1 Economic Geography 3 B Growth and development theories.
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Economic Geography 3 B
Growth and development theories
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The time perspective 1
Growth theories: quantitative orientation Useful for purely economic issues Important for economic geography in
assessing the spatial impact of growth
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Time perspective 2
Development theories: qualitative orientation Incorporate economic, cultural and social
aspects One element among others in economic
geography, equally important for social and cultural geography
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Methodological approach
Linear-causal theories: deterministic, simpli-fied, unrealistic (e.g.: trade creates growth that creates development that creates trade that ...). Macro-scale
Theories of economic stages (from neolithic to modern). Macro-scale
Non-linear theories, probabilistic, systems oriented (multiple causes of low degree of development). Macro and micro scale
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Growth
01 GDPtGDPt Absolute (real)
01
1 0
PoptGDPt
PoptGDPt
Relative(per capita)
2000-2001: GDP + 0.3 %
2000-2001: Pop. + 1 %, GDP + 1.2 %
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Neoclassical theory 1
Capital accumulation drives the economy and is an indicator of development
Existing wage disparities are automatically compensated by labour migration
The free market regulates everything and eliminates disparities (total competition)
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Neoclassical theory 2
Condition: the freedom of mobility must be guaranteed (total mobility, no state inter-vention)
Mechanistic, promotes the law of the jungle
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Postkeynesian theory 1
State investment creates jobs Four effects result from such investment:
multiplier, complementary, trickle-down and polarization effect
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Postkeynesian theory 2
Multiplier effect: the money earned will be spent and circulates, thus inviting for more
Complementary effect: investment may ini-tiate further investments (e.g. firm B proces-ses the output of firm A, or firm B produces a component for firm A)
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Postkeynesian theory 3
Trickle-down effect: the positive achieve-ments diffuse through space, leading to improved well-being (increase of consumer goods, incentive to investments)
Polarization effect: the point of investment is the only region to profit, the regional dispa-rities will continue to exist
Closer to reality, but still very mechanistic
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Theories of economic stages
Historically oriented Evolution of human society has passed through
different stages until the present (end stage) Key element: progress What is progress? High variety of stages and explanations, de-
pending on the perspective of the individual author
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W. Rostow
Traditional society (agricultural, no growth) Transitional society (slow technological change,
slight growth) “Take-off” society (self-propelled growth, iron and
steel industry) Mature society (high growth, efficient resource-
use, new industries, new labour requirements) Society of mass consumption (high income, con-
sumption and leisure society)
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E. Friedrich
Reflexive economy (focus: spontaneous needs; subsistence)
Instinctive economy (adaptation to nature, de-cline of pure subsistence economy)
Traditional economy (less dependence from na-ture, division of labour, market economy)
Scientific economy (independent from nature thanks to science and technology, market economy)
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M. Friedman
Pre-industrial (isolated settlements, spatial equi-librium, no competition)
Transitional (industrialization, spatial inequali-ties, primary cities as growth poles, dependent and exploited peripheries, competition)
Industrial (urban networks, more growth poles, less peripheries, competition)
Post-industrial (functional interdependence, equilibrium situation, less competition)
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K. Marx
Primitive society Slave society Feudalism Capitalism Socialism/communism
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Critique
Retrospective and descriptive Created from a Northern perspective They suggest that history has come to an end
(the end-state of the “present”, whatever this means)
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An alternative model for the African context
Tribal society: subsistence and low surplus eco-nomy
Colonial society: economic exploitation, Africa as dependent and exploited periphery
Postcolonial society: economic exploitation un-der a new/old system
Independent society of the future: development of autochthonous forms of the economy
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Arguments
The economy is part of every society, hence has to be seen in context (culture)
The alternative model emphasizes the road from local/regional to global relations, both in the social and economic domain
The look into the future (different for every society) incorporates development as a con-stant process
The model is open to discussion
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Development
A process that never ends Meaning: to unfold, to unroll, i.e. to open up Friedman: ‘a discontinuous cumulative pro-cess,
which manifests itself in series of inno-vations and will eventually lead to a structu-ral transformation of the social system.’
WL: ‘a process leading from an original situa-tion (which is judged as unsatisfactory) to a new situation, judged as better or satisfactory’
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Attention
Development is not a final state of things but a process
Development is a social, political and economic issue (help towards self-help), not simply the provision of material goods
In many theories, it is understood as something static, to be achieved, as a ‘final’ state
The legacy of the economic stages can be de-tected in a number of theories
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Dependency theory (Dependencia)
Latinamerican theory, developed from the feeling of C-P-type dependency
Leading figure: Argentinian economist Raúl Prebisch (chair of UN Economic Commis-sion for Latin American)
Key arguments: terms of trade and invest-ments are in favour of the industrialized world
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Terms of trade 1
The exchange-value of an export commodity to an import commodity
If prices are negotiated according to supply and demand, neutral terms of trade will emerge
If prices are determined at a commodity ex-change outside the country of supply, there will be distortion and the terms of trade will be unfair to the export country
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Terms of trade 2
The South furnishes a lot of raw materials and food products
Most commodity exchanges are situated in the North, where prices are made according to the consumers’ demands, not to the suppliers’ needs
Prices of imported good into the South are based on the cost structure of the North and thus inde-pendent from prices for export goods
Real exchange is therefore not possible
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Example
Time 1: for 1 ton of bananas I can import 10 bicycles
Time 2: for 1 ton of bananas I can import 5 bicycles because the production cost of bicycles has risen in the North
In order to import 10 bicycles, I have to export 2 tons of bananas
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Consequence
1. More people have to walk, or2. The production of bananas has to be doubled in
order to satisfy the import needs 1) less comfort, 2) ecological consequences: a) more land for
export-bananas = less land for food; b) higher intensity = more fertilizers (imported), hence higher threat to the environment and more de-pendency on exports to supply the foreign cur-rency for imports
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Characteristics of the dependencia
It suggests a vicious cycle in several fields: terms of trade, export and import dependency, decapitalization (transfer of profits by foreign investors, of capital by native upper class)
This dependency results from too strong an inte-gration into the world market which creates different kinds of dependency (econo-mic, political, cultural)
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Root of dependency
It can also be seen as the result of long-lasting foreign (colonial) domination
The colonial regime was geared to the needs of the ‘motherland’ and did not allow endogenous econo-mic development
This theory originated out of the specific Latin-american situation vs. the economic (etc.) power of the US, but its general value can be demon-strated in our time
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Modernization theory
A Northern theory based on the idea that mo-dernization (in the western style) will auto-matically lead to development
‘Modern‘ is a situation after a long evolu-tionary process
Only western civilization is modern, the rest are cultures with a folkloristic value that re-quire modernization
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Characteristics
Internal conditions in ‘ill-developed’ societies are the cause of ‘underdevelopment’
Exogenous influences are per se positive The dualistic situation (modern vs. traditional
sectors) is detrimental to ‘development’ Once this dualistic pattern has been overcome, a
country will be ‘developed’ A beautifully simplistic theory. If only it would
work…
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Polarization theory
Developed by G. Myrdal (1898-1987), Swe-dish economist (Nobel Prize 1974)
Basis: Cumulative causation, i.e. ‘poverty breeding poverty‘ or the positive feedback loop in a system (vicious cycle)
Root of the evil: the free market is the source of disparities
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Polarization vs. Neoclassics
Neoclassics Total competition Free market economy Free mobility Disparities disappear Far from reality:
homo oeconomicus
Polarization Oligpolistic situation Monopoles Obstacles to mobility Disparities remain Close to reality: man
as an irrational actor
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Cumulative causation
Positive and negative processes tend to reinforce themselves independently
A positive feedbackloop in a system means that an existing process continues
Once a person has become poor, he/she will have difficulties to come out of poverty as its stigma acts negatively on his/her chances
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A factory burns down
Factory
Workers
less shopping
Retail trade
Authoritiesless taxes
no salaries less tax income
less investment
s
emigration
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Effects
Regional disparities are inherent in the free market economy
The cumulative causation process results in a spatial differentiation into growth regions and declining regions
This process takes place in a parallel way in rich and poor populations: the rich become richer while at the same time the poor become poorer
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The role of the state
The unregulated free economy behaves in the way Myrdal showed
The state can intervene through various measures
Economic and development policy and planning restrict the free market forces in favour of the less fortunate
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Comment
A system cannot change from ist own will, it need some form of external energy
The poverty-vicious cycle can hardly be broken by the poor themselves
Disparities are inevitable: the earth is not uni-form, nor are the human being
Disparities can be reduced through a change of attitude
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Endogenous development
Every region and every country has a certain potential of its own
Economic circuits are often limited in space (local, regional)
The world-market must not be considered as the only outlet for products but must be integrated into a wider economic philosophy
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Endogenous vs. exogenous development
Exogenous The North as exclusive
model Orientation towards the
global market Primary aim: moderni-
zation Result: dependency
from the outside world
Endogenous Appreciating southern val-
ues and local knowledge Local, regional, national
and global markets side by side
Primary aim: autonomy in survival
Result: interaction with outside world
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Requirements
Endogenous development requires to be compatible with a number of factors
These factors can be seen in isolation, but in reality they are all interrelated
They comprise space (environment, local and regional activity space) and society (social organization, economic needs and cultural life)
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Compatibilities of endogenous development
Endogenous development
cultural compatibility
ecological compatibility
economic compatibility
local/regional compatibility
social compatibility
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Commentary
Development theories can explain everything and nothing.
Their application depends on the (ideological) position of the researchers and the politicians
Development is modernization, but not in the sense of westernization
Modernization is a continuous process that takes place in every society according to its own rhythm
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A provocative statement (IMF)
The provision of greater trade opportunities by increasing access to the markets of advanced economies is a necessary condition for breaking the vicious circle of stagnation, poverty and weak governance (The Honorable Nicolás Eyzaguirre, Minister of Finance of Chile,
Washington, D. C., April 20, 2002)
Do you agree?
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