Geography (9696) | Economic transition

👋 Welcome to Economic Transition!

Hello Geographers! This chapter is all about how economies change, grow, and interact across the globe and within countries. It explains why some places are rich while others struggle, and how modern concepts like globalisation are shifting where jobs and wealth are located.

Don't worry if terms like 'quaternary' or 'backwash effects' sound complicated—we'll break them down using simple analogies. Mastering this unit is crucial for understanding contemporary global affairs and writing powerful, evidence-based essays in Paper 4!

14.1 National Development and Economic Structure

Before we talk about 'transition,' we must understand what an economy is made of: the four main sectors of economic activity.

The Four Sectors of the Economy

Think of the economy as a process of making and selling a product, like a wooden table.

• Primary Sector (P): Extraction

  This involves taking raw materials directly from the Earth. It is often the dominant sector in Low-Income Countries (LICs).
  Examples: Farming, fishing, forestry, mining, and quarrying (getting the raw wood).

• Secondary Sector (S): Manufacturing

  This involves processing raw materials into finished or semi-finished goods. This sector historically drives industrialisation (e.g., the Industrial Revolution).
  Examples: Car production, construction, food processing (turning the raw wood into a finished table).

• Tertiary Sector (T): Services

  This sector provides services rather than physical goods. It dominates High-Income Countries (HICs).
  Examples: Retail, transport, banking, teaching, tourism (selling the table in a shop).

• Quaternary Sector (Q): Information/Knowledge

  This is the highly specialised sector focused on information, research, and high-tech development. It is the fastest-growing sector in highly developed economies.
  Examples: Scientific research and development (R&D), IT consultants, software design (designing a better, smarter table).

Global Inequalities in Wellbeing (Social and Economic)

Globalisation hasn't made everyone equal. Huge gaps exist between the world's richest and poorest people and places. These gaps are measured in terms of wellbeing, which has two components:

• Economic Wellbeing: Measured by income, consumption, wealth, and access to resources.
• Social Wellbeing: Measured by quality of life, access to education, healthcare, and security.

Causes and Distribution of Inequality

Inequalities are not random; they result from a complex mix of physical and human factors:

1. Physical Causes:

• Resource Endowment: Countries rich in valuable resources (oil, minerals) often develop faster, but this can lead to the 'resource curse' if wealth is not managed well (e.g., Venezuela).
• Climate and Hazard Risk: Extreme climates (arid or very cold) or high exposure to natural hazards make economic activity difficult and expensive (e.g., vulnerability of small island states).
• Location/Physical Isolation: Landlocked countries face higher trade costs; poor coastal access limits participation in global shipping (e.g., Niger).

2. Human Causes:

• Historical Factors: Colonial ties often left developing countries with economies focused only on exporting raw materials (primary sector dependency).
• Political Factors: Stable governments attract investment (FDI); corruption and conflict deter it.
• Trade Rules: Policies (like protectionism or trade agreements) set by HICs can disadvantage LICs.

Measuring and Evaluating Inequality

To understand inequality, geographers use indices (indicators) to measure social and economic development.

Economic Indices:

• Gross Domestic Product (GDP) / Gross National Income (GNI): The total value of goods and services produced within a country (GDP) or owned by its residents (GNI). Usually calculated per capita (per person).
• Economic Inequality Index (Gini Coefficient): Measures the distribution of income among a country’s residents. A score of 0 means perfect equality (everyone has the same income), and 1 means perfect inequality (one person has all the income).

Social Indices:

• Human Development Index (HDI): A composite index (meaning it combines several indicators) measuring social wellbeing based on three factors: life expectancy, education level, and GNI per capita.
• Physical Quality of Life Index (PQLI): Measures literacy rates, infant mortality, and life expectancy.

Candidates must be able to critically evaluate these measures:

14.2 The Globalisation of Economic Activity

Global Patterns: Resources, Production and Markets

Globalisation links the world through the movement of goods, capital, people, and information. This has created distinct global patterns:

• Resources: Typically found in LICs/MICs (e.g., minerals in Africa, oil in the Middle East).
• Production (Manufacturing): Concentrated increasingly in Newly Industrialised Countries (NICs) due to cheap labour and operating costs (e.g., 'factory floors' in Asia).
• Markets and Consumption: Still heavily concentrated in HICs (North America, Western Europe) where purchasing power is highest.

Foreign Direct Investment (FDI) and the New International Division of Labour (NIDL)

These two concepts explain how capital and production move globally:

1. Foreign Direct Investment (FDI):

This is investment made by a company or individual from one country into business interests located in another country. Think of it as HIC companies putting their money into setting up factories or offices overseas.

2. New International Division of Labour (NIDL):

The NIDL is the global reorganisation of production. Traditionally, HICs did everything. Now, HICs specialise in high-skill, high-wage jobs (R&D, management, finance—the Q sector), while manufacturing and low-skill jobs move to MICs/LICs, where wages are lower.

Transnational Corporations (TNCs)

TNCs (or Multinational Corporations, MNCs) are massive companies that operate in multiple countries. They are the driving force behind FDI and NIDL.

• Factors Affecting TNC Growth:
  • Reduced transport and communication costs (containerisation, internet).
  • Deregulation and free trade agreements.
  • Ability to exploit global variations in labour costs and environmental regulations.
• Factors Affecting TNC Spatial Structure (Location):
  • Headquarters (HQs): Located in global core areas (e.g., London, NYC) to access finance, high-level skills, and fast communication.
  • R&D: Often near HQs or universities (e.g., Silicon Valley, USA).
  • Manufacturing: Located in peripheral areas (MICs/NICs) due to low labour costs, government incentives, and access to large markets.

Remember: You must study the global spatial organisation and operation of one TNC (e.g., *Apple, Toyota, or Coca-Cola*). Detail where their HQs, R&D, and production sites are located and why.

Newly Industrialised Countries (NICs)

NICs are countries that have moved rapidly from primary sector economies towards secondary sector dominance (industrialisation).

• Factors in NIC Emergence and Growth:
  • Government policies (e.g., investing heavily in infrastructure and education).
  • Availability of a large, cheap, and disciplined labour force.
  • Access to global shipping routes and markets.
  • FDI from TNCs looking for lower manufacturing costs.

Changes in Location of Economic Activity: Outsourcing and Offshoring

This is the modern trend of moving work away from HICs.

1. Outsourcing:

Contracting out non-core business activities to a third party. This third party might still be in the same country, but often they are abroad. Example: A UK car company hiring an external firm to manage its payroll and IT services.

2. Offshoring:

Relocating a company's internal business processes or services to another country, often to cut costs.

• Offshoring Manufacturing: Moving the production factory itself (e.g., *Nike moving shoe production from the US to Vietnam*).
• Offshoring Services: Moving tertiary/quaternary jobs, such as call centres or data processing (e.g., *a bank moving its customer service call centre from the US to India*).

Impacts of Outsourcing/Offshoring:

• Source (HIC): Job losses in secondary/tertiary sectors; higher profits for the TNC; focus shifts to high-skilled Q-sector jobs.
• Destination (NIC/MIC): Job creation; increased GNI and FDI; improved infrastructure; but risk of exploitation (low wages, poor working conditions).

14.3 Regional Development within Countries

The core-periphery model explains why economic transition often leads to uneven development within a single country, creating regional disparities.

Regional Disparities and Core-Periphery

Even in wealthy countries like the UK, there are huge differences in wealth and opportunity between regions (e.g., London vs. the North East). These are regional disparities.

• Core: The economic heartland. High density of population, investment, infrastructure, and high-value jobs. Often includes the capital or major financial centres (e.g., *Paris, France*).
• Periphery: The margins or outlying regions. Lower population density, reliance on primary industries, less investment, and lower GNI/wellbeing (e.g., *rural France, the Massif Central*).

The Process of Cumulative Causation

Why do cores get richer while peripheries struggle? The concept of cumulative causation (developed by economist Gunnar Myrdal) explains this self-reinforcing cycle of growth.

Step 1: Initial Advantage

A region gains a slight advantage (e.g., better port access, discovery of a resource, or government decision to locate a factory there).

Step 2: Cumulative Growth (The Snowball Effect)

The initial advantage attracts more investment, infrastructure, and skilled workers, leading to rapid self-sustaining growth.

Step 3: Backwash Effects (Negative for the Periphery)

The core's growth starts actively draining resources from the periphery.

• Capital Drain: Banks in the periphery invest money in the more profitable core.
• Selective Migration: Young, skilled, and educated people leave the periphery to find better jobs in the core (known as brain drain).
• Market Effects: Periphery industries cannot compete with core industries and shut down.

Result: The gap between the core and periphery diverges (gets wider).

Step 4: Spread Effects (Positive for the Periphery)

Eventually, the core becomes congested, expensive, and saturated. Growth then starts to spread outwards to surrounding regions.

• Decentralisation: High land costs in the core push some industries to the inner periphery.
• Increased Demand: The rich core demands goods and services from the surrounding periphery (e.g., tourism, agricultural products).
• Infrastructure Links: Improved transport links allow periphery residents to commute to the core.

Result: The gap between the core and periphery starts to converge (gets narrower).

14.4 The Management of Regional Development

Governments rarely accept wide regional disparities, as they cause social problems and limit overall national potential. They implement regional development policies aimed at achieving convergence (reducing the gap).

Challenges in Managing Regional Disparities

Overcoming the power of the core-periphery structure is difficult because backwash effects are often stronger than spread effects, especially in LICs/MICs.

• Resource Constraints: High cost of infrastructure (roads, broadband) needed to attract investment to the periphery.
• Inertia: The existing presence of skilled labour and strong financial institutions in the core makes it hard to convince TNCs to move.
• Political Resistance: People and businesses in the core may resist efforts to divert funds or restrict growth in their area.

Attempted Solutions (Policy Tools)

Regional policies typically focus on making peripheral areas more attractive to investors.

1. Top-Down Approaches (Government-Led):

• Infrastructure Investment: Building high-speed rail, better roads, or ports in peripheral zones to cut transport costs.
• Financial Incentives: Offering tax breaks, rent subsidies, or grants to companies that locate in designated depressed areas (e.g., Enterprise Zones).
• Decentralisation of Government Services: Moving administrative or non-core government departments out of the capital city to stimulate local economies in the periphery.

2. Bottom-Up Approaches (Local/Community-Led):

• Developing Local Skills: Investing in specific technical training schools relevant to local resources or emerging high-tech sectors.
• Promoting Niche Tourism: Developing small-scale, sustainable tourism projects that benefit local communities directly.

Case Study Requirement: You must study one country's regional development policy, detailing its disparities, the specific policies used, the difficulties faced, and providing an evaluation of their success in achieving convergence (e.g., *Italy’s Mezzogiorno policy or UK policies for the Northern Powerhouse*).