MT 1

Question 1

What is economic geography?

Answer 1

(1) Subdiscipline concerned with the spatial organization and distribution of economic activities, and the expansion of the world economy.

Question 2

Compare and contrast economic internationalization and economic globalization.

Answer 2

(5) Economic internationalization
- The interaction of different national economies through the exchange of goods and services (trade).
- Measured in monetary terms i.e. trade/GDP ratio
- Focuses on arm’s length trade (extension of economic activities across national borders)
- Purely quantitative
- Shallow integration, not integrated production.

(6) Economic globalization
- Extends beyond internationalization
- Economic activities are more interconnected i.e. functional/deep integration
- Includes new qualitative aspects such as institutions, agreements and policies i.e. MNCs, TNCs, global assembly lines
- A set of on-going processes which is dynamic and not static
- Involves spatial and temporal dimensions i.e. extension of economic activities, increase in volume + velocity of transactions
- Involves local-global impacts that unfold over multiple geographic scales.

Question 3

What are the 3 schools of thought in debating globalization?

Answer 3

(5) Hyperglobalizers (right):
- New world order where the role of the nation-state has been declining
- Nation states are no longer the primary actions
- We live in a borderless world
- “The world is flat”
- Products are moving across borders freely
- Fukuyama, Friedman

(3) Skeptics (left):
- We have seen globalization before
- Nation states still remain the primary actors
- Globalization is overblown and a mislabeling of internationalization

(6) Transformationalists (middle):
- In between skeptics and hyperglobalizers
- National boundaries are less relevant
- Globalization is ongoing and has been transformative
- Emphasizes local-global connections
- Emerging imbalances in development
- Often conflictual

Skeptics -> Transformationalists -> Hyperglobalizers

Question 4

What is the brief history of the global economy?

Answer 4

(3) Important dates:
- Antiquity: Roman empire, silk road
- Middle Ages: New empires, rise of Islam and trade
- Fall of Constantinople and the rise of Europe

Today’s global economy was formed in 2 key phases:

(4) 1. 1500-1800
- Early economic expansion (age of discovery)
- People started travelling and exploring the world
- Foreign luxury items were hot commodities (i.e. silk + spices)
- Rise of mercantile capitalism and hot commodities: the wealth of a nation was determined by the amount of gold/silver; protectionist (restrict int’l trade to help domestic industries)

(4) 2. 1800-1913
- Rise in colonial economy
- Trade boom with an emphasis on bulk staples i.e. coal and corn
- Driven by free trade over protectionism, the industrial revolution (innovations in transport, communications), and migration
- Divergence of Europe compared to the rest of the world

Question 5

Is the global economy new?

Answer 5

(7) Our modern global economy differs in 2 ways compared to before:

(4) 1. Composition of trade and capital flows
- Increase in the amount of production that is exported
- Rise in services
- Rise in MNCs: foreign direct investment
- More FDI and new forms of investment

(2) 2. Degree of market integration in breadth and depth
- In financial markets: development of stock, credit markets (leading to a convergence of interest rates among countries which lead to countries’ economies dependent on others)
- Capital can flow quickly and easily (foundation of globalization) unlike mobility of labor

(1) *However, the amount of trade and capital flow relative to the size of the global economy is similar to the 19th century

Question 6

What drove market integration? (LIT)

Answer 6

(4) Most of the work done in the 19th century with 3 key points in the 20th century:
1. Trade re(liberalization): reducing tariffs/barriers to trade in the 40s and 50s and also free-floating currency
2. Liberalization of capital markets: since 70s, reducing barriers to capital flow (stopped basing one’s currency on the value of someone else’s)
3. International governance: IMF, GATT -> replaced by WTO, trade as a political weapon, trade promotion

Question 7

What are the 4 pillars to the global connectedness index?

Answer 7

1. Trade flows
2. Capital flows (FDI)
3. People flow (migration patterns)
4. Information flow (emails, calls, internet)

Question 8

What are the consequences of a more global economy?

Answer 8

1. Loss of domestic control (national governments have to compete to attract capital, MNCs go where environmental regulations are more lax)
2. Increased intra-firm trade (trade of goods and services between parent company and foreign affiliates) -> (not regulated by market mechanisms, hard to put a value on, movement of semi-finished products in MNCs)
3. Opportunities vs. losses (when production activities are relocated, who wins and who loses?, people and places left behind)

Question 9

What is an economy?

Answer 9

A system to enables people to meet their material needs

Question 10

What is the economic problem?

Answer 10

Needs and wants are infinite but resources are finite. Scarcity -> tradeoffs -> choice
“choice under constraint”

Question 11

What are the 4 key economic questions?

Answer 11

What to produce
How to produce
Where to produce
Who gets it

Question 12

PPF (Production Possibilities Frontier)

Answer 12

Curve is line that represents different combos of goods at MAX efficiency

Question 13

How can PPF be shifted?

Answer 13

1. Discovery of new resources

2. Evolving technology

Question 14

What is opportunity cost?

Answer 14

Amount of resources we must give up to produce another product.

Question 15

What is a political economy?

Answer 15

More than economic systems, but political relations and allocation of outputs among the population

Question 16

What are economic agents?

Answer 16

Group of people that make production or consumption decisions

Question 17

*What are economic institutions?

Answer 17

• Set of rules and norms that govern economic activity (commerce, trade, production or consumption)
• They set incentives for economic behavior by rewards or punishments

Question 18

What are the factors of production?

Answer 18

Land, labor, capital, entrepreneurship

Question 19

Differences between private and public goods and services?

Answer 19

Private: excludable and rivalrous

• one’s consumption prevents another from consuming
• you must do something to consume i.e. pay

Public: non-excludable and non-rivalrous

• one’s consumption does not prevent another from consuming
• i.e. national defense

Question 20

What is scarcity?

Answer 20

Socially constructed by economic institutions that are involved in the allocation of resources

Question 21

What are markets?

Answer 21

They facilitate the exchange of goods and services between producers and consumers.

Question 22

What is allocative efficiency? And productive efficiency?

Answer 22

Meets the needs of everyone in society, equity

Produce at the lowest cost

Question 23

What are the types of economies and their characteristics?

Answer 23

Traditional: Bartering system, influenced by religious and cultural norms. Involves elements of feudalism, sometimes nomadism, tribal societies. i.e. Parts of Africa, India, South America

Market: Capitalism, influenced by market factors, goal is max profit and capital accumulation, private ownership of production, buyers and sellers interact through supply and demand using prices i.e. USA, Japan

Command/planned: Communism, government owns production, property, and resources, makes most decisions (prices, levels of production, plant location) i.e. Soviet Union and China

Mixed: Como of market and command

Political: how politics and economics interact

Question 24

How do economies grow?

Answer 24

Expand the PPF
New resources: more production and output
Tech evolves: increasing efficiency of producing something
**Trade does not contribute to growth (not particularly endogenous to a country itself)

Question 25

What are the measures of output?

Answer 25

GDP + GNP

Question 26

What is GDP (gross domestic product)? Pros and cons

Answer 26

GDP- Value of all goods and services produced within a country’s borders in a year (no matter who makes it)

(5) Pros:
- Used more than GNP for these reasons:
- Allows us to capture the structure of an economy (i.e. sectors of the economy: primary, secondary, tertiary, etc.)
- Growth of an economy
- Sensitive to short-term changes in the economy
- important for fiscal policy

(6) Cons:
- Does not include informal economy, unpaid work, welfare enhancing/reducing activities i.e. money spent on health care?, distribution of income, comparisons with developing countries,
- Does not measure standard of living (GDP growth != development)

Question 27

What is GNP (gross national product)?

Answer 27

Market value of all goods and services produced by nationals of a country in a year
- Production based on ownership

Question 28

What is PPP (purchasing power parity) and why is it important?

Answer 28

• Exchange rates and comparison of the purchasing power of various world currencies
• Adjust GDP as if country’s output sold in US
• Better comparisons among countries

Question 29

What is GNI (gross national income)?

Answer 29

• Total amount of money earned by people in a country and businesses
• Includes remittance and aid
• Better reflection of welfare

Question 30

What is the difference between growth and development?

Answer 30

Economic growth: increase in real national income/national output. Measured by GDP

Economic development: Quantitative and qualitative growth of an economy i.e. increase in the standards of living

*Growth is probably a necessary but insufficient condition for economic development

Question 31

What are the 3 measures of development?

Answer 31

1. HDI (Human Development Index)
   - How countries invest in health, education and living standards
   - Measured by life expectancy, average years of education and GNI per capita
2. GNHI (Gross national happiness index)
   - Mental well being, health, time use, education, cultural diversity, good governance, living standards
3. GPI (Genuine progress index)
   - 24 measures
   Adjusted for income distribution, unpaid work, welfare enhancing vs reducing

Question 32

What are the x and y axis of the Lorenz curve?

Answer 32

x- % cumulative income y = % income of households
Perfect equality = straight line; gini = 0
0-1 (closer to 0 is more equal)
1 is perfect inequality

Question 33

How is the Gini coefficient calculated?

Answer 33

A = line of perfect equality
B = lorenz curve

G = A/(A+B)

Question 34

What are the 7 factors considered for choosing industrial locations? (AAPPTIB)

Answer 34

(AAPPTIB)

1. Access to inputs (raw materials and sources of energy, no absolute correlation between access to raw materials and industrial development i.e. DRC and Japan)
2. Availability of labor (access to pools of labor and skillsets of labors)
3. Processing costs (Land Labor Capital)
4. ‘Pull of the market’ (closeness to customers i.e. bakery vs. credit centre)
5. Transfer costs of alternative locations (WEBER’S MODEL- optimal cost location: factories are set up where transportation costs of raw materials and final product is a minimum). It considers labor, transport and agglomeration factors
6. Institutional and cultural factors: what govmt policies are in place to help/hinder firms i.e. tax breaks/subsidies, environmental laws, language
7. Behavioral considerations: decisions of firms themselves i.e. Shackley
   * Factors depend on type of activity

Question 35

What are primary, secondary, tertiary and quaternary activities?

Answer 35

Primary: extraction of natural resources (agriculture, mining, forestry, fishing)

Secondary: processing raw materials into manufactured goods

1. Light manufacturing: producing finished product ready for consumer i.e. clothing
2. Heavy manufacturing: capital intensive activities that lead to goods that require further processing (intermediate products) i.e. chemicals, steel

Tertiary: sale and exchange of goods and services

Quaternary: process of knowledge and information i.e. research, data processing

Question 36

What is industrial development?

Answer 36

As an economy develops, fewer people are employed in the primary sector, and move towards manufacturing and services.

Question 37

State the World’s Major Industrial Regions and their description.

Answer 37

1. North America (Rust Belt to Sun Belt shift 60-70s)
   Rust Belt (manufacturing, industrialization took place in the industrial rev.):
   - Raw materials i.e. coal and transportation (Great Lakes, St. Lawrence)

a) North East:
- Boston (light manufacturing activities but now electronics)
- NY: clothing, processed foods, book publishing
- Pittsburg: oldest steel producing center in the US
- Philadelphia, Baltimore: heavy manu
- NJ: pharma
- Upstate NY: chemicals, optical devices

b) Great Lakes:
- Detroit (cars), Chicago (meat packing, trains)
- Cleveland, Akron, Ohio (tires)

c) Canada:
- Southern Ontario (cars, steel, chemicals), Montreal (aerospace, textiles, pharma, aluminum, pulp + paper)

Sun Belt: (5 high-tech pockets)

a) Southern Cali: clothing, aircraft and aerospace, electronics, biotech
b) San Francisco Bay: Silicon Valley: world’s largest manu for semiconductors, micro chips, software + computer
c) Seattle-Tacoma: Aircraft and computers
d) Tech triangle: Raleigh-Durham-Charlotte (software)
e) Texas: Dallas-Forth Worth, Houston (computer, electronics)

**‘Frost belt’ to ‘Sun Belt’ shift -> from rigid mass production to flexible specialization

2. Europe (reflection of Industrial Revolution)
   a) Germany:
   - Ruhr Rhine: steel, coal
   - Saxony: optical
   - Stuttgart: automobiles, pharma, high-value goods

b) France:
- Ile de France: automobiles, pharma
- Lyon: clothing
- Sophia Antipolis: mini Silicon Valley

c) Italy:
- Golden triangle (milan, turin, genoa) - 70% of Italy’s manu (heavy manu)
- ***Third Italy (Venice to Florence): consumer oriented, artisanal activities, labor-intensive transformation

d) UK:
- Manchester: M4 corridor (high tech)

e) Spain: Barcelona (heavy manu)

3. Russia and Ukraine
   - Moscow and Rules: heavy manu
   - Borqui: automobiles
   - Volga: Minerals/raw material (relocated to Moscow during WW2 away from conflict)
4. East Asia (fastest growing regions)

a) During the Meiji era:
i) Kanto plain: primary industrial region
ii) Kansai district: heavy industry
iii) Kitakyushu: shipbuilding, steel
iv) Toyama: paper, textiles

b) China
i) Shanghai: world’s busiest port, diversified manu
ii) Guangdong: Pearl River Delta: China’s most dynamic region, fastest growing industrial district in China today, electronics, Foxconn
ii) NorthEast: Now China’s rust belt, heavy manu, coal, steel
iii) Chang district: furniture, cabinents, textiles
iv) Shenzhen: lower taxes on imports/exports, access to i/e markets

c) 4 tiger: 
SK: heavy, high tech
Singapore: quaternary
Taiwan: labor to high tech
Hong Kong: financial

Question 38

Where does 85% of the world GDP and 85% of trade flows (i/e) come from?

Answer 38

Global Triad: NA, Europe, East Asia

Question 39

What are the changes in the global economy map?

Answer 39

At macro-scale: emergence of a global triad

At national-scale:
- shifts in manufacturing production: towards secondary activities
- shifts in international trade (growth in East and Southeast Asia, 3 primary merchandise trading regions: Europe (EU), East and Southeast Asia (ASEAN) and North America (NAFTA))
- historical relationship between global trade and
output (Deng Xiaopeng opened up the Chinese economy to foreign capital and privatization of state-owned industries)
1990s: Japan’s “lost decade” due to rising interest rates
Africa has many minerals and resources but not rich (commodity prices are volatile and unstable)
Growing importance of NIES (newly integrated economies) (BRIC (Brazil, Russia, India, China))

At micro-scale: increasing importance of world
cities (specialized in economic activities, more connected globally)

Question 40

What is time space compression?

Answer 40

• Term coined by Harvey
• Minimizing the friction of distance
• The vastly accelerated movement of goods, information and financial resources around the world at a falling cost
• Relies on circulation tech: ones that help overcome frictions of space and time (transport and communication) i.e. container ships gas + engine, airplanes, emails
• In spatial terms, TSC is very uneven as investments into circulation technologies go where the financial returns and demand are the greatest, meaning that some places will get left behind.

Question 41

What is the brief history of Canada in the world economy?

Answer 41

1. Pre 19th century: Staples theory -> exporting resources to Europe (fish, fur, lumber), reliance in export of raw materials and resources
2. Mid 19th century: US starts to industrialize, Canada exports more to the US for manu belt, higher demand for natural resources
3. 1867 (Confederation): More east-west trade flows, railroad and tariff protection measures, emergence of industrial cores i.e. textiles
4. WWI: lumber, growth in the Pacific
5. WW2: Ontario and Quebec (key manu hubs)
6. 1965 (Canada-US auto pact): elimination of trade tariffs on automobiles for big 3 (chrysler, GM, ford), integrated production of auto, bilateral trade, not! free trade its managed trade (bubble relating to auto sector), industrial engine
7. 1970s: Early development of oil industry in AB, economic gravity shift to western provinces from central Canada
8. 1988: Can-USA FTA (extended to include Mexico in 1994 (NAFTA)), greater regional integration, FT and elimination of barriers (but still exceptions)
9. Present: Economic center of gravity to the West due to oil, China importing lots of crude materials from Canada, China in the lead for mercantile goods, trade deficit but surplus in transportation, China outsells CAN in US, CAN exporting non-transformed goods to China (chemicals and crude materials), CAN still relies on the export of primary goods

Question 42

What are the reasons for trading? (MACD)

Answer 42

1. Differences in factor endowments
   a) Natural resources are unevenly distributed throughout the world
   b) Differences in climate (i.e. landlocked, climates better suited for certain crops)
   c) Labor force (Canada has lots of specialized workers, China has a lot of clothing workers)
   d) Access to tech or capital
2. More intra-firm trade via globally integrated production activities
3. Agglomeration economies and economies of scale (new trade theory: benefit from efficiency of being together, important for competitive advantage)
4. Competitive advantage
   * Unlike in mercantilism, countries can enjoy mutual gains from trade by specializing

Question 43

What are the advantages from trade?

Answer 43

Mutual gains from trade: when products are redistributed such that countries end up with a combo of goods better adapted to their preferences.

Question 44

What is absolute, comparative, and competitive advantage?

Answer 44

Absolute- When a country can produce a good more efficiently (use less resources) than another

Comparative (Ricardo)- When a country produces a good or service at a lower opportunity cost than other countries. A country should specialize in and export the good for which they have comparative advantage, leads to mutual gains.
Limitations: Assumes perfect competition, ignores economies of scale and agglomeration.

Competitive advantage (Porter) (modern trade theory): When a country provides a better value than its competitors.

Emphasis on productivity growth and competitive advantage (outlines why some countries have comparative advantage over certain things and how countries can figure out how to improve their trading position by getting comparative advantage)

1. Clusters allow easier interaction between firms
2. From govt POV: some institutions can influence the development of some pillars
   • Eg the govt might support factor conditions or supporting industries

4 pillars (FFDS):

• Factor conditions (LLK, tech, infrastructure)
• Firm strategy, structure, competition
• Demand (market) conditions
• Supporting industries

Question 45

What is the Heckscher-Ohlin model?

Answer 45

• Abs advantage
• Comparative advantage
• Gains from trade

Question 46

Describe key points in the Roman Empire

Answer 46

1. Trading in the Mediterranean (first foundation of infrastructure)
2. Common institutions governing how they trade
3. Collapsed in 5th C (depopulation, deurbanization, rise of new empires)
4. Western Empire (franks)
5. Eastern Empire (byzantine)

Question 47

High Middle Ages (1000 AD onwards)

Answer 47

1. Pop of Europe increased rapidly
2. Many agri innovations
   a. Rise of manorialism: a lord owned the land, and on it worked serfs
3. Self-sufficient, peasants provided a tithe to the lord in the form of produce
4. Kings + the church consolidated power
   a. the crusades (9 of them): the roads were used more = repairs and extensions
5. needed financing
6. trade started expanding!
   a. Got to the sea: focused on Italian cities (genoa and venice)
   b. Banks were developed to enable kings to finance wars and the papacy to fund the crusades
7. As we got to the late middle ages, lords and kinds wanted MONEY as tithes not produce so they could go on more crusades
   a. Development of markets and fairs — towns developed around them
   b. New kind of economy: OG was self-sufficient - now economy was based on market exchange (outward looking)

Question 48

Era of exploration and discovery

Answer 48

1. The fall of Constantinople (former Eastern Roman Empire), 1453
   - Falls to the Turks, use sea cause they block trade to east
2. Portugal : Cape Bojador and Africa
   - they were locked in by moores and agri was stagnant – turned to the sea to expand, find new trade roots
3. Spain : The Americas
4. Treaty of Tordesillas, 1494
   Pope divided world two, created because there was nothing to trade with the Indigenous
   a. Portuguese got east
   b. Spanish got west
5. Exploration’s golden era, 1500-1550
6. Other European countries

By 1522: world has been circumnavigated
Pope, in 1529, sets an eastern line - established by the Treaty of Saragossa
1. Between spain and Portugal
2. Rest of world said nah
a. England and France go to NA
b. Dutch go to east indies, Australia
c. Russia goes to Siberia and Pacific Ocean

Question 49

International trade and commerce

Answer 49

Exploration, extraction and trade
 Luxury good trade
 East India Companies: first MNCs
 Financing trade with credit
 Key innovations:
 Finance and banking
 Ship building and navigation
 Naval ordinance
 Communication

Question 50

What are the 4 policies that gave to mercantilism?

STTG

Answer 50

i. To acquire gold/silver through conquest and trade
• Spain and Portugal got RICH rich and everyone else wanted that too
• Gave new money incentives for exploration, improving efficiency
of mining, pirateering

ii. A trade surplus was needed
• Trade is win-lose; only one side gets the gold while the other gets like, cloth
• Created monopolies  I can trade for gold, yes?!

iii. Imposing trade tariffs and import sub
• Make sure of trade surplus!

iv. Having a strong navy and military
• Conflict is inevitable because of zero sum idea, gotta protect your trade interest

Question 51

Key Innovations in Expanding Mercantile Trade (5)

Answer 51

1. Finance and banking:
   a. Letters of exchange and credit
   b. Limited partnerships
   c. Shares in stocks
   d. Commercial insurance
   e. Double entry bookkeeping; enabled commerce and trade (accounting)
   f. First govt bonds
   g. How much gold and silver
   h. New plants and products
   i. Connection of new and old world
   j. Fianance and banking develop
   k. Central banks develop
2. Ships building and navigation improvements
   a. Eg sailing into the winds
3. Naval ordinance development
   a. Guns and cannons!
4. Communication
   a. The PRINTING PRESS: maps
5. State economic doctrine of mercantilism: idea that wealth came from having gold in your treasury
   a. State policy was designed to acquire as much as possible and not let it leave
   i. You become wealthier and more secure because you pay armies to protect you from anyone trying to steal your monies

Question 52

Challenges to mercantilism (econ policy designed to maximize the exports and minimize the imports for an economy)

Answer 52

b. Intellectual argument;
i. Liberal free market policy doctrine
i. wealth is NOT gold, it is created by human labour
ii. trade is not zero sum, (Ricardo) there can be mutual gains from abs and comparative advantages
iii. wealth ≠ money – ie increasing the money supply does not make people wealthier, in fact it can be damning because of inflation (goods appreciated in value and made it harder to explore)

c. political argument:
i. the rise of democracy
1. replacing monarchies by Parliaments and democracies
2. Locked up between traders and monarchs

Question 53

Drivers of the Trade Boom (FITGMP)

Answer 53

1. Free trade: triggered by legislation in Britain
   a. In 1849, adopted the corn laws (opened trade in Syria) and navigation acts
   b. Removed tariffs by 1860
   c. Imposed free trade on its colonies – free trade imperialism
   d. By 1975, 50 bilateral free trade agreements (China, Persia, Ottoman Empires)
2. Industrial Rev
   a. Began in the UK
   b. Fueled by demand for gold and silver
   c. New innovations + tech! (steam engine, telegraph) –> reinforces expansion of trade and increases demand for inputs such as steel, cotton, wheat (innovation and consumption increases) = endogenous growth!
   i. Innovate -> more trade (int’l trade) -> more surplus -> more $$ to invest and trade -> more innovation
   d. More demand!
3. Transport and communication innovation
   a. Canals, railways, steamships, the telegraph
   b. Trade in high bulk, low value
   c. Suez and panama canals
   d. Certain goods before not worth (high value, low volume goods)
   i. Can move bulk goods much more economically (industrial inputs, fuel), these were called “non-tradable goods before”
   e. Infrastructure uniting the world
4. Gold standard
   a. One currency around the world that everyone used, facilitated commerce because it was easy to know how much some foreign good was worth
   b. In 1871, countries agreed to go to the Gold Standard, my currency with respect to gold, benchmark
   c. Facilitates trade and commerce around the world
5. Migration
   a. Voluntary: settlers
   b. Involuntary: slaves
   c. Gave rise to new geography of demand and new trade opportunities
6. Peace
   a. Whereas mercantile era was rife with conflict
   b. Pax Britannia: Britain enforced peace
   c. 1815-WW1: Idea is that trade and prosperity thrive in eras of peace

Question 54

Circuits of Trade

Answer 54

• Quantity much larger (in terms of trade), bulk products, staples and raw materials
• Trade is giving rise in incomes, middle class
  Massive expansion in the variety and volume of primary products that were traded

1. Incomes were rising = new tastes (tea, coffee, sugar)
2. Import sub policies that were implemented during mercantilism started to bear fruit
   a. Already an existing industrial sector, ready for when they decided they wanted to export for industrial rev
   b. Domestic industries were protected by high tariffs The Atlantic triangle:
3. Between Europe, NA and Africa
   a. What Columbus used!
   b. Water circulation patterns
4. Indigenous population genocide (disease decimated the population)
5. Manu goods and luxuries were exported to Africa where they were sold in colonial towns
   a. Profits went back to England, to finance more slaves
   b. Slaves were sent to west indies to work on plantations

c. Ships picked up Americas goodies and went back to Europe
▪ Sugar (major focal point, 70% of slaves work for sugar plantations) and rum from the Caribbean
▪ Indigo from central America
▪ Tabacco and cotton from US
▪ Timber, furs and whale oil from Canada

6. This circuit was replaced by direct trade
   a. Ended w/ abolition of slavery, intro of steamships and independence of American colonies
   Tea!
7. Came to England in 1622
8. Pound of tea = 9 months of wages
9. Tariffs were huge
10. Silver was paid to China to acquire tea -> lead to huge deficit
11. Monopoly for British ends in 1834 (freeing trade in tea but only from China)
12. Scottish guy sent by the Britih East Indian Company disguised as Chinese merchant and got a bunch of tea and took it to india
    a. Source of tea for the brits!
    b. Suez Canal in 1869 = faster to get to tea = imports soared

c. India tea now
13. Tea was a simulant for workers in industrial rev! More health!

Question 55

Discovery-conquest-colonialization

Answer 55

a. 16thC – 19thC
a. Mercantile era (direct rule)
b. Offices of Britih East Indian Company held dominion over some areas in India
c. In 1957, Britain becomes direct ruler and takes over for 100 years
d. Spain + Portugal: went to new world and focused on extraction and claims to land, decimation of disease
i. Motto: gold, glory, god
e. England and France
i. Went to new world for settlement, established colonies
b. 19thC- 20th
a. Many countries in competitive colonialism (Dutch, Germans, Italians)
i. Unlike in mercantilism where people had realm rights, FT was a free for all
1. The scramble for Africa (1884): Countries jossle to acquire overseas colonies, over 1000 tribes before, 50 colonies being mapped out

Question 56

Economic role of the colonies in the economy SNNS

Answer 56

1. Source of NR and revenues
   a. Labour (slaves or tied labour)
   b. Tax rev
   c. Precious metals, primary products
2. New markets to sell industrial goods
   a. To keep growing, need to sell overseas
3. New investment opps
   a. vent for surplus
   b. Overseas projects: Canals, ports, railways, mines, farmland
4. Safety valve for excess population
   a. Eg the irish potato famine: gave the Irishmen somewhere to go
   b. Economic advancement for the middle class

Question 57

Consequences of colonialism: (TUDIP)

Answer 57

1. Impact on indigenous pop
2. Economic centering of the economy on primary export sector
   a. Colonies specialized on a small number of exports, to the detriment of their development
3. Formation of dual societies
   a. Colonial merchants and everyone else, landed class, (in Africa, favouring of ethnic groups)
   b. Economic stratification
4. Urbanization
   a. Colonial administrations focuses on one primate city: concentrate pop and development impetus in one area
   b. Port cities and railways
5. Transplantation of the nation state into the colonies
   a. Home country instituioons and rule of law were implemented
   b. Imperial rule -> colonies
   i. Modern countries still have similar govt structures, or for eg Kenya has british style court

Question 58

Outcomes of the Trade

Answer 58

Boom Econ Growth
- Massive economic growth -> rise in GDP
- Almost everyone was better off, but EU disproportionately so (because endogenous growth took off worldwide, but nowhere near Europe)
- Periphery had higher incomes because TOT were in favour due to primary product demand, but it was done so with stunted industrialization
o Vulnerability to price volatility and growing inequality
Price convergence through market integration (as markets integrate with free trade)
- Ultimately led to resentment = reinstitution of tariffs after WWI

Income Divergence (between and within)
- GDP prior to 1820 was driven by population (China and India), but after 1820 it was driven by productivity differences (divergence because of productivity, industrialization)
- Inequality growing within former colonies and within countries
- Rich oligarchies owned land and mines (which were the basis for the primary product export boom)
o Their position of wealth is equated with political power, so they were able to shape institutions and policies within these new countries to benefit themselves

Question 59

What is development?

Answer 59

Defining development: depends where we are at in the process
- Mercantilism (18th C): its about getting as much gold and silver as possible
o Poverty is not much of a concern, makes it easy to get people to do stuff for you
- 19th c: poverty is not great to have at home

• 1. Notion of development has broadened over time 2. Games of trade (free world, free trade) (Thinking about development is endogenous to development process
• )
• After WW1, how do we promote development (a return to what Europe was before)
• Fostering capabilities and empowerment of people
• Idea of development has changed (poverty allevation, entitlement)
• Thinking about development is endogenous to development process

o In colonies, eh NBD
- 20th : development is about growth and investment
o Reconstruction of Europe guided by the marshall plan
▪ When marshall plan worked well in EU, thought why not implement it in LDCs?
o After WWII: about GROWTH
▪ Rising tide will lift all the boats: ie increasing GDP will help uplift other aspects of society
- 60s, 70s: see growth isn’t enough
o Need to look at basic needs, try to reduce poverty
- 80s: also need to consider capabilities and freedoms Just adding layers to the definition of development!

Question 60

Empirical regularities as countries develop

Answer 60

1. Economic structural change
   a. More exports of finished goods and import of raw (countries become more open)
   i. EOI (export-oriented industrialization)
   b. Rising GDP= rising accumulation of capital = more savings = more investment in human + physical capital
   c. Decrease in role of agri compared to services (doesn’t shrink but it’s the relative share that decreases)
   i. Engel’s law: as family income rises, % spent on food tends to fall (means their income used more than just keeping them alive)
2. More $ can saved, invest and consumed
   ii. Increased productivity of agri

3.Less labour is needed, excess can go work in manu, (decrease in share of agriculture)

4 Urbanization (rise in urbanization and decrease in share of agriculture sector)

a. Economies of agglomeration: savings that arise as different types of industry requiring common infrastructure come together (easier to sell products that have complementarities)
b. Much easier to buy/sell in cities
c. Rural-urban migration
d. Economies of scale: cost of producing something depends on the scale of your industry, tend to cluster around urban areas

5 Inequality

6. Kuznets curve: low levels GDP = unequal, higher GDP = more equal
   a. Substitution of human capital with physical capital
   b. In social democratic countries, distribution of wealth
   i. Daycare
   ii. Relief for the poor
   c. People are being educated, more similar in their capacities
   i. Human capital replacing physical capital in terms of its importance

These points don’t help us undetsand development fully
Have to grow first then inequality, OR deal with inequality then grow??
Doesn’t give us guidance in economic policy
1. Development theory
2. Development practice

Question 61

Growth Models

Answer 61

1. Stages of Growth model
   a. Key is savings and investment, countries that don’t have enough wont be able to take off
   i. Justification for foreign aid policy: it makes up for the savings gap
2. An anti-communist manifesto was the subtitle of Rostows book
3. Poor countries not investing in infrastructure (production linkages, fiscal linkages, consumption linkages) (if we want to help countries, we need to help them, foreign aid)
4. 2 sector model (lewis)
   - Growth occurs because agri -> manu (excess labor) -> in cities
   - Transformation from rural to urban, agri -> manu
   - Surplus labor from rural to urban that we see growth (expansive and reinforcing)
   a. Draw from surplus of labour in agri –> put into urban –> more profits –> more savings –> more re-investment in capital –> more employment –> more workers come –> more profits…….
5. Dependency theory
   a. Says that when poor countries integrate into the global economy, THAT is when they are exploited
   b. Development and underdevelopment are two sides of the same coin
   i. Zero sum: core benefits at the expense of the periphery
   c. Development and undevelopment are 2 faces of the same coin
   d. Poor and rich divided (countries get trapped, exporting raw materials and transformed into products that are returned to them)
6. Endogenous growth theory
   a. Growth is LLK and tech change
   i. How they interact, esp human and physical capital
7. Eg precision farming, the most recent and prevailing theory

Question 62

Paths to Growth (practices of development) PIE

Answer 62

1. Primary products exports
   Export agricultural products, timber, fish, oil and gas, minerals  Comparative advantage  Growth based on:  New resources  Improved use of existing resources  Linkage effects  Problems:  Sluggish demand, volatile prices & unbalanced growth

a. Idea: you have something the world wants, and because of , you have some abs or comparative advantage
i. Use this advantage to export
ii. Growth occurs by bringing in new resources into the economy and by improving existing resources
iii. As income rises, people buy more things
iv. Indsutries develop around that export product
b. Key idea is linkages
i. Production, consumption, fiscal
c. Problem:
i. not all goods are good exports for production linkages
ii. Face price volatility and sluggish demand

2. ISI (import substitution industrialization)
   Shift from primary product exports to manufactures  Import substitution industrialization (ISI)  How?  Identify large domestic market  Acquire technology and capital (abroad)  Provide protection to nascent industry (gov’t)

a. Import sub
b. Push
c. Development for a while
d. Develop comparative advantage
e. Path goes land + minerals > textiles > computer + machines
f. Resource, labor, capital, knowledge intensive
g. Govt protects
h. Problems:
i. Infant industries might not grow up (political astutement, accumulation of wealth and power and political protection, only so many products you can sell, if currency overvaluated, shodes too expensive)
ii. Your exports are uncompetitive

3. EOI (export oriented industrialization)
   a. Industrialize to produce goods for export
   i. Create industries that will focus on goods you do not want to sell at home
   b. Govt plays key role in protecting infant export industries
   i. Eg sets targets for exports, reward firms that make them w/ tax breaks and subsidies, infrastructure
   ii. Manages exchange rates
   iii. Factor market intervention
4. Ie move from labour intensive to capital intensive
5. Control over banks – more low interest credit

c. Problems:
i. Trade barriers
ii. Expensive and hard
1. Have to pick winners and losers – needs strong bureaucracy
iii. Vulnerable! (if focuses on outside world, have to remain on good terms with people)
iv. Protectionism- trade barriers, tariffs, health standards, keeping cheaper exports out of country

Promote manufacturing for export markets  Role of government  How?  Subsidies & preferential treatment  Management of exchange rates  Factor market intervention (capital)  Problems:  Expensive and difficult  Protectionism  Vulnerability
- Very successful

South Korea, China, Taiwan