🤍Economic Geography Unit 3 – Economic Development and Inequality

Key Concepts and Definitions

• Economic development involves improving the economic well-being and quality of life for a community by creating and retaining jobs, supporting incomes and the tax base
• Economic growth measures an increase in the production of goods and services in an economy over time, often calculated as the percent rate of increase in real gross domestic product (GDP)
• Inequality refers to the uneven distribution of economic resources, income, or wealth among individuals in a group, among groups in a population, or among countries
  • Economic inequality can be measured through indicators such as the Gini coefficient or the ratio of incomes of the top and bottom segments of the population (P90/P10 ratio)
• Poverty is a state of lacking sufficient financial resources to meet basic needs for food, clothing, and shelter
  • Absolute poverty refers to a set standard which is consistent over time and between countries, such as a $1.90 per day international poverty line
  • Relative poverty refers to a standard which is defined in terms of the society in which an individual lives and which therefore differs between countries and over time
• Human Development Index (HDI) is a statistic developed by the United Nations to measure and rank countries' levels of social and economic development based on four criteria: life expectancy at birth, mean years of schooling, expected years of schooling, and gross national income per capita
• Kuznets curve hypothesizes that as an economy develops, market forces first increase and then decrease economic inequality

Historical Context of Economic Development

• The Industrial Revolution in the late 18th and 19th centuries marked a major turning point in economic development, characterized by the transition from manual labor to mechanized manufacturing
  • Key innovations such as the steam engine, cotton gin, and bessemer process for steel production drove rapid industrialization first in Great Britain and then in other parts of Europe and North America
• Colonialism and imperialism in the 19th and early 20th centuries shaped global patterns of economic development
  • European powers extracted resources and wealth from colonies in Africa, Asia, and the Americas, often through forced labor and unequal trade relationships, leading to underdevelopment in the colonies
• The Great Depression of the 1930s represented a major setback to economic development, with global GDP falling by an estimated 15% and unemployment rising to 25% in some countries
• Post-World War II, international institutions such as the World Bank, International Monetary Fund (IMF), and General Agreement on Tariffs and Trade (GATT) were established to promote economic stability and development
  • The Marshall Plan provided U.S. aid to help rebuild Western European economies after the war
• Decolonization in the 1950s-1970s led to the independence of many former colonies, but economic legacies of colonialism contributed to ongoing development challenges
• Globalization accelerated in the late 20th century with advances in transportation and communication technologies and increased flows of trade, investment, and finance across borders

Theories of Economic Growth and Development

• Classical theories of economic growth, such as those proposed by Adam Smith and David Ricardo, emphasize the role of factors of production (land, labor, capital) and specialization and trade in driving economic growth
• Keynesian economics, developed by John Maynard Keynes, advocates for government intervention to stimulate demand and economic growth during recessions through fiscal and monetary policy
• The Harrod-Domar model proposes that economic growth depends on the level of saving and productivity of capital, with implications that developing countries need to boost savings and investment to accelerate growth
• Neoclassical growth models, such as the Solow-Swan model, emphasize the role of technological progress in driving long-run economic growth
  • The model assumes diminishing returns to capital and labor inputs and constant returns to scale
• Endogenous growth theory holds that economic growth is primarily the result of endogenous forces, rather than external ones, and that investment in human capital, innovation, and knowledge are significant contributors to economic growth
• Dependency theory suggests that global economic relations based on the division of labor between core (developed) and peripheral (developing) countries can perpetuate economic disparities and underdevelopment in the periphery
• The capabilities approach, developed by Amartya Sen, emphasizes functional capabilities and substantive freedoms as key measures of development rather than solely economic metrics

Measuring Economic Development and Inequality

• Gross Domestic Product (GDP) measures the total monetary value of final goods and services produced within a country's borders in a specific period
  • GDP per capita (GDP divided by population) is often used for comparing living standards or economic performance between countries
  • Limitations of GDP as a development indicator include failure to account for non-monetary factors (health, education), income distribution, externalities, or sustainability
• The Gini coefficient measures the extent to which the distribution of income or consumption among individuals/households deviates from a perfectly equal distribution
  • Gini coefficients range from 0 (perfect equality) to 1 (perfect inequality)
  • Can be visualized through a Lorenz curve plotting cumulative income share against cumulative population share
• Poverty headcount ratio measures the percentage of the population living below the poverty line
  • Poverty gap index measures the intensity of poverty by estimating how far below the poverty line the poor are on average as a proportion of the poverty line
• The Multidimensional Poverty Index (MPI) captures the multiple deprivations that poor people face in education, health, and living standards
• The Palma ratio is defined as the ratio of the richest 10% of the population's share of gross national income divided by the poorest 40%'s share
• Social mobility measures the degree to which an individual's social status can change throughout the course of their life through a system of social hierarchy or stratification

Spatial Patterns of Economic Development

• Core-periphery models (Wallerstein's World Systems Theory, Friedmann's World City Hypothesis) describe the spatial organization of the world economy into a core of developed countries and a periphery of less developed countries
  • Core countries are characterized by high levels of industrialization, advanced technology, and high-value economic activities
  • Peripheral countries often specialize in extracting and exporting raw materials to the core and have less diversified economies
• Regional disparities in development can occur within countries, with leading and lagging regions
  • Cumulative causation can exacerbate regional disparities as initial advantages in leading regions (agglomeration economies, skilled labor pool) attract further investment and growth
• Urban-rural divides in economic development are evident in many countries, with higher levels of poverty and lower levels of access to services in rural areas
  • Rural-to-urban migration can exacerbate these disparities but also provide economic opportunities for migrants
• Special Economic Zones (SEZs) such as export processing zones or free trade zones are designated geographic areas with special economic regulations intended to attract foreign direct investment and stimulate industrial development
• Transportation infrastructure and connectivity are important factors shaping spatial patterns of development
  • Access to ports, airports, rail networks, and road systems can integrate regions into global trade networks and supply chains

Factors Influencing Economic Inequality

• Education and human capital formation are key determinants of an individual's earning potential and socioeconomic status
  • Unequal access to quality education can perpetuate intergenerational cycles of poverty and inequality
• Globalization and trade can have mixed impacts on inequality
  • Trade can accelerate economic growth and raise average incomes, but gains may be distributed unequally within countries
  • Competition from trade can lead to job displacement and downward pressure on wages for lower-skilled workers
• Technological change, particularly skill-biased technological change, can increase the demand and wages for highly skilled workers while reducing demand for routine labor, contributing to wage inequality
• Labor market institutions such as unions and minimum wage laws can affect wage distribution and inequality
  • Decline in unionization in many developed countries since the 1970s has been linked to rising wage inequality
• Discrimination based on gender, race, ethnicity, or other factors can create barriers to economic opportunity and contribute to inequality
  • Gender pay gaps persist in many countries, even after accounting for factors like education and experience
• Tax and transfer policies can reduce post-tax and transfer inequality
  • Progressive income taxes, wealth taxes, and social programs that provide transfers to low-income households can reduce disposable income inequality

Case Studies: Regional Development Disparities

• In China, coastal regions have experienced rapid industrialization and economic growth, while many interior regions lag behind
  • Government policies such as the establishment of Special Economic Zones in coastal cities (Shenzhen) have contributed to regional disparities
  • The Hukou system of household registration has limited labor mobility and access to social services for rural-to-urban migrants
• In the European Union, there are significant disparities in GDP per capita and unemployment rates between member states
  • "Core" countries like Germany and France have higher levels of economic development than "peripheral" countries like Greece and Portugal
  • EU Structural and Cohesion Funds aim to support development in lagging regions, but economic convergence has been slow
• In Brazil, the Southeast region (including São Paulo and Rio de Janeiro) is the most economically developed, while the Northeast region has historically had higher levels of poverty
  • Government programs like Bolsa Família have aimed to reduce poverty and inequality through conditional cash transfers
• In the United States, there are persistent regional disparities in economic outcomes
  • "Rust Belt" states have experienced deindustrialization and job losses in manufacturing, while "Sun Belt" states have seen rapid population and economic growth
  • Legacy of racial segregation and discrimination has contributed to concentrated poverty and limited economic mobility in many minority communities

Policy Approaches to Address Inequality

• Progressive taxation, including higher marginal tax rates on top incomes and wealth taxes, can reduce post-tax income inequality
  • Earned income tax credits provide tax refunds to low-income working households
• Minimum wage policies and living wage ordinances aim to raise incomes for low-wage workers
  • Debate exists over potential trade-offs with employment, particularly for less-skilled workers
• Investments in education, from early childhood programs to higher education access and affordability, can expand economic opportunity and reduce inequality
  • Vocational training programs can help workers adapt to changing labor market demands
• Strengthening labor market institutions such as unions and collective bargaining can give workers more bargaining power and reduce wage inequality
• Social protection programs and transfers, such as unemployment insurance, health insurance, pensions, and child benefits, can mitigate income losses and provide a safety net
  • Conditional cash transfer programs (Bolsa Família in Brazil, Oportunidades in Mexico) provide targeted assistance to poor households and incentivize investments in human capital
• Place-based policies such as enterprise zones or regional development programs aim to boost investment and job creation in economically distressed areas
  • Results of such policies have been mixed, with concerns about displacement and distributional impacts
• Antidiscrimination policies and affirmative action programs aim to reduce inequality of opportunity and outcomes across racial, ethnic, and gender groups
• Fostering inclusive institutions and governance, including transparency, rule of law, and control of corruption, can create a more level playing field for economic participation