TYPES OF ECONOMIC SYSTEMS

NATIONAL ECONOMIC SYSTEMS Fall into one of three types, none of which are pure and in some you will see characteristics of all of the types. 3 Types: Subsistence- Commercial- Planned.

SUBSISTENCE Goods and services are created for the use of producers and family. Little exchange = little need for markets.

COMMERCIAL Producers market g/s. Laws of supply and demand determine price. Exchange of g/s occur on a free market

PLANNED Associated w/communist countries. G/s production and distribution controlled by govt. planners.

KEY VARIABLE An advanced transportation network! Subsistence economies tend to be isolated. Commercial economies use transportation extensively

ECONOMIC STRUCTURE Use of resources help determine structure 4 Types of economic activity

PRIMARY ACTIVITIES Activities concerned directly with natural resources Agriculture Fishing Mining Foresty

Secondary Activities Those that process, transform, fabricate or assemble raw materials derived from primary activities Activities that reassemble, refinish, or package manufactured goods Steelmaking Food processing Auto Manufacturing Textile manufacturing

Tertiary Activities Sale and exchange of good and services Warehousing Retail stores Personal services (ex-hairdresser) Accounting Entertainment

Quaternary Activities Dealing with the handling, processing and exchange of knowledge and information Data Processing Information Retrieval Education Research and Development

DEVELOPMENT

DEVELOPMENT Less Developed Countries (LDC) More Developed Countries (MDC)

How is a country’s development determined? Development is determined by three factors. Economic Social Demographic

Human Development Index (HDI) Created by the United Nations, recognizes that a country’s level of development is a function of all three of these factors.

Creation of HDI The UN selects 1 econ. factor, 2 social factors, and 1 demographic factor that best reveal a country’s level of development.  Econ: Gross domestic product per capita  Social: A- literacy rate & B- amount of education  Demographic: Life expectancy These 4 factors are combined to provide each countries HDI. The highest HDI possible is 1.0

Countries HDI In 2001, Norway ranked the highest at.944. Sierra Leone was the lowest at.275. Canada and Japan have been the highest in the 1990s. United States has never been first, although it is almost always in the top 10.

World’s HDI

Economic Indicators of Development UN includes one Economic Indicator, GDP per capita Four other econ. Indicators also distinguish MDC’s from LDC’s Economic structure Worker productivity Access to raw materials Availability to consumer goods

Per Hour Wage In MDC’s per hour wage is $10-$15/hr. In LDC’s per hour is less than $1/hr. Per hour wage is a difficult figure to obtain from countries. Instead, geographers use GDP per capita, a more readily available indicator.

Gross Domestic Product per Capita (GDP) GDP is the value of the total output of goods and services produced in a country, normally over a year. Dividing the GDP by total population measures the contribution the average individual makes to generating a country’s wealth in a year.

Example GDPs United States $34,000 ($10 trillion GDP/290 million pop.) MDCs per capita GDP exceeds $20,000 LDCs per capita GDP is about $1,000 Luxembourg has the highest GDP per capita at $50,000+ Several countries in sub-Saharan Africa, South Asia and SE Asia are less than $1,000 During past quarter century some MDCs GDP per capita has increased by about $10,000. Some LDCs have actually decreased.

Problems with GDP per capita Does not measure the level of a country’s development perfectly. LDCs with a GDP/capita with a couple thousand $ may have few people starving. Not everyone is wealthy in a MDC. Fact: The US ($34,000 GDP/capita) 1/8 of U.S. population is considered poor. Does not measures a countries wealth distribution.

Per Capita GDP (IN U.S. $)

Telephone Lines Per 100 People, 2002

Social Indicators of Development MDCs use part of their wealth to provide schools, hospitals, and welfare services. Result: People in MDCs are better educated, healthier, & better protected from hardships. Infants are more likely to survive and adults are more likely to live longer. In turn, a healthier population can be more economically productive.

EDUCATION Quality of education is measured in two ways—student/teacher ratio and literacy rate. Average pupil attends school MDCs 10+years LDCs 2 years or less

EDUCATION Student/teacher ratio is twice as high in LDCs as in MDCs. MDCs publish more books, newspapers, and magazines. In LDCs education is the ticket to better jobs and higher social status.

Literacy Rates Literacy rate is the percentage of a country’s people who can read and write. Exceeds 95% in MDCs Less than 33% in LDCs

Student/Teacher Ratio

Demographic Indicators of Development Life expectancy is used in the UN’s HDI. Life expectancy—is the average number of years a newborn infant can expect to live at current mortality rates. Life Expectancy in LDCs—early 40s Life Expectancy in MDCs—mid-70s

Other Demographic Factors That Distinguish LDCs and MDCs Infant Mortality Rates Natural Rate of Increase Crude Birth Rate. Mortality Rate for women in childbirth.

Persons per Physician

Caloric Intake as % of Requirements (2,360 calories needed per day)

Where are MDCs and LDCs located? The world is divided into 9 regions based on development. Two other important areas of development in the world: Japan and the South Pacific Nearly all of the MDCs are located above 30 degrees north latitude.

More Developed Countries (Regions) Three regions that are considered more developed.  Anglo-America (US and Canada)  Western Europe  Eastern Europe Other areas of importance include Japan and South Pacific

Less Developed Countries (Regions) Latin America Middle East Sub-Saharan Africa East Asia South Asia Southeast Asia

Developed and Undeveloped Regions of the World

Core and Periphery in World Economy Fig. 9-22: This north polar projection of the world shows that most of the MDCs are in a core area north of 30° N latitude. The LDCs are mostly on the periphery of this map.

Funding Development LDCs lack money to fund development LDCs must obtain funds from developed countries Funds come from two primary sources Loans from banks and international organizations Direct investment by transnational corporations

Loans Two major lenders to LDCs are the World Bank and the International Monetary Fund Together they lend about $50 billion a year to LDCs for development. Total value of all outstanding loans to LDCs was $2.1 trillion.

Problems The World Bank has estimated that half the projects it funded in Africa are failures. In some places roads are open & projects have been successful, but businesses are still not attracted. Many LDCs have been unable to repay the interest, let alone the principal. Brazil, Mexico, and Argentina have accumulated the largest debts.

Debt as % of Gross National Income

Transnational Corporations Flow of money by private corporations grew rapidly from $13b in 1970 to $55b in 1980 and $735b in Much of the investment involved transfers within transnational corporations.

Transnational Corporations Foreign investment does not flow equally around the world. Only ¼ of foreign investment went from MDCs to LDCs in The other ¾ went from one MDC to another MDC. ½ of all the international investment in LDCs was clustered in three countries (Brazil, China (including Hong Kong), and Mexico.

Flow of Foreign Investment