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

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)

Elements in Economic Development

Economic Development

Population Characteristics Cultural Attributes

TechnologyEnergy andResource Base

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?

Changing Composition of Employment in the U.S.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1899

1909

1919

1929

1939

1947

1958

1967

1972

1977

1982

1987

1989

1995

2001

Services

Manufacturing

Construction

Mining

Farm

Development of the U.S. Service Sector

0%10%20%

30%40%50%60%70%

80%90%

100%

1940 1970 2002

State & Local Government

Federal Government

Services

Finance, Insurance, RealEstate

Retail

W holesale

Transportation,Communications & Utilities

Decomposition of Services

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1940 1970 2002

Consumer Services

Health Services

Producer Services

Development: The Circular Model of Capital Flow

Stock of ProductiveCapacity

IndustrialOutput

BusinessIncome(Value Added)

Payments toHouseholds

Final ConsumerDemand

“Savings”

Investment

“Savings” - retained earnings, household savings, institutionalinvestors, international capital sources

•Interest rates•Tax policy & public investment

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

Vance’s ExogenicAndEndogenicModel

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

Impact of Scale Economies on Market Division

A B

distance

a a

I II

tPP

Market Division Market Division

I II

P

P

a a

tt

Impact of Transport ImprovementMarket DivisionC

P P

I II

Process of Regional Specialization

0

2

4

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18

Bread Lumber Iron Cameras

0

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Bread Lumber Iron Cameras

Region ARegion B

Initial Condition: No Interregional TradeLocal Production Equals Location Consumption

Process of Regional Specialization, Continued

0

5

10

15

20

25

30

Bread Lumber Iron Cameras

Imports from B

ExportsTo B

0

5

10

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30

35

Bread Lumber Iron Cameras

Region A Region B

Exports to A

Imports from A

Process of Regional Specialization, Continued

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Bread Lumber Iron Cameras

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Bread Lumber Iron Cameras

Interregional Exports

Production forLocal Use

Production forLocal Use

Interregional Imports

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??

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

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

The classic core-periphery model: Myrdal & Friedmann

Center Periphery

ScarceLabor

AbundantCapital

AbundantLabor

ScarceCapital

Supply of materials and products

Demands from center for goods/servicesyields payments to periphery

Shortage of labor in center createsstimulus for labor migration from periphery

Supply of labor from periphery will create laborshortage in periphery and raise wages and incomes

AdequateCapital

AdequateLabor

Capital flows to periphery

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

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

Backwash Circuits

Capital attracted to center

Capital Investment

Young workersmigrate to center

Migration and Employment

Lack ofinvestment in periphery

Retarded growth inperiphery

WiderGapC-P

Aging labor force

in periphery

Decreasedattraction for new activity

Wider GapC-P

Services and InfrastructureReduced Investment

and new jobsin periphery

Smaller localmarket, pur-

chasing powerDecline inlocal services

Widened gapbetween C-P

Pred’s Model of Circular and Cumulative Growth

Entry of new industry or expansion

of existing industryInitial

MultiplierEffect

Enhanced chance of invention

and innovation

Attraction oflinked industries:forward linkages

backward linkages

Invention orInnovation

Secondarymultiplier effects

New local orregional threshold

NewConstructionActivity

ExpandedTertiarySector

ExpandedPublicUtilities