Economic Geography:
Economic Change or GLOBALIZATION

3 OVERLAPPING COMPONENTS:

All over the world, economies are undergoing an economic adjustment process. This process is described by many different names like structural adjustment, globalization, export oriented industrialization, and sometimes simply economic development. Generally these changes involve a movement from more government involvement in the economy to less government involvement, or from command economies to capitalist economies.

We do not have the time to study this subject in depth, but I feel that you should should at least be introduced to the issue. to do this we will look at 3 OVERLAPPING COMPONENTS of this worldwide adjustment process.

(1) A Move Toward Capitalism

CAPITALISM

An economy where economic resources are privately owned and economic decisions are answered by the marketplace with a limited role for government

COMMAND ECONOMY

An economic system where economic resources are owned by the government and the government makes all economic decisions

MIXED ECONOMIC SYSTEM

SUMMARY: CAPITALISM vs. COMMAND ECONOMY 

Structural Adjustment

DEFINITION

A series of economic policies designed to reduce the role of government in economy replacing government control with market incentives [figure]. It is hoped that these policies will promote private initiative and private investment, thereby creating jobs and economic growth.

POLICIES

  1. Privatization (selling government owned assets to private owners)
  2. Promotion of Competition
  3. Limited and Reoriented Role for Government
  4. Price Reform - removing government price controls, letting the market set prices
  5. Joining the World Economy through freer trade
  6. Macroeconomic Stability - lower government budget deficits and less government spending to reduce inflation and promote private investment

BENEFITS

A market-based economic system achieves efficiency. Fewer resources are wasted

PROBLEMS

Common problems associated with structural adjustment programs include:

Because of these problems, structural adjustment policies have become quite controversial.

Please read this article from the Christian Science Monitor on structural adjustment policies in Africa: http://www.csmonitor.com/durable/1998/04/01/p7s1.htm

(2) Free Trade

On the discussion forum respond to these questions:

  1. Should the United States have free trade with Mexico?
  2. Why or why not?
  3. Most economists agree that free results in greater efficiency. What do you think?

Why do economists favor free trade? See: http://www.ncpa.org/pd/trade/pdtrade/pdtrade10.html

OPTIONAL: http://www.ncpa.org/bg/bg135.html

Again, we don't have the time to study the benefits and costs of free trade. Just let me say that all recent US presidents, a majority of the US Congress, and a majority of the US public have supported the removal of trade barriers. Some very vocal groups do often argue that free trade will hurt the US, but they are definitely in the minority.

Suffice it to say that countries around the world are lowering their trade barriers. Many are signing bilateral and multilateral free trade agreements with their neighbors.

MORE

(3) Economic Development

Economic Development is a difficult concept to define and to achieve. Economists often use and increase in GDP per capita as the measure of economic development.

We have reviewed the Measures of Economic Development already. Here we will briefly focus on:

The role of international aid in Third World development

Take this one question quiz: QUIZ / Answer.

The present trend in economic development aid is often stated as:

TRADE, NOT AID

which favors the removal of restrictions on trade with poorer countries (LDCs) rather than increased financial aid.

As a percent of GNP, the US is NOT a leader in foreign aid donations. foraidg

Export Oriented Industrialization vs. Import Substitution Industrialization  

EXPORT ORIENTED INDUSTRIALIZATION:

IMPORT SUBSTITUTION INDUSTRIALIZATION:

SUMMARY