeast Asia HDI .71Middle East HDI .66South Asia HDI .58Sub Saharan Africa HDI .47


• Semi Periphery– Regions that exert more power than periphery

regions but are – Dominated to some degree by the core

Latin America HDI .78East Asia HDI .72Eastern Europe HDI

Core/periphery

• Can be applied at the local scale– LA is the core of S. California region– Alaska is in the periphery of the US– Johannesburg is core of South Africa

• Can refer to the different level of processes in the same country– Most of the US operates with core processes,

however the rural mountain regions of WVa operate with periphery processes

Development Indicators

• Economic: GNP, PPP (Purchasing Power Parity), per capita energy consumption

• Noneconomic: HDI, gender equity, calorie intake

Development Indicators

Four Dragons

• Aka Four Tigers or Gang of Four• S. Korea, Singapore, Taiwan, &

Hong Kong• Lacked natural resources• Strongly influenced by Japan’s

success• Concentrated on handful of

manufactured goods• Low labor costs; Sell to MDCs• Focusing on research & hi-tech

industries

BRIC

• Brazil, Russia, India, and China• aka “the big four”• At a similar stage of advanced economic

development • There has been a shift away from the G7

economies (Fr, Ger, It, UK, US, Jap, Can)• BRICs have begun meeting to coordinate

global economies – similar to EU• Some include South Africa for BRICS

10 Largest Economies (measured in USD)

More fun …

• MIKT

• N – 11 – id by Goldman Sachs as high potential of becoming world’s largest economies – in addition to BRICs

• Mex, Indonesia, S. Korea, Turkey

• Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, S. Korea, Vietnam

Millennium Development Goals

• Adopted by world leaders during a United Nations summit in the year 2000 and set to be achieved by 2015, the Millennium Development Goals (MDGs) provide concrete, numerical benchmarks for tackling extreme poverty in its many dimensions.

The MDGs also provide a framework for the entire international community to work together towards a common end – making sure that human development reaches everyone, everywhere. If these goals are achieved, world poverty will be cut by half, tens of millions of lives will be saved, and billions more people will have the opportunity to benefit from the global economy.

Millennium Development GoalsThe eight MDGs break down into 21 quantifiable targets that are measured by 60 indicators.

• Goal 1: Eradicate extreme poverty and hunger • Goal 2: Achieve universal primary education • Goal 3: Promote gender equality and empower

women • Goal 4: Reduce child mortality • Goal 5: Improve maternal health • Goal 6: Combat HIV/AIDS, malaria and other

diseases • Goal 7: Ensure environmental sustainability • Goal 8: Develop a Global Partnership for

Development http://www.undp.org/mdg/basics.shtml

Ghana & MDG

Ghana• Ghana, is a west African country, bounded on the north by Burkina

Faso.• On the east it is bounded by Togo • On the south it is bounded by the Atlantic Ocean, and on the west by

Côte d'Ivoire.

Accra• The capital city of Ghana is Accra • Total population of Ghana is approximately 23,382,848 • Languages spoken include Akan, Ewe, Twi and English

Cassava Tree

Cedi

• The money used in Ghana is the New Ghana Cedi. 1 Ghana Cedi is worth about 78 cents in U.S. dollars.

• Ghana is a democratic nation with a history of peaceful transfers of power.

Democracy

Young people can vote at age 18 years of age.

• Formerly a British colony known as the Gold Coast, Ghana was led to independence by Dr. Kwame Nkrumah

• On the 6th of March, 1957, Ghana became the first sub-Saharan colonial African nation to achieve independence.

Empire of Ghana

• The country is named after the ancient Sudanic empire of Ghana, from which the ancestors of the inhabitants of the present country are thought to have migrated.

In medieval times, Ghana was the source of much of the gold that found its way across the Sahara to North Africa and Europe.

Gold is still an important part of Ghana’s economy but today Ghana is known more for its cocoa .

Gold and Ghana

Cocoa from Ghana is considered to be among the finest cocoa in the world.

Most of Ghana’s cocoa production is on small farms of 4 to 5 acres.

From the 1900s cocoa growing spread in Ghana.

720,000 cocoa farmers in Ghana

• Today there are currently close to 720,000 cocoa farmers in Ghana and approximately 2 million in West Africa.

West Africa supplies 70% of the world’s cocoa and Ghana is the second largest producer.

• The price of cocoa on the world market changes frequently. Going up and down.

The changing price of cocoa on the international market means cocoa farmers have no long-term security.

Price of cocoa on the world market

Fixed ScalesOn the local scene,

farmers face additional problems. They are often underpaid by local cocoa buyers using ‘fixed’ scales that show a lower reading than the actual weight of their cocoa beans.

Sometimes they are paid with checks that bounce or vouchers which the farmers have trouble cashing.

Bounced Checks

• The problems Ghanaian cocoa farmers face globally and locally often push their incomes below the poverty line.

• They lack the money they need to buy, tools, fertilizers and pesticides to grow cocoa.

• They also lack the money they need to pay for clothes, medical care, and school fees for their children.

Rich get richer

• The experiences of Ghanaian cocoa farmers are like those of many farmers all over the world.

• They are caught in a trading system that benefits the multinational companies based in the richest countries.

• They are at the mercy of local people who cheat them.

Farmers’ Cooperatives• Farmers in Ghana are forming ‘Fair Trade’

cooperatives to solve the problems they face.

Kuapa’s Mission

Kuapa Kokoo (Fair Trade Cooperative) works to:

• to empower farmers in their efforts to gain a dignified livelihood

• to increase women's participation in all of Kuapa's activities

• to develop environmentally friendly cultivation of cocoa

Buy Fair Trade Chocolate

• You can support farmers and their families by buying Fair Trade chocolate.

• Fair prices for chocolate bars means a better life for farmers and their families.

Cote d’Ivoire

Ghana & MDG

• Read Ghana MDG articles

Ghana & MDGGoal Measure

½ Poverty & Hunger

Target 2015 – 14%

Underweight children

1992 – 27%; 2003 – 23%

Projected 2015 – 21 %

Universal Education

Target 2015 – 100%

Primary School Enrollment

1999 - 58%; 2003 – 69%

Projected 2015 – 83%

Improve Maternal Health

Target 2015 – 54/100,000 live births

Reduce Maternal Mortality Levels

1993 – 280; 2003 – 230

Projected 2015 – will not be met

Road to Development. Comparative vs. Absolute Advantage – d0 d0.

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Transcript of Road to Development. Comparative vs. Absolute Advantage – d0 d0.