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Economic Globalization

Economic Globalization. How Industry Decides Where to Be:. Distance and Location Spatially Variable Costs : factors of production that change depending on location: transportation, energy, labor... these often depend on if its weight-losing or weight-gaining industry

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Economic Globalization

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  1. Economic Globalization

  2. How Industry Decides Where to Be: Distance and Location • Spatially Variable Costs: factors of production that change depending on location: transportation, energy, labor... these often depend on if its weight-losing or weight-gaining industry • Spatially Fixed Costs: costs that remain the same no matter where you’re located. “footloose industries” microchip manufactur

  3. How Industries decide location cont: Labor Costs • Substitution principle: deciding to move location in order to take advantage of another region’s cheaper labor cost… even if it raises transport costs, it often works out in the industry’s favor through labor savings. (substituting one labor force for another)

  4. How Industries decide location cont: Site and Situation • Agglomeration: when industries clump together for mutual advantage… compatibility and shared costs for needed resources and infrastructure (energy, roads etc…) high-tech corridor/technopole • Backwash effect: negative consequence of agglomeration: surrounding regions suffer a drain of resources and talent caused by the agglomeration • Locational Interdependence: related to agglomeration: competitors choose locations based on the locations of their competitors. Deglomeration: when an agglomerated region becomes too clustered… polution, traffic, lack of resources and labor…

  5. Globalization of Economic Activity: • Globalization: the increasing sense of interconnectedness and spatial interaction among governments, cultures, and economies… originally, only referenced spreading out of economic activity… however, as it turns out, sharing economic activity has VASTLY influenced governments and cultures.

  6. Economic Globalization: • Multinational (transnational) Corporation: MNCs are businesses with headquarters in one country and production facilities in other countries. They are usually conglomerate corporations meaning that one massive corp. owns and operates a collection of smaller companies: Walmart, GE, Viacom, Nestle…there lots of’em. • Usually MNCs locate their headquarters in core countries and build production facilities in peripheral countries… outsourcing!

  7. New Industrial Countries (NICs) • Several states have climbed the economic ladder and have established an industrialized economy based on manufacturing and global trade: NICs • The “Asian Tigers”: Taiwan, S. Korea, Hong Kong, and Singapore. Followed the high-tech boom in the late 20th century and have profited BIG TIME! Their capital investment into high-tech industry has created a comparative advantage for corporations to base production in these Asian countries.

  8. Foreign Direct Investment • As a tactic to improve their economic development, many less-developed countries actively solicit foreign corporations’ investment in their countries, referred to a foreign direct investment. • SEZs (speciallized economic zones) zones created within LDCs where laws/rules favor MNCs in an effort to attract their business/investment. China does this a lot: Hong Kong, Macao “neoliberal counterrevolution” • Export-processing zones/ Free Trade zones: areas in LDCs offering tax breaks and loosened labor restrictions to attract export-driven factories producing goods for foreign markets

  9. Maquiladora zones • SEZs in Mexico on the border with the US. MNCs in the US then use these maquiladoras for their cost-saving cheap labor… the Mexican government gave tax breaks to MNCs to locate there and to ship back into the US tariff-free

  10. Free Trade vs Fair Trade • Free Trade: the concept of allowing MNCs to outsource without any regulation except for the basic forces of market capitalism. • Fair Trade: policies that favor oversight of foreign direct investment and outsourcing to ensure that workers throughout the world are guaranteed a living wage for their work. The push for these policies has generated a world-wide movement to raise awareness of the impact our purchasing practices have on the people of the LDCs of the world.

  11. Fair Trade Product Labels

  12. Privatization • The selling of publicly operated industries to market-driven corporations. • This happens a lot more as the world globalizes. MNCs move in to areas and buy up control or ownership of important industries or commodities such as water rights and land… leaving people at the mercy of these massive corporations and dependent on them for survival.

  13. Supranational Organizations • These organizations are made up of member states and typically have either a political or economic purpose (sometimes both). Ex: UN, IMF (International Monetary Fund), WB (World Bank), G8 (“Group of 8”) • The IMF and WB are the two that have the most direct influence on international trade, credit/debt finance, and money supply between the MDCs and LDCs… often HARSHLY criticized for perpetuating the cycle of dependency and unfair trade practices.

  14. Trading Blocs • Regional organizations that work to create favorable manufacture, commerce, and tax/tariff conditions for the business/corporations of that region. • NAFTA, EU, CARICOM, APEC • Criticisms: produces favorable conditions for business… not for people/labor.

  15. Non-governmental Organizations • NGOs are organizations that are typically humanitarian in nature ex: Doctors Without Borders, Red Cross, Save The Children etc… • These organizations have become increasingly important in an ever-globalizing world.

  16. Environmental Degradation • Kuznet’s curve: “as nations develop= pollution, the more they develop= the better the environmental situation gets. • Global warming/climate change • Acid rain • CFCs • Deforestation • Desertification • Water pollution

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