Geography of the Global Economy Final Exam

Justin Freeman
1. What are the determinants of competitive advantage and how have that shaped geography and
the global economy? How important is state support? Please explain

The theory of competitive advantage is a theory that focuses on the social creation of
innovation in a knowledge-based economy. Competitive advantage has several determinants that
have helped to shape geography and the global economy. In total, there are 6 determinants of
competitive advantage. According to the textbook, those determinants are (1) skilled labor, good
educational systems, and adequate technical training, (2) agglomeration economies, including
pools of expertise, webs of formal and informal interactions, trust, linkages, strategic alliances,
trade associations, integrated networks of suppliers and ancillary services, (3) a culture that
rewards innovation: adaptation, experimentation, risk tolerance, and entrepreneurship; this
includes heavy levels of corporate and public research and development and the continual
upgrading of capital and skills, (4) competitive markets at home, (5) adequate financing and
venture capital, and finally (6) public policies that encourage productivity growth, including
subsidized research, export promotion, improved educational systems; and an up-to-date
infrastructure. These determinants have helped to shape geography and the global economy in a
plethora of ways; for example, the first point has helped establish what developing and
developed countries need to create in order to help advance their economic power. The second
point describes the international banking and international flow of money, and how a strong
system has been created and how a nation can enter that system. It also describes relations within
a nation; if citizens are able to gain loans from banks, they are able to make larger purchases

because they can pay off the loan over a period of time. The third is a very important one; it
describes the kind of society that must be in place in order for a nation to succeed in the global
economy. The need for innovation and advances in technology is not a new need, but some
models forget to put an emphasis on this. In a capitalist system, for example, people are
encouraged to take risks and try to invent new methods, technologies, etc. In a communist
society, however, there is no motivation to innovate. People are paid the same amount regardless
of the work they do, so the money incentive to improve technology and to work harder simply is
not there. The fourth point describes inter business competition within a nation. When you have
businesses competing with one another, the prices of the goods and services sold go down while
the technologies produced by those countries are done so at a more accelerated rate. The fifth
point describes the ability for a bank or a nation to supply entrepreneurs, inventors, innovators,
etc. with the necessary loans to being a new business, advance a new product, etc. The sixth
point sets up the kind of infrastructure required for a nation to truly enter the global economy as
well as enable its citizens to make advances in technology and earn a living. All of these
determinants have helped to shape the geography of the global economy by setting up what a
nation should emphasize/construct in order to enter the global economy. State support is
extremely important in the global economy (although, arguably not as much as it used to be).
State support helps people and businesses get off the ground; with things like loans and grants,
people are able to focus on creating their business and/or advancing a new product or service
without much fear of losing money. Loans also provide the initial amount of money required to
start a business or begin the research process; starting a business is expensive and most people
dont have the required amount of money to do so just sitting in their bank accounts. With state

support, people are also able to live longer lives, leading to a higher chance of them creating a
new product.

2. What are the negative and positive effects of foreign direct investment? How does FDI affect
geography?

Foreign direct investment has numerous effects on a nation, both positive and negative.
There are two opinions on the matter, those who believe that FDI shouldnt be allowed because it
can cause too much harm to developing nations and those who believe FDI stimulates and helps
developing nations to create a strong economy. According to the textbook, there are nine positive
direct effects of foreign direct investment in total. The first of these effects is the raising,
investing, and reallocating of capital. This is obviously a good effect of FDI; a developing nation
gains capital from a transnational corporation in order to build its infrastructure up, strengthen
social programs, and other such things. The second effect is the creating and managing of
organizations. When a nation gains capital through FDI, it can also use that capital to help people
within the nation begin their own businesses and it can use the capital to help strengthen the
organizations that are already in existence. The third is the innovating, adopting, perfecting, and
transferring of technology. With a hefty increase in capital, a nation can also begin to, or continue
to, invest in the technological advances within the nation. These advances can not only help the
people immediate to the nation, but also can help those outside the nation. Advancement of
technology also opens the door for more TNCs to invest in the development of the technology as
well as the potential to market whatever technologies are created through the process. The fourth
effect is distributing product, performing maintenance, marketing, and selling. With an influx of

capital, a developing nation can use the capital to begin the process of marketing, exporting, and
distributing any sort of good or material it can produce. With a strong national export, a nation
will be able to grow its country even further, particularly if the export is one that is sought after
by other nations. The fifth effect is furnishing local elites with suitable career choices. When a
nation receives more capital, it becomes better equipped to train and educate the local elite and
avoid the brain drain effect. If a person is educated and trained within a nation, they are much
less likely to leave the nation to work elsewhere than if they were trained and educated outside of
the nation. The sixth effect is the educating and upgrading of both blue-collar and white-collar
labor. This effect is a very powerful one; with improved working conditions, higher wages, and
all around more job satisfaction, people will be able to spend, invest, and participate in the
economy more openly, allowing for much more economic growth. The seventh effect is serving
as a source of local savings and taxes and in supplying skilled graduates to the local economy.
Basically, if a nation doesnt have enough well trained and highly educated people to work in the
country, they now have the option to try and bring people who match the role in from other areas.
Not only that, but with increased capital, a developing nation is more suited to hand out loans to
its citizens, something virtually required for someone to start a business or begin/continue
researching a new technology. The eight effect is facilitating the creation of vertical
organizations or vertical arrangements that allow for the progression of goods from one stage of
production to another. With the creation of vertical organizations, the job market rapidly
expands, as does the progression of technology and the manufacturing of goods. This will help
stimulate the economy of a developing nation even further and allow it to expand its economy to
greater reaches. The ninth and final good effect is providing both a market and a mechanism for
satellite services and industries that can stimulate local development. This is a very important

one because, with satellite services within a nation, the potential for things like GPS,
telecommunications, etc. all become much more powerful. In addition, when a nation is suitable
enough to have satellite services, they are much less likely to go to war with other developed
nations. Thomas Friedman has a theory called the Golden Arches Theory of Conflict Resolution
in which he states that two nations that have a McDonalds within their borders are much less
likely to go to war because they have a strong enough infrastructure and economy, there is too
much at risk when going to war. However, the main negative side effect of FDI is the potential
for corruption to spread within that nation, either directly from the TNCs investing, or within the
government of the nation.

3. Please explain the reasons for Americas suburban sprawl in post WWII. What led to innercity decline, gentrification and global cities?

In the aftermath of World War II, America was left as one of the worlds two
superpowers, and had an extremely powerful economy as well. Because of the economic strength
of the nation, banks were able to give out loans to soldiers and citizens who were trying to move
out of the city and into the suburbs. The existence of these loans allowed people to move to the
suburbs, which helped contribute to the suburban sprawl that was occurring during this time.
Living in the suburbs had a plethora of appeals to prospective buyers: the land outside the city
was much cheaper than that within the city, you could own more land to allow your kids to have
more room to play and allow yourself more privacy, you could own an actual house in the
suburbs instead of an apartment in the city, and you simply had more room in which to raise a
family. The main deterrent for people trying to move to the suburbs was the distance from the

city. While you lived in the city, you could simply walk to your place of work and not have to
worry about trying to get into the city. When you lived in the suburbs, walking to work was a
much less realistic goal, so you had to own an automobile in order to live in the suburbs.
Initially, because of this, only very wealthy people were able to live in the suburbs. However,
thanks to Henry Ford and the automobile assembly lines, automobiles became much cheaper and
a much higher percent of the population was finally able to afford them. In addition to cheaper
automobiles, the powerful economy also allowed people to take out loans to make large
purchases on automobiles in a much more convenient manner. In addition, the government
constructed highways in order to allow the easy transportation both in and out of a city. The
government also began collecting much more gas from foreign nations, and gas prices were at an
all-time low. At the time, the American Dream was to move out to the suburbs, work within the
city, and have a family with 2 to 3 children (the saying was mom, dad, and their 2.2 children
because, for zero population growth, there had to be 2.2 children born per couple). This suburban
sprawl didnt come without its negative effects, however. With a vast majority of people leaving
the inner city, the living conditions within the inner city began to decline at a very rapid pace.
The decline of the inner city had a domino effect on the area; as people left the inner city,
property values decline and tax bases drop, which leads to increased taxes and a decline in
school services. This lead to more people leaving the inner city, which just began the entire
process anew. Those who were stuck in the inner city began to find it extremely difficult to move
out; even the children of those who lived in the inner city were almost guaranteed to be confined
there for their lives. There also is a brain drain effect that has been observed on inner cities; as
people leave the inner city to become more educated, with the hopes that they will come back to
improve the conditions, they tend to not return because there are better job opportunities outside

the inner city and they tend to no longer fit within the culture of the inner city. However, the
current move of the population is back into the cities. This is known as gentrification. This is
likely due to the fact that gas and automobile costs have increased over the years, therefore
people wish to live within a city in order to avoid those costs. In addition to this, but innovations
in interior design have helped improve the ability to effectively live in smaller spaces, making it
so people can live comfortably in smaller apartments while paying less. This also has helped
create the global city, a city whose economic decisions effectively impact the entire planet. As of
now, there are only three cities that are considered to be global cities, those are London, New
York City, and Tokyo. With the existence of global cities, people are also much more likely to
begin moving back into the cities in order to find closer jobs.

4. What are the major differences between developed and underdeveloped worlds? What are the
characteristic problems of less developed countries? What are the goals of development?

There are many key differences between developed and underdeveloped nations that help
us determine which area a nation is in. The first difference is infrastructure; developed nations
tend to have strong infrastructures to allow for the easy transportation and welfare of goods,
capital, and people, whereas underdeveloped worlds tend to have either an infrastructure in the
very early stages of development or no infrastructure to protect these things. The labor forces in
underdeveloped worlds tend to be very unskilled; training and educational institutions are very
sparse within an underdeveloped world, while in developed world, job training and higher
education tends to be a very high priority for many people within the nation. The bank systems
within a nation also helps identify what kind of a nation any given nation is; in underdeveloped

worlds, the banking system is very basic if there is one at all (loans are either impossible or very
hard to come by, people generally dont have bank accounts) but in developed worlds, the
banking system is very complex and powerful (people are able to take out loans with low interest
rates and almost everyone has some kind of bank account). The kind of government also helps
determine what a developed or underdeveloped world is; developed worlds usually have some
form of democratic government in place whereas underdeveloped worlds very rarely have any
sort of democratic government in place (they are usually dictatorships or other structures with
only one powerful leader). There are some statistical numbers that also help determine what
stage a country is in. For example underdeveloped worlds tend to have high birth rates, high
infant mortality rates, a lower average age, and other things indicating many deaths occur very
early in life. In contrast, developed worlds have a lower birth rate, lower infant mortality rate,
higher average age, and other such things that suggest people live much longer and are much less
likely to die in the very early stages of life. There are several characteristic problems of less
developed countries, many of them are indicators that decide the difference between developed
and underdeveloped nations. For example, the lack of a strong infrastructure in most
underdeveloped nations makes it much more expensive, difficult, and inefficient to move goods,
capital, and people across the country. This only deters people from attempting to move goods
across the nation. In addition, exports are usually also a small part of the nations growth; most
developing nations dont have many exports they sell and, therefore, dont have any capital
coming in from other regions. This is a big problem because, with little money coming from the
outside and a large amount leaving the nation, the economy will only grow weaker with time and
inflation is bound to occur. This also makes TNCs and other nations less likely to invest in the
development of your nation; if the currency is unstable, there is a far too great a risk with

investing than the reward if the investment pans out. Another big issue is the form of government
in place in an underdeveloped nation. Dictatorships have, more times than not, proven that they
are very bad for the development of a nation. Dictators usually think of themselves and their
needs first and put the needs of the people in the back of their mind. Once a nation overthrows a
dictator and replaces it with a democratically elected, limited group of leaders, the nation
becomes much more likely to succeed in development. Obviously, the main goal of
underdeveloped nations is to try and turn most of these issues around; the construction of a better
infrastructure, the establishing of a better central government, the creation and sale of an export,
and an increase in medical technology to lower infant mortality rates and birth rates while raising
average age and expected age are all goals for a nation to start on the path to becoming a
developed nation.