Changes as a Result of the World Economy (College Board AP® Human Geography)
Study Guide
Written by: Kristin Tassin
Reviewed by: Bridgette Barrett
Outsourcing & Economic Restructuring
Outsourcing and economic restructuring have led to deindustrialization and a decline in manufacturing jobs in more developed countries (MDCs) and a corresponding increase in manufacturing jobs in less developed countries (LDCs)
Outsourcing
Outsourcing refers to the movement of jobs outside of the area or country in which the company is located
Examples of outsourcing include call centers, manufacturing, and textile factories
Specialized jobs may go overseas to countries that have a comparative advantage
Countries with a large number of English speakers, such as India or the Philippines, may host call centers for United States companies
Economic restructuring
Economic restructuring occurs when urban areas shift from a manufacturing economy to a service sector economy
The impacts of economic restructuring in MDCs include:
unemployment as middle-class jobs are lost to automation or outsourcing
population losses in manufacturing cities and subsequent urban decay
a shift to the service economic sector
increased profits for companies as they move their manufacturing operations to cheaper locations
The impacts of economic restructuring on LDCs include:
increased job opportunities
increased urbanization as a result of rural-to-urban migration
an increased middle class with disposable income encouraging growth and business
weak laws protecting labor and workplace safety
Newly industrializing countries are developing countries that are increasingly involved in manufacturing
As MDCs deindustrialize, these countries increase their manufacturing and industrial production. These countries include:
Brazil
Russia
India
China
South Africa
Mexico
Positive effects of economic restructuring and increased industrialization on newly-industrializing countries include:
the growth of industrial hubs
increased urbanization
investments in infrastructure development
creation of new job opportunities, leading to decreases in unemployment and poverty.
Negative effects include:
inequality between urban areas, which see the benefits of industrial investment, and rural areas
environmental degradation as a result of pollution and deforestation
economic dependence on foreign trade and exports
poor working conditions
difficulty for some in transitioning from traditional to industrial economic activity
New Manufacturing Zones
In semiperipheral and peripheral countries, the growth of industry has resulted in the creation of new manufacturing zones
Special economic zones
Special economic zones (SEZs) are areas of a country where the business and trade laws are different from the rest of the country to attract companies from the global core to build factories in the country
In general, the governments of LDCs encourage companies from MDCs to set up factories by providing incentives, such as tax breaks or cheap labor
In return, the LDCs receive foreign investments and improved employment opportunities
SEZs tend to be located in developing countries, especially in
South America
East Asia
Southeast Asia
South Asia
SEZs tend to be located near ports so that items can be shipped easily.
Free-trade zones
Free-trade zones are areas where no tariffs or customs duties apply, and all trade barriers between countries are eliminated
International airports and seaports are examples of free-trade zones
Export processing zones
Export processing zones are areas in developing countries focused on manufacturing goods exclusively for export
Tax exemptions are often offered to companies to get them to invest in these areas
Maquiladoras, found in places like northern Mexico, are examples of export-processing zones
Maquiladoras are factory locations where United States companies can import raw materials, assemble them without paying taxes, and then export the finished products back to the United States
United States companies use maquiladoras because of the tax incentives and cheaper labor available in Mexico
Most maquiladoras are located near the border with the United States, because the majority of the factories process materials for U.S. companies that are then re-exported to the United States
Worked Example
Define maquiladora and explain the spatial pattern of the location of maquiladora
Answer
Maquiladoras are factories in Mexico that are generally free of tariffs. They are used to assemble and manufacture products which are then exported. Most maquiladoras are located near the border with the United States, because the majority of the factories process materials for U.S. companies that are then re-exported to the United States.
B. Define special economic zone (SEZ) and explain the spatial pattern of their location
Answer
A special economic zone (SEZ) is a region of a country that has different trade and economic laws from the rest of the country. These zones focus on manufacturing and processing for export. SEZs tend to be located in developing countries, especially in South America, East Asia, Southeast Asia, and South Asia. SEZs tend to be located near ports so that items can be shipped easily.
C. Identify an economic policy that would attract foreign direct investment in an SEZ
Answer
SEZs often offer special privileges to foreign firms, which do not have to abide by the labor and business laws of the rest of the country. Governments may also offer additional tax breaks. Low wages and lack of economic regulations may also attract foreign investment.
D. Explain how Wallerstein’s World System Theory explains the location of SEZs
Answer
Wallerstein’s World System Theory advances the concept of core, periphery, and semi-periphery. Wallerstein’s model would assume that SEZs would be located in the semi-periphery, where labor is cheap but there is still access to manufacturing. These products would be produced for export to the core, periphery, and other countries of the semi-periphery. This fits with the location of SEZs, used almost exclusively for exporting goods, in countries of the semi-periphery, such as Mexico, China, India, and Bangladesh
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