Global Trade and Uneven Development

LIC vs. NIC Development Patterns

LICs (e.g., Malawi)

  • Agriculture: Employs a significant portion (84%) of the workforce.
  • Workforce: Characterized by a young, skilled labor pool, but with low wage costs compared to countries like China and Mexico.
  • Primary Goods: Dominated by the production of primary goods (e.g., tea) grown on estates primarily owned by MNCs.
  • Employment Seasonality: Employment in agriculture is often seasonal.
  • Local Ownership: Only a small number of estates are owned by local farmers.
  • Export Dependency: A high percentage (90%+) of primary goods are exported to HICs, such as the UK.
  • HIC Processing: Primary goods are processed in factories located in HICs.
  • Low Pricing: HICs pay a low price for unmanufactured primary goods.
  • Language: English serves as a second language.
  • Trade Barriers: Tariffs and quotas imposed by HICs and trading blocs result in LICs making very little profit on their primary goods.
  • Infrastructure Needs: A developed infrastructure (e.g., energy and transport) is vital for development.
  • Vulnerability to Disasters: Natural disasters (e.g., drought) can have a devastating impact.
  • Crop Dependency: Heavy dependence on one or two crops means that if one crop is destroyed, the country faces significant income loss.
  • Economic Reliance: The economy relies heavily on the World Bank and International Monetary Fund.
  • Import Costs: Imported goods (e.g., fuels) take up a large percentage of the country’s import costs.

NICs (e.g., India)

  • MNC Investment: MNCs have invested heavily, creating jobs in manufacturing and service sectors.
  • Export Shift: As a result of investment, NICs export manufactured goods, which are worth more than primary goods.
  • Stable Government: A stable government is present.
  • Market Attractiveness: A large population results in more prospective customers and creates a large, attractive market.
  • Free Trade Encouragement: The International Monetary Fund encourages free trade between countries, resulting in fewer quotas and tariffs.

Key Terms

  • Enclave Tourism: All tourist activities are held in one geographical area.
  • Exports: Goods that are sold to other countries.
  • Globalization: The free flow of goods, people, ideas, and money, causing the world to become increasingly inter-connected.
  • Imports: Goods that are purchased from other countries.
  • Infrastructure: Buildings and services that are essential, e.g., airports, roads, and water supply.
  • Interdependence: When countries are connected economically, culturally, politically, and socially and are all dependent on one another.
  • Multi-National Companies (MNCs): Large companies that have branches and factories in many other countries, e.g. Nike.
  • Quotas: The limited sum of goods a country can import and export in a year.
  • Subsidies: Grants of money paid by governments to certain industries; can be paid in the form of reduced rates as well as money.
  • Tariffs: Taxes that must be paid on some imports.
  • Trade: The buying and selling of goods between countries.
  • Trade Blocks: A group of countries that have an agreement to trade freely with each other, e.g., the European Union.

Global Trade and Uneven Development

  • HICs/NICs:
    • Imports: Primary goods.
    • Exports: Manufactured goods (worth lots of money).
    • Earnings: HICs/NICs earn a high income from exports as manufactured goods are worth a lot of money.
    • Healthcare: Can afford better healthcare, resulting in longer life expectancy.
  • LICs:
    • Imports: Manufactured goods.
    • Exports: Primary goods (worth very little and usually include only a few exports, e.g. coffee and bananas).
    • Earnings: LICs earn a low income from exports as primary goods do not sell for much money.
    • Debt: Borrow money and their debts mount up.
  • Tariffs, Subsidies, Quotas, and Trade Blocks:
    • HIC Control: HICs set prices of primary goods, tariffs, and quotas on imported goods; give subsidies to farmers within their countries.
    • LIC Dependence: LICs depend on trade but do not have any control of it.
    • Protectionism: HICs/NICs protect their own farmers and manufactured goods by making imported goods more costly than goods produced in their own countries/ trading blocks.
    • Price Fluctuations: LICs are so dependent on one or two products for their income that a small fluctuation in price can have huge consequences.
    • Competition: LICs find it harder to compete against large trading blocks, and as a result, the trade gap between HICs and LICs increases.
    • Skilled Worker Migration: HICs/NICs are more developed and can attract skilled workers from LICs who migrate to have higher wages, standards of living, and quality of life.

Effects of Tourism on Development in NICs/LICs

Advantages
  • Improved Infrastructure: Can attract new MNCs, increasing export value and GDP.
  • Economic Boost: More money available for healthcare and education, further aiding development.
  • Employment Opportunities: Hotels provide employment mainly in the service (tertiary) sector.
  • Local Area Improvement: Locals pay more taxes, improving the local area.
  • Informal Economy Boost: Tourists buy souvenirs, creating employment opportunities in the informal economy and some manufacturing jobs, creating income for locals.
  • Increased Demand: Farmers see a boost as there is greater demand for fresh produce.
  • Environmental Protection: Environments are protected, e.g., the creation of National Parks.
  • Cultural Preservation: Traditions are protected as tourists enjoy visiting historical sites and experiencing a foreign culture.
  • Improved Services: Services such as Wi-Fi are made available for tourists, potentially benefiting locals.
  • Infrastructure Development: Roads are improved to provide access to locals; airports are improved, making imports/exports easier, and boosting trade.
Disadvantages
  • MNC Profit Repatriation: Many hotels are owned by MNCs, with most income returning to foreign countries where the MNC's headquarters are based, increasing the development gap.
  • Seasonal Jobs: Many locals are unemployed for several months of the year.
  • Employment Structure Changes: Young people will work in hotels and the service sector rather than in traditional industries like fishing and farming.
  • Environmental Damage: Sensitive ecosystems such as sand dunes and coral reefs could be damaged or even destroyed.
  • Cultural Loss: Local dialects, languages, and cultures are lost.
  • Landscape Destruction: New roads and airports can destroy sensitive landscapes and increase pollution.

Advantages and Disadvantages of MNCs

Advantages
  • Job Creation: Bring work to the area and employ locals who receive an income; training also boosts locals’ skills.
  • Local Economic Boost: As local people’s wealth increases, they have more money to spend in local shops and on services. This can also help attract other MNCs to the area.
  • Tax Revenue: The MNC will pay taxes, which can be spent on healthcare and education.
  • Technology Transfer: The company brings modern machinery and technology.
  • Foreign Investment: The MNC invests in the area and brings in foreign money, increasing the country’s GDP.
Disadvantages
  • Low Wages & Poor Conditions: Workers usually earn a low wage and have poor working conditions; very few locally skilled people are employed; managers and more skilled workers usually come from the country in which the headquarters are situated.
  • Instability: Important decisions are made in the MNC’s headquarters, and the MNC could leave at any time, leaving locals unemployed.
  • Cultural Impact: The MNC’s ‘Western Image’ could have a negative impact on local culture and way of life; they can also use a lot of local resources which are already scarce (e.g. water), leaving locals with even less.
  • Profit Repatriation: Any profits are sent overseas – usually to HICs – further increasing their GDP and widening the development gap further.
  • Impact on Traditional Industries: MNCs can have a negative impact on traditional industries; farmers will work in the new factories instead of agriculture; as a result, traditional industries are lost.

Reasons for MNC Locations

  • To be closer to a larger number of customers and different markets.
  • Access to cheaper labor and raw materials.
  • To avoid tariffs by basing themselves within trade blocks.
  • In some countries, there are fewer health and safety restrictions.

Globalization in the UK (TATA Steel Example)

  • Employment: TATA employs 50,000 people in 38 companies in the UK.
  • Trade Block Benefits: By buying factories in the European Trading Block, they could avoid quotas and paying tariffs.
  • Competition: Due to lower energy and labor costs, China began to sell steel cheaper than the UK.
  • Tariff Impact: Even though the EU imposed tariffs on Chinese Steel, the UK steel industry could not compete with the lower cost of Chinese steel.
  • Job Losses: Resulted in TATA losing a lot of money in lost profits; many jobs were lost in the UK Steel Industry.
  • Negative Multiplier Effect: Many indirect jobs were also lost within some regions of the UK.

Enclave Tourism

  • Travel companies often sell ‘all-inclusive’ holidays.
  • Tourists pay one price for transport, accommodation, food, drinks, and entertainment.
  • Cruise ships offer a similar type of holiday.
  • Tourists are reluctant to leave the hotels/cruise ship in order to buy food and drink as they feel they have ‘paid for everything’ already.
  • Consequences: The economy of the local destinations benefits very little from tourism as most of the money is kept by MNCs like TUI or Royal Caribbean.