Models of Development Big gap between rich and poor countries. *Developing countries MUST develop more rapidly by increasing GNI- 1. Adapting policies that promote development 2. Using funds for improving social and economic conditions.

Two Paths to Development Developing countries choice of two models to promote development: 1. Self-sufficiency Countries encourage domestic production of goods Discourage foreign ownership of businesses and resources Protect their businesses from international competition. 2. International trade Countries open themselves to foreign investment and international markets.

Self-sufficiency Self-Sufficiency Path Key Elements Barriers limit the import of goods from other places. High taxes in imports, limited importers by licenses, quotas to limit Businesses are not forced to compete with international corporations. Investment spread almost equally across all economic sectors and in all regions of a country. Minimalized differences in wages among urban and rural dwellers with the intent to reduce poverty. Example: India(p.329)

Self-Sufficiency Challenges Protection of inefficient businesses-long waiting lists Guaranteed high prices made possible by isolation Little incentive for business to improve quality of product Little incentive to become more efficient. Don’t keep up with rapid technological changes. Need for large bureaucracy(government) A government system needed to administer the controls encourages inefficiency, abuse, and corruption. Black Market

International Trade Question: What animal, vegetable, or mineral resource does my country have in abundance that other countries will buy? What about product I can produce? Key Elements: International trade looks for the distinctive or unique economic assets! Uses the profits to finance other developments Examples: “Four Asia Dragons”-S. Korea, Singapore, Taiwan, & Hong Kong-manufacturing goods Arabian peninsula-oil

International Trade Challenges Uneven resource distribution Commodity(goods and services) prices are not guaranteed to rise faster than the cost of products a LDC needs to purchase. Increased dependence on developed countries LDC may use all resources to few take off industries instead of spreading resources among the other companies that provide food, clothing, and other necessities for local residents. Market decline LDC have found increased difficulty selling their manufactured goods in a world market that has recently declined for many products.

Financing Development Finance comes from two primary sources: 1. Direct investment by international corporations 2. Loans from banks and international organizations Foreign Direct Investment (FDI) Defined: Investment made by a foreign company in the economy of another country.

Loans Two major lenders to developing countries: 1. World Bank International Bank for Reconstruction(IBRD) -Loans to countries to reform public administration and legal institutions, develop and strengthen financial institutions, and implement transportation and social service projects. International Development Association (IDA)-provides support to countries considered too risky to receive loans from IBRD. 2. International Monetary Fund (IMF) Loans to countries experiencing balance-of-payments problems that threaten expansion of international trade. Help a country rebuild international reserves, stabilize currency exchange rates, and pay for imports without the imposition of harsh trade restrictions or capital controls that could hamper the growth of world trade.

Maquiladora Factories built by US companies in Mexico near the US border to take advantage of much lower labor costs in Mexico. Produce electronic equipment, clothing, plastics, furniture, appliances, and auto parts. 90% of the goods produced at maquiladoras are shipped north to the United States.

Maquiladora Maquiladoras are owned by U.S., Japanese, and European companies. Some could be considered "sweatshops" composed of young women working for as little as 50 cents an hour, for up to ten hours a day, six days a week. However, in recent years, NAFTA has started to pay off somewhat - some maquiladoras are improving conditions for their workers, along with wages. Some skilled workers in garment maquiladoras are paid as much as $1-$2 an hour and work in modern, air-conditioned facilities.

World-Systems Theory (Dependency Theory) Immanuel Wallerstein A development theory that includes geography, scale, place and culture in addition to economics Divide world into Core Semi-periphery Periphery

Three Tier Structure Core Processes that incorporate higher levels of education, higher salaries, and more technology * Generate more wealth in the world economy Semi-periphery Places where core and periphery processes are both occurring. Places that are exploited by the core but then exploit the periphery. * Serves as a buffer between core and periphery Periphery Processes that incorporate lower levels of education, lower salaries, and less technology * Generate less wealth in the world economy

Core Regions High levels of socioeconomic prosperity Dominant players in global economic game Depends on Periphery: Primary sector Depends on Semi: Primary Sector/Trade  Anglo America HDI.94  Japan and the South Pacific HDI.93  Western Europe HDI.92

Periphery Poor regions Dependent on the core-to buy resources Do not have much control over their own affairs  Southeast Asia HDI.71  Middle East HDI.66  South Asia HDI.58  Sub Saharan Africa HDI.47

Semi Periphery Regions that exert more power than periphery regions but are Dominated to some degree by the core  Latin America HDI.78  East Asia HDI.72  Eastern Europe HDI

Core/periphery Can be applied at the local scale LA is the core of S. California region Alaska is in the periphery of the US Johannesburg is core of South Africa Can refer to the different level of processes in the same country

Making Progress in Development Closing the Gap Progress in reducing the gap in level of development between developed and developing countries varies depending on the variable: Infant Mortality Rate Gap has narrowed from 17 to 6 (per 1,000) in developed countries and from 107 to 44 developing countries. Life Expectancy Gap has not narrowed. GNI Per Capita Gap in wealth between developed and developing countries has widened.

Fair Trade Defined: Commerce in which products are made and traded according to standards that protect workers and small businesses in developing countries. Ex. In North America, Ten Thousand Villages is the largest fair trade organization in North America. Bypass distributors= a greater % of the retail price= makes it way back directly to the producers. Fair Trade requires employers: Pay workers fair wages Permit union organizing Comply with minimum environmental and safety standards.

International Trade Approach Triumphs Most countries have embraced the international trade approach since the late 20 th century. Trade has increased more rapidly than wealth as measured by GDP. Optimism about the benefits of this development model based on three observations: 1. If existing MDC used this approach, then why couldn’t others find similar success? 2. Sales of raw materials could generate funds for LDCs that could promote development. 3. A country that concentrates on international trade benefits from exposure to the demands, needs, and preferences of consumers in other countries.