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Geography, Economics and Economic Geography 8/5/2002

Geography, Economics
And

Economic Geography

Sher Singh Parmar.

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Geography,

Economics

And

Economic Geography

Sher Singh Parmar

Gold Medalist, B.A. (Geography)

University of Pune.

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Geography, Economics and Economic Geography 8/5/2002

1. Author : Sher Singh Parmar.


2. Copyright © : Author
3. First Edition / : 2002 A. D.
Impression
4. Publishers : ASD Publications,
Pune,India.
5. Price : India : Rs.200
Nepal / Pakistan / Sri Lanka:
Rs.250
Others: US $ 100

This edition is for sale only in India.

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Acknowledgement

The author is greatly indebted to all those


whose works have been relied upon as
reference material.

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Dedicated to

My Spiritual Master,

beloved Parents

and Teachers.

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INDEX

Sr.No Table of Contents


1. Introduction
Nature & Scope
1. Definition , Nature & Scope
Types of hypothesis
2. Elaboration and testing of hypothesis

2. Economic landscape
. Historical Evolution
1. Homestead
2 Tribal & village economy
3. Modern Economic landscape

3. World Economy
Historical Evolution
Medieval Feudal economics, The rise of mercentilism, slave
trade, The Industrial Revolution, colonialism , multinational
corporations.

4. Location of Economic Activity


Location of primary,secondary and Tertiary production.
Von Thunen’s Model, Weber’s Model and Christaller’s
theory.

5. Resources
Natural and Human Resources
Significance of Natural and Human resources in Economic
Development.

6. Factors of Production
Land, Labour, Capital, Technical Knowledge
Significance of Land, Labour, Capital & Technical
Knowledge in different economic activities, spatial variation
in the factor cost.

7. Transportation
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Model of transportation
1. Characteristic of different models.
2. Variation in cost of transportation.

8. Economics and Scale


Types of economics of scales
Internal and External economics of scale
Spatial variation in demand.
9. Economic Development
1. Spatial & temporal aspects
2. Measures of economic development
3. Classification of countries
4. Rostows & Myrdal’s models
10. International Trade
1. Basic concepts
2. Factors influencing the international trade , problems &
prospects.
3. David recardo’s theory

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PREFACE TO THE FIRST EDITION

1. The present volume is written inter alia to meet the needs as per the syllabus
prescribed for “Economic Geography” for MA by University of Pune as of 2001
– 2002.

2. It is hoped the present volume shall be helpful to the students preparing for
‘Economic Geography” paper of various other universities and competitive
exams, too.

3. I lay no claim as to the originality of ideas/facts/figures presented in the present


volume except the chapter on “Economic Landscape” which purely is my own
contribution. My endeavour has been to bring at one place the study material on
Economic Geography scattered over a large number of sources like books,
articles, etc. It is hoped it shall save the student precious time wasted in looking
for study material. It is hoped it shall help those students who can’t afford to
purchase costly books prescribed in the course, too.

4. However, I do have a piece of advice to students. Although present text is fully


equipped to help a student sail through exams with flying colours, yet an
extensive and wide study covering reference and non – reference study material
has no perfect substitute. A serious and scholarly student must try to read all the
reference material, if time , money and energy allow so . A wide reading does
certainly help widen one’s intellectual horizons.Especially for the latest facts and
figures on international trade , the sincere student must make it a point to
religiously browse through the section on trade/finance in the daily newspapers of
established authentic standing.

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5. I wish to place on record my deep gratitude to Mrs. Jayaprakash Jadhav, the Head
Of the Department , Departmen of Geography , and Vice – Principle of
Padmashree Dr. D.Y.Patil College of Arts, commerce and science, University Of
Pune , who patiently read the whole manuscript and kindly wrote a forward to the
present text. I am thankful to Mrs. Sharmila Chodhuri, lecturer geography,
Padmashree Dr. D.Y. Patil college of Arts , commerce & science who provided
me a great deal of encouragement and moral support to go ahead with the present
text. My youngest brother Rajesh Parmar, a management student, deserves my
appreciation, too, since it was he who got the original manuscript typed
electronically and did the drawings. Last but not least, my publisher deserves a
word of appreciation, too.

6. Constructive suggestions and comments to improve the present text are most
welcome. Presence of error of omission or commission, if any in the given text,
are solely mine.

SHER SINGH PARMAR

Pune: /7/2002

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1. ECONOMIC GEOGRAPHY

1.1 INTRODUCTION
The phrase “Economic Geography” consists of two words ‘Economic’ & ‘Geography’.
What do we mean by the term “economic” ? Hartshorne & Alexander say,
“The word economic pertains to all the activities in which people engage the world
over, in the production, exchange (or distribution), and consumption of goods and
services. Anything people buy, barter, or work to produce, consume, or exchange is
an economic activity.”
Next, what do we mean by the t erm “Geography”?
The word geography has Greek roots: “geo” means “earth” and “graphos” means
“description”. Thus, “geography” means “description of the earth”. Other sciences
like geology, pedology, botany, zoology, meteorology too describe the earth.
Surely, geography can’t be a sum total of all these earth sciences. Main feature of
geography is the way or how it studies and not what it studies. As says V. A. Janaki,
“Geography is a method of study rather than a subject… In geography, we approach the
subject matter with a spatial perspective”. The subject of geography is primarily related
to variations from place to place rather than from time to time. Hartshorn & Alexander
say,
“Any phenomenon whose distribution diff ers from place to place is t ermed a
spatial variable and qualifies as an element of geography”.
Thus, geography is the study of spatial variation on the earth’s surface inclusive of
all spheres, i.e. Lithosphere, Atmosphere, Hydrosphere, and Biosphere.
1.2 DEFINITIONS :
In simpler terms, economic geography can be defined as the study of spatial variation
on earth’s surface of production, exchange & consumption of goods,
services/information. Although opinion differs on the exact definition of economic
geography, yet everyone agrees on one point that economic geography is the study of
the spatial distribution of human beings economic activities in relation to its
environment, be it physical or non-physical.
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Let us review a few of famous definition on the subject :


A. Hartshorne & Alexander,
“Economic geography is the study of the spatial variation on the earth’s
surface of activities related to production, exchanging and consuming goods
and services… wherever possible, the goal is to develop generalizations and
theories to account for these spatial variations … Economic geography refers
to the field of study focussed on the location of economic activity at the local,
national and world scale.”
B. V.A. JANAKI,
“ It deals with the economic and commercial aspects of man on earth and the
influences on these of the environment in its broadest sense. The adjective
‘Economic’ confines the geographer to the economic problems and system of
man and as such he must know something of the principle of economics”.
C. DUDLEY STAMP :
It “… involves consideration of the geographical and other factors which
influence man’s productivity, but only in limited depths in so far as they are
connected with production and trade”.
D. E.W. ZIMMERMANN:
“Economic geography deals with the economic life of man with relation to
environment.”
E. R.S. THOMAN :
“Economic geography may be defined as an enquiry into the production,
exchange and consumption of goods by people in different areas of the
world. Particular emphasis is placed on the location of economic activity -
upon asking just why economic functions are situated where they are in this
world.”
F. J. MACFARLNE :
“It is (study of)… influence exerted on the economic activity of man by his
physical environment and more specifically by the form and structure of the

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surface of the land, the climatic conditions which prevail upon it and the
spatial relations in which its different regions stand to one another.”
G. CHISHOLM :
It , “…Forms some reasonable estimate of the future course of commercial
development”, as det ermined by geographical factors.
H. SHER SINGH PARMAR :
“Economic geography is that branch of geography which deals with the
influence of so-called geographical and extra-terresterial factors on economic
activities of human beings on earth and in universe from a spatial perspective
in the short run in juxtaposition with primacy of the influence of non-
geographical and extra-terresterial factors on such spatially varied economic
activities in the long run.”
1.3 NATURE:
Economic Geography personified has a nature too, just as any human being has a peculiar
nature or psychological tendency. It is a science, arts and philosophical by nature.
It is a science because it follows scientific methods of observation,collection of
data,hypothesis, theory and model building ever open to scientific scrutiny in terms of
relationship among variables under study and validity of such a relationship.
It is an arts, since it involves quite a subjective approach too in terms of skilful
organization of field studies, collection of data, map drawing and interpretation of results.
Its philosophical, too, in terms of ever trying to philosophise questions of human being
and environment relationship in economic terms. It tries to frame postulations as to what,
why, how, and where an economic activity takes place in a particular corner of the globe
or the universe?
Finally, it of course is interdisciplinary, flexible, dynamic, friendly and far-reaching ,
too.
1.4 SCOPE:
Scope or ambit or area of economic geography is vast both in terms of temporal and
spatial scope.

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Although Hartshorne and Alexander opine that “the geographer is concerned


primarily with variations from place to place rather than from time to time”, yet a
geographer can’t escape studying temporal aspects, too in terms of studying varied
geographical patterns of phenomena prevailing at any given point of time on earth.
(i) TEMPORAL SCOPE:
With emphasis on the current contemporary situation, it includes in its ambit the scope of
going back into times, since ills of many countries today have their roots in past
geographical economic spatial patterns like during the great age of discovery, 30 million
young people aged 15-35 years were removed from Africa during Slave Trade Era which
depleted human resources of that continent. It caused a lack of economic development in
Africa whereas slave trading nations like U.K., Spain, etc. flourished and built up
enormous monetary and capital assets which helped them later to kickstart and sustain
economic development in their own countries. This led to spatial variation in economic
development in that bygone era. But, its repercussions are still felt in Africa, where
economic development has quite been low due to bequeathing of no economic
development by their preceding generations.
Thus, one may devide temporal aspect into following broad categories :
1. Ancient,
2. Medieval,
3. Great Age of discovery
4. 19th century,
5. 20th century,
6. Contemporary,
7. Recent,
8. Present.
(ii) SPATIAL ASPECT/SCOPE :
Economic geography has enormous spatial scope which includes the following
aspects/points:
1. VERTICAL:

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Spatial locations right from ocean bed to the mountain top and related economic
phenomena.
2. HORIZONTAL:
(i). Continental Scope : It includes studies of all continents/islands in economic
terms and their interactions.
(ii) Hemispheric Scope : Economic geography may be studied in terms of eastern,
western, northern, southern hemispheres.
3. ECONOMIC ACTIVITIES SCOPE:
i. PRODUCTION :
It includes studies of all kinds of economic activities – primary, secondary,
tertiary, Quaternary, quinary.
ii. EXCHANGE :
It includes value addition to each product, goods, services created by the
specialized services provided at each level of handling, including packaging,
promotion, financing, and merchandizing of the product.
iii. CONSUMPTION :
It includes both the pattern of consumption and the spatial aspects of consumer
behaviour.
4. DEVELOPMENTAL SCOPE :
It includes a study of spatial variation in terms of economic development, i.e.
different categories of countries like more developed and less developed
countries.
2 INTEGRATIVE SCOPE :
It includes a study of spatial variation in economic activities in terms of an
integrated approach to all spheres, i.e. Lithosphere, Atmosphere, Hydrosphere and
Biosphere. It includes studies of underground spatial aspects like aesthenosphere,
sial, sima, mantle, core so as to determine their influence on economic activities
of human beings.

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3 EXTRA TERRESTERIAL SCOPE :


With the opening up of extra terrestrial scope, economic geography shall have to
take into consideration availability of economic activities/possibilities in outer
space like Moon, Mars, etc. Experiments carried out to produce special kinds of
minerals aboard spacecrafts fall within the spatial scope of economic geography.
4 GLOBAL SCOPE :
It has global scope, because of variations in the level and interdependencies that
exist in international economic development. The whole earth has become a
global system with shrinking economic distance. So much that even a person in
the most remote geographical/economic areas of the world now participate in an
economic system that is less local and regional and more national and
international in scope.
(iii) THEORETICAL SCOPE :
It has enormous theoretical scope. Hartshorne & Alexander say ,” Locational
analysis in economic geography involves not only an explanation of activities
already present on the landscape but may also involve the selection of a
future location for an activity such as a restaurant or shopping mall.”
Theories are used in so far as possible to explain why activities are located as they
are ,i.e., Von Thunen’s Model (Agriculture), Weber’s Model (Manufacturing) and
Christaller’s Central Place theory (tertiary, quaternary, quinary activities
including retail location) are excellent examples.
It includes concepts in analytical work like distance, interaction and region.
(iv) INTERDISCIPLINARY SCOPE :
It studies other subjects like economics, political economy, etc. to gauge the
effects on spatial variation in economic activities of factors like political economy
of a nation, macro forces associated with the transition of the world economy
from a manufacturing to a post industrial base, the international monetary system,
and multinational corporations.

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1.5 TESTING/TYPE OF HYPOTHESIS

1.5a INTRODUCTION:
First of all, let us try to find out what we exactly mean by the concept of a
“hypothesis”. A “hypothesis” is a tentative logically drawn conclusion concerning
any parameter of the population based upon observation of the population. Here
“population” means a given set of certain variables. For example, a collection of
different crops in a village may be said to be a “population”. After having made
an observation of the yield or production of different crops in general, it may
seem that a particular crop gives better yield than others. So, one may form a
‘hypothesis’ that the particular crop (let us say rice) is most suitable for sowing in
the agricultural fields of that village. For this purpose, a sample (chosen
randomly) may be taken of the agricultural lands. Now, this involves an element
of risk, the risk of taking a wrong decision. Here, modern theory of probability
plays an important role in decision making by helping arrive at decisions in
certain situations having an element of uncertainty on the basis of a "Sample" or
"“representative small set of variables ” taken from the “Larger set of variables”
or the “Population” . In the above example, if the sample mean and population
mean have no significant differences, the hypothesis is accepted. Otherwise, it is
rejected, if significant differences exist.
1.5b TESTING OF HYPOTHESIS :
That statistical method which helps in arriving at the criterion for making
decisions in situations having an element of risk or uncertainty, the risk of taking
a wrong decision, where inductive influence is for deciding about the
characteristics of the population on the basis of sample study is called Testing of
Hypothesis. In other words, the testing of hypothesis is a process of testing of
significance regarding parameter of the population on the basis of sample. It
involves computation of a “statistic” from the sample drawn from a population on
the basis of which it is decided whether the sample so drawn belongs to the
parent population with certain particular characteristics. It shows whether the
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difference between the computed "“statistic” and the hypothetical parameter is


significant or otherwise. If the difference is small, it is accepted on the grounds
that it has cropped up due to sampling fluctuations. Accordingly, it is accepted. It
is rejected, if such difference is quite large in which case it is presumed that the
difference has arisen due to some other reasons and not due to sampling
fluctuations. “Testing of hypothesis” is also called the “test of significance”,
because it reveals the significance or otherwise of differences between the
computed “statistic” and the hypothetical parameter.
1.5c ORIGINATORS :
Neyman and E.S. Pearson initiated this theory.
1.5d TYPES OF HYPOTHESIS :
Hypothesis are of 2 types:
1. Null Hypothesis
2. Alternative hypothesis
i. NULL HYPOTHESIS :
It is a hypothesis which is stated for the purpose of possible acceptance. It
is denoted by the symbol Ho. To quote Professor R.A. Fisher, “Null
hypothesis is the hypothesis which is tested for possible rejection
under the assumption that it is true.”
ii. In the foregoing example, we may express the Null hypothesis as below : -
iii. Ho:µ.= Rice
Following two precautions are taken while setting up a Null Hypothesis :
1. A Null Hypothesis that “ the difference is not significant” is set up when
one has to test the significance of the difference between a “statistic” and
the “parameter” or between two sample “statistics”. In other words, the
difference if any is just due to fluctuations of sampling.

Ho : µ = X (X = Sample mean)

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2. A null hypothesis that “It is true” is set up when one has to test any
statement about the population, e.g., if one has to test whether population
mean has a specific value “(µo), this type of hypothesis is set up
Ho : µ = µ o
ii. ALTERNATIVE HYPOTHESIS :
It is a complementary hypothesis to the Null hypothesis. It is denoted by H1 For example,
if we want to test the null Hypothesis that the average yield is 100 kg per hectare in
agricultural fields, i.e. ,
Ho: µ=100 k.g.= µ o (say) µ
the alternative hypothesis could be:
i. H1: µ ≠µ 0 (i.e. , µ >µ 0 or µ <µ 0) [two tailed alternative]
ii H1: µ >µ 0 [right tailed test]
iii. H1: µ >µ 0 [left tailed test]
1.5e ELABORATION / PROCEDURE OF TESTING A HYPOTHESIS :
It involves following 7 steps :
i. Setting up a hypothesis
ii. Computation of a statistic
iii. α) and Type II error (β
Finding out type I Error (α β)
iv. finding level of significance
v. Critical Region or Rejection Region.
vi. Two tailed Test and one-tailed Test.
vii. Taking a decision.
1. Setting up a hypothesis: A statistical hypothesis is logically drawn
concerning any parameter of the population. Either a Null Hypothesis or
an Alternative Hypothesis is set up as explained earlier.
2. Computation of a statistic : It is based upon an appropriate probability
distribution. It is used to find out acceptance or rejection of the Null
Hypothesis set-up. 2 distributions- Z and t distributions are used. Z
distribution under normal curve for large sample where the sample size is

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equal to or larger than 30 (n>30). t distribution for small sample where the
sample size is less than 30 (n<30).
3. α) and Type II error(β
Type I error (α β) : Acceptance or rejection of a
Null hypothesis on the basis of sample data always carries the risk of
errors of two types : 1.True hypothesis is rejected 2. False hypothesis is
accepted.
ACTUAL DECISION
Accept Ho Reject Ho
Ho is true Correct decision, no error Wrong decision, type I error
Probability=1-α Probability = α
Ho is false Wrong decision, type II error Correct decision, no error
Probability = β Probability=1- β

While accepting or rejecting a Null hypothesis chances of type I errors and type II
error have to be avoided as far as possible.
4. finding the level of significance : The level of significance denoted by α
is the maximum probability of making type I error. The level of
significance denoted by β Is the maximum probability of making type II
error. Derived level of significance always is fixed in advance. Generally,
these are 5% (0.05) and 1% (0.01). 5% level of significance means that
every 5 out of 100, there are chance of rejection of a correct Ho. This
means 95% confidence of the rejection of Ho being correct. This 95% of
confidence is also called the confidence coefficient.
The probability of error (β) is much higher in accepting a false hypothesis
than in rejecting a true hypothesis ( α type error).
5. Rejection region/critical region : The total area under a standard normal
curve is equal to 1 signifying probability distribution. The rejection region
or the critical region is the region of the standard normal curve
corresponding to a pre-determined level of significance fixed for knowing
the probability of making the type I error of rejecting the true hypothesis.
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The acceptance region is the region not covered by the rejection region.
If the “test statistic” computed to test the hypothesis falls in the acceptance
region, it is reasonable to accept it, because it is believed to be probably
true. If it falls in rejection region, it is rejected, as it is reasonable to reject
it because it is believed to be probably false. The acceptance region and
rejection region are separated by the "critical value” (which is the value of
the test statistic computed to test the hypothesis) .In case of large sample
size, the critical value of Z from the Z table is used and in case of small
sample size, the critical value of t from the t table is used.
6. 2 - tailed test and One-tailed test : The critical region under the normal
curve is presented in 2 ways :
i.)“One tail” or one side under the curve, either ‘the left’ or the ‘right tail’.
ii.)“Two tails” or two sides under the normal curve. These are a called one
tailed test and two-tailed test respectively,also.
Two tailed test is used when the sample mean is significantly different
from the population mean. In other words, it is used when the positive or
negative difference between the sample mean and the population mean
tends forwards rejection of the Null Hypothesis.
One tailed test is used (right tail) when the population mean is at least as
large as some specified value of the mean or (left tail) when the population
mean is at least as small as some specific value of the mean.
Rejection region
UCV (α/2)
(α/2) LCV

Acceptance region (1-α )

-Z α Z=0 +Zα

UCV = Upper Critical Value, LCV = Lower Critical Value

α ’)
Two tailed Test ( Level of Significance ‘α

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Acceptance Rejection region


Region (α)
(1-α )

Z=0
Z

Right Tailed Test ( Level of Significance ‘α’ )

Rejection Region
(α )

Acceptance
Region
( 1-α )

-Zα Z=0

Left Tailed Test (Level of Significance ‘!


!’ )

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7.Taking a decision :

Finally, a decision on acceptance or rejection of a Null Hypothesis is taken. A


Null Hypothesis is accepted, if the computed value of the “test stastic” is less than
the critical value(and it falls in the acceptance region). It is rejected, if the
computed value of the ‘test stastic’ is more than the critical value (and falls in the
rejection region). Unless stated expressly otherwise, generally a 5% level of
significance (α = 0.05) is used in testing a hypothesis.

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2. ECONOMIC LANDSCAPE

2.1 INTRODUCTION:
What do we exactly mean by the term “Economic Landscape”? It means viewing
the geographical area around in terms of economic activities like production ,
distribution and consumption of goods, services and information.
The term landscape has been borrowed from geomorphology. In geomorphology,
the term “landscape” means the configuration of land. That is whether the given
piece of land is even or uneven; whether it is plain or rugged, whether it contains
features like hills, mountains plateaus and so on. In short, it means the physical
features present on a given piece of land. When applied to economics, the term
landscape shall naturally mean the economic features present on a given piece of
economic land. “Economic Land” here means any given piece of land on which
economic activities take place. Instead of physical features like hills, plains, etc.,
here one has to visualize economic features like production , exchange and
consumption of goods, services, and information. Also, visualize one has to the
spatial location, processes and impact of economic activities in various forms like
primary, secondary, tertiary, quaternary, and quinary.
However, one has to keep in mind that the term “ Land “ as used in economic
geography has quite broad meaning. When we talk of an economic landscape, it
means not only the land aspects, but any physical features that may be present in a
given area, i.e., land, water bodies, etc. In other words, any economic activities
happening in a given area are covered under the term “ Economic Landscape.”
Thus, the term “Economic Land Scape” means the economic scenario existing
on any given point of time at any given place of the earth or anywhere in the
universe.
2.2 HISTORICAL EVOLUTION:
Economic scenario at any place constitutes economic activities taking place
there. Just as in geomorphology, we see the growth of any landscape over a large

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period of time, so do we see the economic activities grow at varying rates in


varying directions at varied places owing to various factors, too.
These economic activities may differ in time and space. Temporally speaking
, humanbeings have advanced from the primary economic stage of subsistence on
food gathering, hunting and fishing to the modern day economic activities based
on services and information technology. We see a giant leap forward from a
simple barter economy to the modern day complex economics greatly influenced
by Multinational companies (MNCs). Also, economic activities differ greatly
from one physical region to another depending on the effective use of existing
natural and human resource. For example, human beings living in an alluvially
rich plain primarily carry out agricultural activities, because physical factors
therein like rich soil and presence of water are conducive to growing of crops. On
the other hand, rugged mountainous areas are unfavorable to the growing of
crops. So, people in mountains regions carry out other kinds of economic
activities like horticulture, sheep rearing ,etc.
The evolution of economic landscape or growth of economic activities is not
the same for all regions and people on the earth. North West Europe and
North America represent the highest stage of contemporary economic
development. Whereas, people living in some other areas like pygmies of
equatorial rain forest have still not come out of their outdated economic mode of
subsisting on the free gifts of nature like fruits, roots, etc., with practically nothing
to spare for sell to others. It means no economic activities in the modern sense,
because any activity can be said to be an economic activity only when there is a
sale and purchase involved.
Historically speaking, some 5 lakh years ago, humanbeings were dependent on
subsistence kind of hunting, fishing and food gathering. Humanbeings led a
nomadic life in Palaeolithic era upto 8000 B.C. (Stage age) .In Neolithic er a(8000
B.C. - 4000 B.C.), Human beings learnt to domestic 1. Plant 2. Animals and
started living a settled social life, thereby involving some extra production of
plants and animal products which could be exchanged, though exchange was still

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of primitive type involving barter system. Areas in Asia/Europe especially those


in Iran / Arabian desert showed some economic progress .They started producing
cotton, wool clothes, milk ,meat ,sharp edge stone implements for agriculture
purposes. Discovery of fire, pottery, weaving, and wheel greatly aided the
economic progress. Later on, during copper & Bronze era ( 4000 B.C. – 2000 B.
C.), city life evolved. Great civilisations like Indus river valley, Sumerian
(Mesopotamian), Egyptian (Nile River Valley) and Chinese (Hwang – Ho River
Valley) emerged on the world stage. Emergence of city life necessitated division
of labour. Advances in science, technology and arts helped increase agricultural
production in terms of better improved implements like hoe, and highly improved
systems of irrigation like canals and dams. This made it possible to produce extra
surplus food grains. Therefore, the whole population was not required to engage
in agricultural activities. Consequently, some of them were freed from
agriculture. This freed population now could concentrate on activities other than
agriculture. This freed population engaged itself in trade and commerce which
helped the growth of big cities and hastened the urbanisation process. This freed
population was able to engage in producing highly useful agricultural inputs like
hoe, etc. ,which they could exchange for food products. Thus, it initiated a
process of rural - urban interlinked economy. This linkage was further reinforced
during coming Iron Age ( 1200 B. C. – 600 B.C.) wherein Iron implements led to
easiness in clearance of forests for agricultural purposes, besides helping increase
agricultural productivity. Iron caused the industrial development. Weaving
became easier. Bullock carts were developed. Fighting arms of iron were made.
Iron age was experienced differently by different regions, i.e., India first
experienced it around 1000 B.C. , whereas Africa around 1 B.C. All this
revolutionized the existing economic landscape. Now, the economic landscape
consisted of highly developed centres of trade and commerce.
Refining of economic activities continued at a slow pace till round 1750 when
industrial revolution in North –West Europe triggered rapid economic growth in
all sectors like agriculture and industrial. With further growth of transportation

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system around 1800, economic development picked up leading to the modern day
complicated interlinked and interdependent global economy.
Thus, as the above discussion clearly shows, the historical evolution of economic
landscape has not shown a consistent linear pattern. Rather, it displays different
rates and directions both temporally and spatially.
Following flow chart shows the idealized model of development of economic
landscape:

Homestead

Tribal

Village

Modern

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2.3 TYPES OF ECONOMIC LANDSCAPE


1. INTRODUCTION:
Economic landscape on any given point of time at any scale whether local, regional,
national or international may be viewed from numerous perspectives. One perspective is
to see whether it is a balanced or an imbalanced type of economic Landscape.
Accordingly, I propose to introduce through the present textbook two types of Economic
Landscape:-
1) The Idealised perfectly balanced pentagonal Model/type.
2) The realistic Isostatically balanced Amorphous Model/type.
2. TYPES
(i) The Idealised Perfectly Balanced Pentagonal Economic Landscape:
An economic landscape may be said to be perfectly balanced if the number of
people employed theorein are proportionally distributed over all the 5 kinds of
economic activities: Primary, Secondary, Tertiary, Quaternary and Quinary. In
other words, each type of activities must engage 1/5ths of the productive
population. It has to be proportional, because a balanced economic scenario
requires that all natural and human resources be fully utilized. The full
utilization of all resources in a given space is possible only if all the above
mentioned 5 types of economic activities are undertaken. For example,
mineral resources falling under primary activities may remain unutilized, if the
whole population of the given area engages only in tertiary activities (services)
like clerical works, secterial jobs, etc. This shall naturally lead to top sided
existence of the resultant economic landscape characterized by dependence on
outside areas for mineral based needs! In fact, the idealized perfectly balanced
economic landscape denotes a totally self – dependent economic landscape with little or
no dependence on outside areas. Such an idealized landscape is likely to lead to a growth
of favorable terms of trade to the people of the region contained in it.
A pentagon represents perfectly this idealized state of the balanced Economic
landscape.All triangles P, S, T, Qa, Qu have equal area and represent equal
number of productive population engaged in economic activities in the Pentagonal
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Economic Landscape represented by the area contained in the Pentagon abcde.

P = Primary Activities.
S = Secondary Activities.

b P S e T = Tertiary Activities.
Qa = Quaternary Activities.
. Qu = Quinary Activities.
Qu T abcde = The Pentagon
representing the given
Qa
economic Landscape.

c d

(ii). The Realistic Isostatically balanced Amorphous Model/Type:


However, real world is quite different from the idealized one, especially in social
sciences. Likewise, one does not find in existence in the real world the idealized perfectly
balanced pentagonal economic landscape. On the contrary, deviations from the idealized
model are noticed more as a rule rather than an exception.
Why are deviations noticed? Well, human beings on different parts of the earth’s surface
have different wants, desires, needs, choices and different abilities to realise the same.
Thus, the economic landscape of a typical village in India shows primacy of agricultural
activities, whereas a highly developed metropolitan region like that of Mumbai reflects
an economic landscape consisting primarily of tertiary, Quaternary, and Quinary
economic activities both representing economic landscapes in a rural and urban setting
respectively. Neither is self – sufficient. Rural economic landscape provides food grains,
vegetables to the urban one, while the typical urban landscape provides to the rural one
the quinary products like finances and health services.

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2. MEASUREMENT OF DEVIATION FROM THE IDEALISED MODEL:


An economic landscape in the real world exhibits amorphous tendencies with all the 5
activities forming differing proportions of the total economic landscape unit. However,
the economic landscape itself remains in an isostatically balanced state, i.e., increase of
workers in one sector leads to decrease in other sectors.
One may measure the deviation by applying the following method. First of all, divide
total productive population according to 5 activities. Add the grand total. Divide the
grand total by 5 (representing the total number of activities). This figure be taken as the
expected proportional population in any given economic activity. Then , find the
difference between this expected productive population with actually observed
productive population in a given activity. This gives the deviation against each category
of economic activity. Add all the deviations, if any, ignoring the minus (-) signs. Divide
the total of deviations by the grand total of productive population. The resultant final
deviation , co-efficient or the degree of imbalance shall range from 0 to 4 indicating
varying co-efficient of imbalance in the given economic landscape as per following table
of co-efficient of imbalance:
Co-efficient of KIND OF
IMBALANCE IMBALANCE
(20%) 1 and > 0 SLIGHT
(40%) 2 and > 1 HIGH
(60%) 3 AND >2 VERY HIGH
(80%) 4 and > 3 PERFECT

Note: The ideal to any country should be to keep the co – efficient 0 to 1 and see that
it does not increase beyond 1. The values are applicable universally at all levels, i.e.,
local, regional, national, international (global).

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EXAMPLE OF CO–EFFICIENT OF IMBALANCE IN A


HYPOTHETICAL ECONOMIC LANDSCAPE “X”

Sr. Economic Total Working EXPECTED Deviations


No Activity POPULATION Proportionate (D) =
(O) Population (E) (O – E)
1. Primary 500 720 -220 NOTE: ΣD is
2. Secondary 600 720 -120 calculated by
3. Tertiary 720 720 0 ignoring
4. Quaternary 780 720 +60 minus (-)
5. Quinary 1000 720 +280 sign
N ΣO = 3600 ΣD =680

E = ΣO = 3600 = 720
N 5
ΣD 680
Coefficient of IMBALANCE = ΣO = 3600
= 0.188 = 0.188 x 100 = 18.800 %

INTERPRETATION:
The given economic landscape shows only slight imbalance (18.8%) as per table of co-
efficient of imbalance. In other words, the given region is fairly economically self –
dependent.

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5 4
Qui
P A Qua
5 3
S T
1 2
4

1
B
X
0

IDEALISED HYPOTHETICAL EXAMPLE OF A QUANTITATIVELY


PERFECTLY BALANCED ECONOMIC LANDSCAPE :

1,2,3,4,5 (circular feature) = Economic Landscape


P = Primary activity
S = Secondary activity
T = Tertiary activity
Qua = Quanternary activity
Qui = Quinary activity
AB = Height of the economic landscape from base
A = Centre of the Economic Landscape Model (representing same height for all sectors
of economic activity)
(NOTE : In the above graphical figure, AB is equal to 5. In other words, all the economic
activities have 5 workers each. Thus, it is a perfectly balanced economic landscape).

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ISOSTATICALLY BALANCED ECONOMIC LANDSCAPE :

OX = Base level
AB = Original height = 5 workers
CB = New height = 6 workers
DB = New Height = 4 workers
Workers in secondary, quaternary and Quinary activities = 5 workers each.
Workers in Primary activity after isostatic adjustment = 6 Numbers.
Workers in tertiary activity after isostatic adjustment = 4 Numbers.
(NOTE : It is clear the total Number of workers in figure (i) is 25 which remains the
same in figure (ii). However, in figure (ii), One worker is reduced or the tertiary portion
has sunk beneath the base level OX to –1. This one worker lost to tertiary activity (T) has
flown into the Primary activity block which gets pushed up to level 6 from 5 on Y axis.
This means that Primary activity has now a larger number of workers. Although the
present resultant economic landscape is activitywise imbalanced, yet it is isostatistically

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balanced because the orignal total number of workers remain unchanged in the whole
landscape, i.e., 25).
THE MODEL OF ECONOMIC LANDSCAPE BALANCE :-
OBJECTIONS :-
The above model of the balance of Economic Landscape may be found highly
objectionable in view of its emphasis only on the quantitative aspects of different
activities, i.e., number of human population employed in each . It may be pointed out that
it ignores the qualitative aspects like scientific and technological advancements and their
impact on development of a particular economic activity .For example , it is generally
observed that a proportionaly large number of population engages in primary activity of
agriculture in developing and underdeveloped countries compared to other activities. Yet,
contribution in productivity per head in agriculture measured in terms of market value of
primary products is less compared to the productivity per head in secondary or tertiary
activities .On the other hand, a very small population takes to agriculture in developed
countries as compared to other activities. Still, this small population is able to give
substantial higher contribution per head in terms of agricultural productivity. This
difference can easily be explained in terms of various factors like advanced technology,
agricultural methods, etc. employed in developed countries. So, one may argue that the
model of the balance of economic landscape is invalid as it ignores qualitative aspects as
mentioned above.
However, a further look into the model reveals that it still is valid, if we consider
qualitative aspects associated with each economic activity in addition to the quantitative
aspects of human labour force. Therefore, we may further refine the above explained
model by stating that an economic landscape is perfectly balanced, if contribution by
each economic activity is perfectly balanced , if contribution by each economic activity is
proportional in terms of equal output by each worker irrespective of the type of activity
undertaken. For example , in a hypothetical case, 5 workers each may be employed in
secondary, quaternary ,quinery activities, 6 workers in primary and 4 in tertiary activities.
Now, if each worker contributes equally a product of the same worth/monetary value, the
resultant economic landscape may be said to be an ideally balanced one.

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IMPORTANCE OF THE CONCEPT OF THE BALANCE OF ECONOMIC


LANDSCAPE :
1. In an idealised situation of a perfectly balanced economic landscape, each worker
contributes products of equal value. Or alternatively put, each one’s work is
considered of equal importance in society. This leads to the concept of the
dignity of labour both in social and economic terms.
Any economic landscape gets imbalanced because of either disproportionate
quantitative deployment of workforce in different economic activities or the
disproportionate cornering of economic benefits in terms of price of products by
workers in certain economic activities. For example, both a doctor and a mine
worker may be putting same hours of work daily. Still, a doctor earns more than a
mine worker. Why? Commonsense would like to explain it away in terms of the
varying degree of complexity involved in both the activities, besides the
operation of law of demand and supply in terms of excess supply of mine workers
and less supply of doctors which gives doctors a higher bargaining power for their
products in the market as compared to the so called unskilled mine worker.
However, a further analysis shall reveal that this difference is more than simply a
case of law of demand and supply dictated by market forces. Rather, it is the
“degree of dignity” attached to the jobs that causes this wide variation. One may
ask how could it be? Well, a doctor no doubt is required on the economic
landscape to take care of health problems of the human population. But, so is
required the services of other so called unskilled low paid workers like plumbers,
electricians, scavengers. All workers, irrespective of specialisation of their jobs
are a cog in the big machinery of interdependent society, whether big or small.
You take one part out however small it may be and the whole machinery shall
come to a grinding halt. For example, if scavengers or plumbers stop work when
required to do so in a doctor’s house, the doctor shall loose precious time in
trying to do the cleaning or plumbing work all by herself or himself! What does it
show? It shows that all types of economic activities are of equal importance on
any given economic landscape. It further shows that the dignity of labour has to
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be restored to encourage workers to participate fully in exploiting economic


potential in all economic activities of the economic landscape instead of the
present tendency of the people to rush to the economic activities which provide
better monetary and other benefits.
2. The present concept of the balance of Economic Landscape clearly shows as
outlined above that it’s the dignity of the labour which is more important than the
simple play of market forces of demand and supply on any given economic
landscape. Therefore, it follows as a natural corollary that we don’t need any
isms like socialism, capitalism, etc. to usher in a balanced development of an
economic landscape. Rather, it’s the change in human attitude restoring the
dignity of labour which is the most important factor.
3. Many of contemporary and past world political problems have their genesis in the
imbalance of economic landscape on a global scale. Several examples may be
cited in support of this proposition.
4. Babur, the ruler of Kabul attacked the Gangetic plains of India during medieval
periods due to this factor only. Kabul was steeped in poverty, whereas the
economic landscape of the then gangetic plains was highly developed. This
difference stimulated the less developed economic landscape of Kabul symbolised
by Babur to attack the highly developed economic landscape of gangetic plains
represented by Ibrahim Lodhi. Conversely, Highly developed economic landscape
of Europe prompted subjugation by Europeans of the less developed economic
landscape of Africa which caused a drain of African resources during the evil
slave era. Likewise, the capitalist economic landscape represented by highly
developed U.S.A. pulled down the lesser developed economic landscape of the
erstwhile communist U.S.S.R. U.S.S.R. itself disintegrated, because of the
disenchantment with central command structure in Moscow of constituent states
finding themselves floating on an imbalanced Russian Economic Landscape with
certain areas highly developed as compared to others! Even as recent as 11th
September, 2001, this phenomenon expressed itself ghastly , when two jet
airliners hijacked by international terrorists pulled down the “North and South

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Towers of the “World Trade Centre” in New York, sending the world economy
into a slide. Highly developed economic landscape of the U.S.A. is perceived by
Islami jehadists as a threat to the culture and economies of the lesser developed
economic landscapes of Muslim states of African Sahara and middle east. In all
probability, these attacks might not have taken place had both U.S.A. and
Islamic world economic landscapes been ones developed to the same degree. In
fact, world wars I and II were fought as a fall out of this imbalance of economic
landscapes.
As the above brief discussion shows clearly, even a slight imbalance in economic
landscapes at any level is sufficient enough to engineer political and other
problems.
5. World peace may be achieved, if the whole globe is developed into a perfectly
balanced economic landscape. Such an ideal landscape shall discourage wars
simply because of the equitable distribution of fruits of human progress and
consequent disincentive for wars, besides the realisation by each part on the
economic landscape of other constituent parts being equally developed. The
concept of the dignity of labour may play a vital role in this direction. Therefore,
the integration of the world economy in a perfectly balanced state shall cause
development of the perfectly balanced economic landscape. Thus, world peace
and economic prosperity may ideally speaking be accomplished!
6.

2.4 HOMESTEAD ECONOMY

1. INTRODUCTION :
Homestead economy existed prior to the emergence of tribal and village
economies on the economic land scape. First of all, lets know what we do meant
by the term “Homestead”. The word “Homestead” means “a building with
outhouses”. Therefore, the phrase “Homestead Economy” means the economy
related to a homestead characterised by primitive level of division of labour and
low specialisation. The head of the family generally controls the nature, type,

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structure and direction of economic activities performed by members of the


family.
2. SIGNIFICANCE :
Homestead economy shows an advance over the palaeolithic economy in the
sense that now human beings tend to organise themselves in small socially
recognisable units capable of carrying out more refined activities as compared to
cave dwelling human beings.
3. PRESENT STATUS :
“Homestead economy” hardly exists on the earth’s surface as a major economic
force. In less developed countries, the transition from “homestead economy” to
modern economy is direct without experiencing the intermediate stages of tribal
and village economies. It is because of the direct impact of the benefits of
modern economy flowing from Developed countries to less developed economies.

2.5 TRIBAL ECONOMY


1. INTRODUCTION:
Tribal economy exists on this earth, since times immemorial. Despite evolution of
economic landscape from early homestead economy to the modern day
complicated global economic landscape, earth’s surface is still replete with
regions housing tribal groups with their tribal ways of carrying out economic
activities. However, contact with the more developed (scientifically/technically)
outside world is slowly influencing their economies. Consequently, their
economic behaviors/activities is reflecting a perceptible change, albeit a slow one.
2. WORKING OF THE TRIBAL ECONOMY :
As a general rule, tribal people depend on physical surroundings for their basic
needs like food, clothing, shelter. Nothing belongs to any individual human being.
All natural resources are supposed to belong to the whole tribal community. No
two tribes are similar in their appearoach towards economic activities. Some
tribes depend purely on Mother Nature for survival. Whereas, some other tribes
take up activities like agriculture, fishing, and hunting. Some tribes are barely
able to eke out a living. While, a few other tribes are able to exchange their
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products with outsiders or in the local market. Mode of tribal economy is quite
primitive lacking in modern methods of economy like sophisticated production
complexes or financial institutions. They are generally happy the way they are
and quite content with whatever bare minimum for survival is provided to them
by Mother Nature, though to an outsider brought up in the modern cultural
settings this may appear to be quite inadequate by modern standards of living. To
quote Balbir Singh Negi in “HUMAN GEOGRAPHY – An Ecological
APPROACH.” “Undoubtedly, they are nurtured by the hardy mother nature
making them strong and stout, but side by side they have to suffer a lot of
trouble and material loss.”
Although world has many tribes in all parts, yet a brief study of Indian tribes shall
suffice to indicate fully the scope of any tribal economy in general. Indian tribal
people are the earliest amongst the present inhabitants of India. They have
variously been called by various authors, i.e. “Aboriginal” by Risley, “ Primitive
Tribes” by Hutton, “Hill Tribes” by Sir Bains, “Aborigines” by Shoobert,
“Adivasis” by Balbir Singh Negi. They are still in primitive sage of
civilization/economy.
To quote Balbir Singh Negi , “ The Adivasis of India are the most backward,
even at present their existence depends to a large extent upon hunting of wild
beast, and the gathering of wild fruits and berries.”
The following chart gives an example of tribal economy with reference to India:
ECONOMIC ACTIVITY TRIBES
Hunting, food gathering Raji (U.P.), Kharia, Birhor(Bihar),
Kuki(Bengal and Assam), Nagas
(Nagaland), Konyak; Hill Maria (M.P.),
Koya, Reddi, Yan Kadar, Hill Pantaram
(T.N. & Andhra Pradesh), Juang (Orissa).
Shifting Cultivation, Lumbering , Korwa, Saheria, Bhumji (U.P.), Korwa,
manufacturing Asur, Santhals (Bihar), Garo (Bengal),
Nagas (Nagaland), Khasis, Mezos, Garo;

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Muria, Damdami, Gonds (M.P.), Rhonds,


Kurimba Gonds, Saora Mudavan (T.N. &
Andhra Pradesh), Saora (Orisa).
Settled Agriculture, Poultry, Tharv, Bokhasa, Kol, Khasis(U.P.),
Cattle, Weaving, Spinning, Munda, Ho, Oraon (Bihar), Polia Santhals
Knitting, Terrace farming (Bengal), Khasis, Manipuri, Parja, Bhutva
(M.P.) Badga, kota, Irula, Parja (TN &
Andhra Pradesh), Bhil, Gonds (Orissa).

3. FACTORS INFLUENCING TRIBAL ECONOMY :


1. PHYSICAL / NATURAL
2. CULTURAL
3. HISTORICAL
1. PHYSICAL –
Physical isolation, inaccessibility of the land inhabited by the tribals
owing to difficult rugged physical terrain, dense forests have all meant a
relative isolation of primitive tribes from modern highly developed
materialistic civilization. Consequently, they have generally remained
untouched by influences of the working of modern day economies. Thus,
they keep carrying subsistence level of primary economic activities like
fishing, hunting and food gathering in sharp contrast to the commercial
level of these activities being practiced by highly civilized people with the
help of latest science and technological gadgets. This prevents them from
producing for higher level markets or to undertake production and
exchange of goods, services and information on a commercial level.
2. CULTURAL –
1. CONTENTMENT –
Tribals as a rule are generally happy with whatever bare minimum
necessary is provided to them by Mother Nature. Whereas, highly
civilized society undertakes highly sophisticated economic activities,

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because, of a desire for various materialistic objects, services and


information. Fully satisfied with their material situation and with no or
little desire for material comforts of modern civilization ,tribal population
remains at primitive economic level.
2. POLITICAL –
Tribals had so far been kept out of ambiance of economic development in
the modern sense of the term by political rulers of the day. Consequently,
tribals generally remain economically backward.
3. SOCIAL –
With no or little social contact with the civilised world, some of these
tribes still retain Palaeolithic age streaks subsisting purely on food
gathering economy, and not knowing even how to make a fire.i.e ,the
Onge Tribe of the Little Andaman islands in the Bay of Bengal. These
people to not know agriculture. They live on hunting, fishing, wild fruits,
edible roots, honey, fish (Sardines), fat of turtle. They live in huts which
are shared communally by all members turn by turn.
3. HISTORICAL FACTOR:
Time itself has acted a great factor by reinforcing primitive mode of tribal
economies with hardly any perceptible changes.

4. EXAMPLES OF WORLD TRIBES:


1. Eskimos (North American Coasts)
2. Khirghis (Steppe – Central Asian Russia)
3. Bushman (Kalahari Desert)
4. Pygmies (Central Africa – Cango basin)
5. Semang and Sakai (Malay Peninsula)
6. Melanesians and Papuans (Melanesia – New Guinea & adjacent
islands)
7. Bedouins (Arabian Peninsula)

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5. CRITICISM OF TRIBAL ECONOMY:


Tribal economy carries both advantages and disadvantages in terms of
economic development.It has the advantages of optimum utilization of
natural resources, since tribals meet their economic needs in harmony with
their natural surroundings.This blissfully avoids overexploitation of
natural resources and consequently less chances of problems like
deforestation , and pollution, etc. unlike modern econmies.On the negative
side, the tribal economies being selfsufficient are unable to provide a
higher standard of living .

2.6 VILLAGE ECONOMY


INTRODUCTION:
Generally speaking, a village economy is a fully self dependent economy with hardly any
interaction with the outside world. It is based on specialised division of labour,
determined either by society-imposed social caste system or the capability of the
individual. Nearly all areas in the world had the predominance of this type of economy
till the great industrial revolution of 1750s in North West Europe (England), wherein
villages started loosing village labour to newly created factories in big cities in Europe. It
adversely affected the village economy in developed Countries. Similarly, it affected
badly the village economies in other parts of the less or underdeveloped regions of the
earth like Asia and Africa by forcibly supplying to these areas the cheaply produced stuff
of the industrialised colonial ruling countries. Simultaneously, it soaked natural or raw
materials of these villages at cheap rates. This ruined the village industries like weaving,
tannery, etc. which could not compete with cheaply produced foreign goods and it
deprived them of invaluable local raw materials supply. Other factors came into
operation, too, like slave trade. Colonial powers / merchants of powerful European
nations stripped African villages of nearly 30 million productive population through
forcible enslaving during the slave era. Therefore, African village economies collapsed
beyond repair.
PRESENT SCENARIO:
However, in the present contemporary globally integrated economy, village economy is
moving away from subsistence type of economy to the one based on commercial type of
primary and related agro – based industries and activities. Various factors have speeded

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up this process like explosion of information and technology, improvement in rural


education, availability of financial and technical support, better irrigation facilities,
improved means of transport and communication, improved medical facilities,
introduction of better crop production and soil conservation practices.Political factors like
ascendancy in regional politics of the rural politician too have helped this cause.For
example, the powerful politician Vikhe Patil using his clout in the sugar – belt of
Maharashtra was successful in bringing medical and technical educational institutes to
the rural settings of the Loni – Pravara villages. The presence of these institutes meant
presence of a large community of students and supporting staff which created demand for
food, clothing and shelter by these students and staff. Consequently, economic landscape
of Loni – Pravara changed drastically to cater to these newly created sustainable
demands.
General global phenomenon of “ Pull & Push Factors” has led to mass exodus of rural
labour to urban areas leading to impoverishment of village economic landscape.
However, in India, this phenomenon is absent as illustrated by various studies.
Presently, all governments the world over have initiated various remedial measures to
help sustain village economies, modernise them and thereby avoid problems of flow of
rural population to urban areas which generally end up as poorly paid factory workers
leading to problems like proliferation of slums. The primary effort is aimed at integrating
rural economies with local, regional, national and international economies in a holistic
manner retaining their plus points and removing their disadvantages. This is done through
effective rural planning.
2.7 MODERN ECONOMIC LANDSCAPE

INTRODUCTION:
Modern economic landscape or the modern economic scenario is a highly complicated
one influenced by a complex set of factors both natural and human. No economic activity
takes place in isolation. Rather, it is interlinked in a highly complex and amazing maze of
economic relations. It is indicative of the high degree of economic sophistication of
contemprarory humanbeings. The concept of “Self dependency” has been replaced with
the dictum of “global integration”.
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WORKING OF THE MODERN ECONOMIC LANDSCAPE:

This landscape can be viewed at various levels, i.e., local, regional, national and
international. No place, region or a nation state is fully self dependent due to non –
existence of all the resources required for economic development in that place, region or
the nation state. Therefore, interdependence is the key word. This interdependence causes
an exchange of goods, services and information. For example, U.S.A. can’t survive
without supply of crude oil (petroleum) especially from Saudi Arabia. Likewise, Saudi
Arabia can’t have the benefits of American Science and technology without supplying
crude oil to U.S.A., since Saudi Arabia does not have advanced science and technology
so vital to its rapid economic development. Coming to the national level, every region is
dependent on the other. For example, Punjab farming sector can’t survive without farm
labour migrating from Bihar, since Punjab lacks in cheap farm labour. Likewise, Bihar
and other states are dependant on Punjab for food grains like Wheat, etc., because these
states lack in these agricultural products. Still, further down the line, we may examine
this interdependence on a local level. Take the case of big cities like Pune, Mumbai,
Ahmednagar and Nasik with their rural hinterlands. These cities depend on their
hinterland for supply of basic necessities like fresh vegetables, fruits, food grains, simply
because these are not produced by these cities. Simultaneously, the adjoining hinterlands
depend on these cities, too, because these villages in the hinterland don’t produce
industrial products like water pump sets, television sets, etc. which are produced in Urban
centers and their fringe areas like Kirloskar brothers in Pune manufacture water pump
sets. Also, these cities provide to rural areas many services like court, higher education,
modern medical facilities, etc.
Thus, as the above discussion clearly shows the Modern Economic Landscape is a
complicated landscape characterized by interdependence of different key economic
players.
1. FACTORS AFFECTING MODERN ECONOMIC LANDSCAPE:
Many factors influence the content, type and structure of modern economic Landscape.

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These factors are primarily as stated below:


(i) HUMAN ATTITUDE:
A sweeping change in human attitudes has greatly changed the contemporary economic
landscape. Now, no longer people have this notion of self dependency. Having realized
the virtues of interdependency, they interact more vigorously in the economic sense. This
factor has led to other factors like Social, Cultural, Political, Science and technology.
(ii) POLITICAL FACTORS:
Political compulsions have forced many nation states to lower their tariffs, thereby
leading to greater flow of economic goods, services, and information. This has helped
growth of block like E.E.C., ASEAN, G-7, etc. The emergence of W.T.O. is a big signal
of the importance of this factor.
(iii) ECONOMIC FACTORS:
Economic factors influence an economic landscape, too. For example, emergence of a
single currency “Euro” in Europe has done away with the currencies of its members.
Consequently, the many exchanging Houses existing near borders earlier amongst its
members have vanished from the respective economic landscapes of its member
countries.
(iv) SOCIAL:
With greater democratisation and freedom of social choice, people are free to undertake
any activity anywhere generally without any restrictions like caste system, etc. This
social aspect has influenced modern economic landscape.
(v) CULTURAL:
With cultural advancement, people are progressing more towards tertiary activities in
addition to quaternary and quinary areas. This is influencing the whole face of economic
landscape of a given place.
(vi) SCIENCE AND TECHNOLOGY:
Science and technology is a contributory factor, too. This has led to the emergence of big
economic landscapes dominated by big industrial complexes like Maharashtra Industrial
Development Corporation, to cite just one.

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1. CRITICISM OF MODERN ECONOMIC LANDSCAPE:


A. Following are the plus points in favour of modern economic landscape:
(1) It shows greater refining of economic activities.
(2) It reflects material progress of human beings in positive and practical terms to be
quite high compared to earlier period of human civilisation.
(3) It leads to utilization of natural and human resources optimally and holistically in an
integrated manner.
(4) It has led to a general ushering in of economic prosperity.
B. Following are the negative points which show modern economic landscapes in
poor light:
(1) It has led to the complications of all economic relations with attendant negative
impact on relationship in other areas like political, etc.
(2) It has created problems of vast unmanageable economic relations.
(3) It has created problems of fast changing skylines of Urban Countries.
(4) It has created problems related to modern urban life like slums, traffic congestion,
pollution, socio-economic crimes, etc.
(5) It has made life more stressful to an already stressed human beings to keep working
towards the continuity and maintenance of the existing economic landscape so as not
to lose material comforts flowing from it.
(6) These become easy targets by enemy, if these represent pillars of economic strength.
For example, Terrorists knocked Down “North and South Towers of World Trade
Organisation” in Newyork, on 11th September 2000, killing nearly 4,000 people
inside. This centre represented the core of American Financial Might.

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3. WORLD ECONOMY
3.1 INTRODUCTION :
A. World economy consists of an open economy system wherein each nation is
dependent on others directly or indirectly either through bilateral or multilateral
trade arrangements, since no single region or nation is endowed with all the
Natural and Human resources to develop, grow and sustain its particular
economy. Countries carry out activities involving production, exchange and
consumption of goods, services and information having transnational sources of
origin and destination. Thus, one has a peculiar perspective called world
economy or simply the “world system Perspective.”
To quote Hartshorn & Alexander, ”The world system perspective builds on the
network of linkages that tie together the various countries of the world”.
This broad network of linkages has evolved through time from its infancy into
contemporary mature form. Various factors are responsible for the evolution and
development of contemporary world space economy consisting of developed and
underdeveloped counties reflecting dependency of the later on the former.
B. No space economy can be discussed in isolation. Immannuel Wallerstein and
Samir Amin argue that the spatial integration within the world system
innately generates a dependency relationship which leads to
underdevelopment. For example, they argue that the economic
underdevelopment of most of today’s third-world countries derives from
dependency relationships with developed countries, dating back to the pre
colonial mercantilist period, when a wide range of trade relations first started.
However, even developed countries depend on one another and compete with
each other. These countries depend on underdeveloped countries too as reflected
in their helplessness when Arab countries put an oil embargo in 1973.In a period
of 24 hours daily , 40% of global output of goods and services is traded and
nearly 1.5 trillion US$ is exchanged in the world’s currency markets!
C. In the broader frame work, world space economy consists of three types of
countries :
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i. Centre countries
Ii Semi peripheral countries
ii. Peripheral countries.
1. Centre countries like U.S.A., Japan, European Nations, Australia have
strong economies and sturdy economic activities.
2. Semi-peripheral countries like Israel, Taiwan, South Africa. India show
intermediate characteristics between centre countries and peripheral
countries.
3. Peripheral countries like Pakistan, Thailand, Indonesia, Kenya, Nigeria,
Mexico, Chile and Jamaica have “weak” states, low wages, simple
technology economies.
D. A study of world space economy is helpful in understanding many
features like :
i. Process of development and sustaining of relationship between
developed and underdeveloped countries.
ii. Causes for the failure of most underdeveloped countries to develop
their economies to overcome basic problems of economic poverty,
unemployment , underemployment, spatial social inequalities.
iii. Role of multinational Corporations.
iv. Suggestions of remedial measures to overcome problems faced by
the world economy in general and underdeveloped countries in
particular.
3.2 Historical Evolution :
Contemporary world economy has its genesis in the extensive trade relations that
developed first in the pre-colonial mercantilist period. Medieval feudal
economies were replaced by mercantilism due to the Age of Discovery and
Exploration in the middle of the 15th century in Europe with church loosing
control over the lives of people. In the 15th and 16th century, dominance of
European nations on the international trade and development of long distance

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economic interactions for the first time integrated all major countries into one
world space economy. Slave trade was a prominent feature of this era. With
enormous profits from trade in slaves and other commodities, Europeans got
enough cash/capital to prepare ground work for industrial revolution in England
in late 18 th century which began with the mechanical harnessing of steam
power. Big factory systems emerged requiring sources of raw materials and
potential vast markets for finished products for profit maximisation which led to a
scramble for colonisation of known and unknown lands for raw materials and
finished goods markets. This created a dependency relationship between
temperate and tropical countries with the former supplying primary raw material
to the later and the later supplying finished goods to the former in which generally
the former always was a looser since terms of trade were dictated by developed or
temperate countries. This caused enormous miseries to underdeveloped people.
Of course, it also had positive aspects like modernisation of dependent areas into
modern nation-states with western education, science and technology. After
World War I & II, colonialism came to an end nearly with all former colonies
getting freedom. However, the depending relationship stills continues in various
forms with newly freed colonies/countries being dependent on their former bosses
through various means/mechanism. To quote Hartshorne and Alexander,
“These include international trade, multinational corporations, international
labour migration, foreign aid (both economic and military) and technology
transfer.”
Uruguay Round (1993), Doha round (2000), etc., too are being perceived by some
scholars as a sophisticated way of continuing this colonial legacy of dependency.
3.3 MEDIEVAL FEUDAL ECONOMIES:
To quote Hartshorne & Alexander, “No international economy in the modern
sense existed in medieval times.”
Not many long distance spatial economic relationships and interaction existed
between and among the comity of nations. Regional relationships existed which
were limited in scope or extent. Feudal structure had created a centripetally

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oriented economy. To quote Lekachman, “Change was slow in towns and


slower elsewhere partly because of the conception of life which emanated
from the period’s dominant social institution, the church.”
Like elsewhere in the contemporary medieval world, in Europe too nature
determined space economic relationship, because of the infancy of advancements
in science and technology. Therefore, economic activities were primarily
domestic and regional at most. Tribal feuds and territorial expansionary wars
only occasionally led to long distance interaction. Otherwise economic life
remained static/subsistence oriented, more so the supreme controller, the
CHURCH discouraged materialistic values, desires, objects and the development
of commercial and industrial activities.

3.4 THE RISE OF MERCANTILISM :

The great period of “Renaissance” or the age of Discovery and Exploration began
in Europe in the middle of the 15 th century. Old “geocentric” concept gave way
to “Heliocentric” concept of the universe. People started questioning the moral
authority of the church in view of contemporary scientific discoveries, inventions,
and explorations. Church lost its hold. Europeans set out on voyages in search of
wealth, to gain personal glory and, to spread Christian gospel in the 16 th century.
Europe, especially London became the hub of commercial activities. Europeans
found new sea routes to Asia and China. They began dominating import export
trade in Africa, Asia and the new world of North and South America. This led to
mercantilism which encouraged long distance economic interactions spatially
amongst the countries. Earlier , Arab merchants had done international trade but
not on such a large scale and with such a sophistication as practiced by mercantile
European Traders who changed the whole complexion of International trade and
there by world economy. Western Europeans acting as merchants/brokers in this
trade expropriated to Europe the profit from trade which laid the foundation of
Industrial revolution.

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Spain, Portugal, England, France, Netherlands dominated the trade. In the 17 th


century, European sold African Ivory to Indians, where, says Walter Rodney,
“they engaged in buying (Indian) cotton cloth to exchange for slaves in Africa
to mine gold in Central and South America. Part of the gold in the Americas
would then be used to purchase spices and silks from the far East.”
Europe benefitted enormously at the cost of less developed countries, especially
through slave trade, which helped it retain its dominance in the world Trade till
world War II, wherein U.S.A. had to step in to help rebuild it through “Marshall
Plan” aid. Famous Barclays Bank and Lloyd’s of London (one of the biggest
banking/insurance companies) was founded primarily on the basis of the profits
earned in slave trade! (As per Eric Williamsin in “Capital and Slavery”).
3.5 THE SLAVE TRADE :
Mercantilism was characterised by the Trans Atlantic African slave trade
especially between 1700 A.D. and early 1800 A.D.European traders enslaved able
Africans of 15 years to 35 years of age, sometimes below 15 years too, but rarely
older people to the New World to work in back breaking mines/fields. It
continued for several decades despite its abolition in U.K. in early 1800 . Africa
lost 30 million productive people through slave trade. Depletion of young hands
created a shortage of labour for agriculture in Africa which caused decline in local
domestic production activities, whereas it helped Europeans exploit resources in
the New World. It created a systematic linkages between Africa and the
North/South America, West Indies.
To quote Walter Rodney :
“Europe itself had a very small population and could not afford to release the
labour required to tap the wealth of the Americas. Therefore, they turned to
the nearest continent, Africa, which incidentally had a population
accustomed to settled agriculture and disciplined labour in many spheres….
Those are the reasons why the capitalist class in Europe used their control of
International trade to ensure that Africa specialized in exporting captives.”

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3.6 THE INDUSTRIAL REVOLUTION :


Mercantilism was followed in the late 18TH century in U.K. by Industrial
revolution. Mercantilism had laid the foundation of Industrial revolution in terms
of providing financial support based on enormous profits expropriated from slave
Trade. Even James Watt expressed “eternal gratitude to the West Indian
Slave Owners who directly financial his famous steam engine.”!
It all began with the mechanical harnessing of steam power. Capital got central
role. New technological advances changed production processes, especially in
textile sector, the most important sector in U.K. Innovations in transportation
towards the closed of 18TH century, especially steamships and railroads reduced
economic distance, reduced transportation costs of goods and people. Easy
accessibility to sources of raw material encouraged and sustained factory
production in Europe with U.K. leading the field followed by other European
countries and the U.S.A.
Industrial Revolution created following problems for Britain :
1. Shortage of raw materials’ supply for expanded production capacity.

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2. Question of expanding markets for expanded production capacity.


3. Declining margins of profit due to capital glut, wherein capital
(i.e. machine, tools, etc.) was created in larger quantity than that could be
utilized effectively domestically.
4 Excess capital created problem of sustained economic growth on the
domestic front.
5 Recently industrialised countries like Germany, France, U.S.A. created
stiff competition in the international market.
6 It created employment problem since machines meant less need for human
labour.
3.7 COLONIALISM:
With European & American countries in stiff competition with it, U.K. protected
its resource base and foreign markets by using its powerful naval forces and
colonising/annexing foreign territories. It helped her continue the sustained
economic development bequeathed by the earlier mercantilism. Also, it
neutralised international competition. To quote Cecil Rhodes, “My cherished
idea is a solution for the social problem, i.e. in order to save the 40,000,000
inhabitants of the United Kingdom from a bloody civil war, we colonial
statesman must acquire how lands to settle the surplus population, to provide
new markets for goods produced in the factories and mines. The Empire is a
bread and butter question. If you want to avoid civil war, you must become
imperialist.”
However, tug-of-war originated due to a “scramble for foreign territories or
colonies”, especially in Africa, amongst Western European Powers. This led to
convening of Berlin Conference (November 1884) under the leadership of Otto
Von Bismarck, German, Chancellor, participated by 14 countries including
U.S.A., to discuss distribution/demarcation of colonies in Africa controlled by the
U.K. and France, among others.
Colonialism led to economic benefits for colonisers and losses to the colonised.

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ECONOMIC BENEFITS :
1. Europeans and other colonisers got a guaranteed productive outlet for the use of
excess capital generated in industrial countries. To quote Lenin, “
In these backward countries (colonies) profits are usually high, for capital is
scarce, the price of land is relatively low, wages are low, raw materials are
cheap.”
2. According to John Stuart Mill, it had following advantages :
1. Use of Capital in the colonies helped increase Europe’s profits by maintaining
the productivity level of capital that remained back in Europe.
2. It guaranteed access to raw materials and assured markets for finished good of
European countries in view of scarcity of resources and a small domestic
consumer market respectively.
3. It allowed access to contemporary luxury items like silk & porcelain from
China, tea & spices form India, ivory, gold and diamond from Africa; Sugar
from the West Indies and Latin America.
4. It acted as a safety valve by releasing an increasing number of domestic
unemployed and underemployed labour force to work in the colonies.
5. Clonisation provided cheap source of food products to the colonial powers
which helped feed industrial labour force, control inflation and keep wages
lower back at home. Food shortage in Europe was created due to shifting of
labour from Agriculture to industry.
HARMS :
Colonised countries / regions were harmed in the following main ways :
1. Destruction of local industry:
Small local industry was slowly and steadily finished as it could not
compete with cheap foreign products from colonisers.
2. Depletion of Primary Resources :
Primary resources were depleted owing to their use by colonisers.

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3 Creation of dependency Psyche :


Colonisers did not in general train the local population in different
sciences, technologies and skills, thereby leading to lower self
esteem/poor managerial or technical skills amongst the locals. Thus, local
people became psychologically dependent on their foreign masters. They
could not develop their economies spatially on their own.
To quote Hartshorne & Alexander,“colonial government rarely
trained the indigenous population to handle managerial or highly
technical tasks, which served to psychologically dampen their
confidence and innovative abilities and to institutionalise the
dependency situation found in the modern world system.”
3.8 MULTINATIONAL CORPORATIONS(MNCs) :
Multinational corporations or MNCs are one of the several mechanisms through
which developed countries maintain and sustain dependency of the
underdeveloped countries despite colonial era having ended long back. These
MNC’s or Transmultinational Corporations have a far reaching impact on the
developing/Underdeveloped countries/regions.MNCs contributed 1/3rds of the
total world trade in merchandise in 1998,i.e.,2 trillion US$! They are inter
related with international trade, foreign aid, and technology transfer in numerous
ways.
To quote Hartshorne & Alexander, “In a sense, MNC’s are a modern version
of mercantilist trade…..but the mode of operation is very different.”
MNCs are privately owned firms, companies, Corporations having legitimacy and
consent of host countries, establishing their branch operations in foreign
countries. Although they maintain a headquarter in their parent country, yet all
other operations like manufacturing, transportation, distribution, procurement etc.
are spread globally to take full advantage of and make efficient use of all the
factors of production. They are an excellent example of true internationalisation
of space economy. Their main goal is to minimise the cost and maximise

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volumes of profits. They have a vast global operating network. They command
enormous Natural, human and other resources.
REASONS/FACTORS FOR MULTINATIONALISATION :
1. Raw Materials and Naturals resources : It helps cut down transportation
cost of bulky raw material and marketing of finished products.
2. CHEAP MANUAL LABOUR : Underdeveloped regions provide cheap
blue collar manual labour with no obligation to cover their health and
other benefit aspects. This saves money.
3. MARKETS : Sheer large number of population despite poor standard of
living provides a big market in host countries of Africa, Asia, Latin
America.
4. LABOUR UNION : Existence of minimum of labour unions and
consequent no problems in underdeveloped regions.
5. ENVIRONMENTAL LAWS : Hardly anyone cares about environmental
standards in underdeveloped regions.
6. TAX BENEFITS : Host countries provide to MNCs tax benefits so as to
attract them to invest in their country so as to help develop economically
the region.
7. POLITICAL POWER STRUCTURE : Generally in a relatively stable
strong underdeveloped region, MNCs don’t face threats. A corrupt
political structure ensures symbiotic relationship with elite framing
policies favorable to MNCs in exchange for material/financial benefits.
8. BETTER PRACTICAL INDUSTRIAL LOCATION MODEL
ADVA NTAGE S.
IMPACT OF MNCs :
It can both be positive and negative both to host and parent country.
POSITIVE IMPACT :
1. MNCs bring badly needed foreign investment in money, material, and
technology to the host region.

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2. They help develop the area ,i.e. , involvement in manufacturing activities has been
found beneficial. Hongkong’s initial industrialization was strongly related to the
development of textile and apparel industries whose success attracted more
foreign investment causing greater diversification.
3. They provide employment.
4. They help harness natural resources.
5. they help overcome business pressures through cross-border mergers and
acquisitions(M&AS),i.e.,the value of M&As in 1999 was nearly 720 billion
US$!
NEGATIVE IMPACT:
1. Generally, MNCs choose and concentrate on only on that activity in such a region
only which may help maximize its profits without caring for the priorities of the
host region.
2. They provide little local employment, because they are capital intensive.
3. Relocation adversely affects workers, i.e., closing down of iron production by
General Electric Company in Ontario, California and relocating it to Singapore
made workers loose their jobs permanently.
4. Flooding of domestic and other markets with cheaply produced products
elsewhere discouraging domestic production, leading to closure of domestic
industries and consequent employment loss.
5. Sometimes, MNCs are involved in scandals such as was the case in Enron,
Dabhol. Also, in 2001, Mittal who does not hold British passport created uproar in
U.K. over his alleged payment of £1,25,000 to Tony Blair, U.K. P.M to secure a
crucial 70 million pound loan to buy the state-owned Romanian steel company
Sidex at a cost of millions to the British taxpayer. Mittal is an international tycoon
controlling steel plants globally. Similarly, IBM , one of the world’s largest
companies has been accused by Edwin Black , a jew author in his book “IBM
AND THE HOLOCAUST” to have had helped Hitler during Nazi era by its
proactive policy of providing solutions in advance before clients found problems
by way of collecting information on jews of Germany .It showed Hitler just how

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he could get lists of jews in every city and profession, how census could be
conducted to provide details of purity and descent .This information helped Hitler
implement the Nuremburg Laws to systematically and easily locate and liquidate
German jews !
A) SHARE OF TERRITORY RULED BY EUROPEAN COLONISTS,
BY CONTINENTS, (%)
COLONIES IN 1876 1900 CHANGE
AFRICA 10.8 90.4 + 79.6
POLYNESIA 56.8 98.9 + 42.1
ASIA 51.5 56.6 + 5.1
AUSTRALIA 100.0 100.0 -
AMERICA 27.5 27.2 - 0.3

B) COLONIAL POSSESSION OF FOREIGN TERRITORIES (AREA


IN MILLIONS OF SQUARE MILES- PEOPLE IN MILLIONS)

Year Great Britain France Germany


Area Population Area Population Area Population
1815-1830 - 126.4 0.02 0.5 - -
1860 2.5 145.1 0.2 3.4 - -
1880 7.7 267.9 0.7 7.5 - -
1899 9.3 309.0 3.7 56.4 1.0 14.7

Source: V.I. Lenin, “Imperialism, the highest stage of capitalism” (Peerking:


Foreign Language press, 1969) as given in “Economic Geography” by
Hartshorn & Alexander.

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4. LOCATION OF ECONOMIC ACTIVITY


4.1 LOCATION OF ECONOMIC ACTIVITY :
What do we mean by the term “Economic Activity” ? Well, it means the activities
related to production, exchange and consumption of goods, services and
information on the rotating earth and in universe. These activities take place in
the context of some geographical location on the earth’s surface and outer space.
The location where these activities take place is called the location of economic
activity. The economic activity may be related to any one or all the three aspects,
i.e., production, exchange and consumption.
4.2 LOCATION OF PRIMARY, SECONDARY , TERTIARY , QUATERNARY AND
QUINARY PRODUCTION :
First of all, lets know the types of production economic activities. Hartshorne and
Alexander have given five broad categories of production economic activities as
follows :
(i) Primary
(ii) Secondary
(iii) Tertiary
(iv) Quaternary
(v) Quinary
(i) PRIMARY PRODUCTION :
It includes hunting, fishing, gathering, mineral extraction, and harvesting
of trees. This is called red collar activity.
(ii) SECONDARY PRODUCTION :
It includes those activities which increase the value or usefulness of a
previously existing product by changing its form. It includes
manufacturing and commercial agriculture. It is called blue collared
activity.
(iii) TERTIARY PRODUCTION :

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It includes the service sector rather than the goods. It includes personal
and business services provided by retail clerks, barbers, beauticians, and
secretaries. It is called pink-collared activity.
(iv) QUATERNARY PRODUCTION :
It includes professional and administrative services characterised by
specialised technical, communication, motivation, and leadership skills
provided in specialised environment like schools, theatres, hotels,
hospitals. It includes financial and health service, information processing,
teaching, government service, and entertainment activities. It is called
white collar activity.
(v) QUINARY PRODUCTION :
It includes chief executive officers and top management executives both in
government and private sectors. It is characterised by a very high degree
of analytical and managerial activities in larger urban ,university, medical
and research centres. It includes research scientists, legal authorities,
financial advisers, strategic planning and problem solving professional
consultants. It is called gold collar activity.
1. Flow chart showing increasing order of complexity and specialised
nature of economic production activity.

Primary

Secondary

Tertiary

Quaternary
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Quinary
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2. Graphical Hypothetical simplified Representation of the complexity and


specialisation involved in different productions :

10 . .
9 . .
Degree of Complexity

8 .
and Specialization

7 .
6 . .
5 .
4 . .
3 .
2 .
1 . .
. . . . . X
0
Primary Secondary Tertiary Quaternary Quinary

3. LOCATION :
Location of primary, secondary and tertiary production is determined by
numerous factors like historical, cultural and physical. Different theories have
been advanced by different economists and geographers to explain this
phenomenon of location of production activity. Von Thonen’s model tries to
explain the location of primary activities. Alfred Waber’s model tries to explain
the location of industrial units or the secondary production. Walter Christaller’s
theory tries to explain the location of tertiary production like retail business
activity. No theory is perfect or Universally valid.
It is to be noted that primary activities can be undertaken on a commercial basis,
too., for example, primitive people carry out subsistence type of primary activities

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,whereas modern human beings especially Europeans have undertaken these


activities like fishing and forestry on a commercial basis with the help of modern
scientific and technical knowledge and gadgets.

4.3 VON THUNEN’S MODEL


1. INTRODUCITON:
J.H. Von Thunen, himself a prosperous and successful owner/manager of a large estate in
Mecklenburg made an attempt to explain agricultural land use pattern in economic terms by
publishing ‘Der Isolierte Staat’ (The Isolated State) in 1826 based partly on his
observations in that locality. His attempt/model called ‘Von Thunen’s Isolated State’
model is an example of a normative model and is partly based upon empirical evidence
relating to the economic conditions in the early 19TH century.
2. ASSUMPTIONS :
Like all other theorists, he made certain assumptions, too for the sake of simplicity like:
i. Isotropic surface within the isolated state.
ii. All surplus production was sold in a single city upon which all communications
converged.
iii. Use of a single form of transport (horse-drawn carts)
iv. Direct proportional relation of transport costs to distance.
v. Concentric zones of differing production and the city.
vi. Presence of a hypothetical area called ‘an isolated state,’ surrounded by an
uncultivated wilderness and having no trade connections with outside areas.
vii. Existence of a rational human being.
3. EXPLANATION:
A. Von Thunen argues that 3 factors influence the type of agricultural production at any
particular locations
i. Distance to market.
ii. Selling price of product at the market.
iii. Land rent, which is regularly equivalent to economic rent in classical economics
described earlier in 1817 by British economist David Ricardo. Economic rent is
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commodity or it is the monetary return from an area which can be obtained above
that which can be received from land which is at the margin of production.

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B. According to Von thunen ,perishable items in strong demand and those products
with high transportation costs get located close to the city. These items could
compete favourably on higher priced land near centre because of higher market
prices. Less perishable products with lower transport costs and lower market
prices predominate with increasing distance from the market. Extensive
agriculture, including grazing, replaced more intensive grain production and
general farming in most distant remote locations.
However, distortations crop up in this highly idealized model. For example, in
figure (b), presence of a navigable river and a second market centre has distorted
the model which calls for further investigations into the reasons responsible for
this deviation.
C. The following diagram shows Von Thunen’s concept of economic rent:

Y
Price for one
hectare of
production
A B C

0 Distance from 0
(City) increase

Von thunen assumed that quality of land varies not with fertility, but with respect
to location or distance. The land is assumed to be of uniform fertility and crop
yields equal in all areas, but the return on agricultural produce (XY) declines with
increasing distance from the city (0) due to the grater cost of transporting crops to
the market. In the figure above, the shaded portion means the economic rent of A
and B if the next distant location is farmed.
4. APPLICATION:

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A bid rent curve clearly shows the relationship between economic rent and
distance from the market for one or several products. The basis for rings of
production around the market can be determined by comparing the bid-rent curves
for two products.
The bid – rent curve is the line showing the economic return at varying distance
from the market. It slopes down to the right for each product, since additional
transport costs occur with greater distance from the market. For example, item
located at the market would cause no transportation costs. Economic rent would
decrease in direct proportion to transportation costs - increases at any given
distance away from the market. We can find the height of the curve at any
distance by subtracting production and transportation costs from the price
received for the item at the market. Figure (a) shows the economic rent return
from a ton of Bajra at the market as Rupees 100. We can determine this figure by
subtracting the cost of production (Rupees 100) from the selling price at the
market (Rupees 200), yielding an economic rent of Rupees 100. The rent
decreases in direct proportion to the transportation charge at any distance from the
market. Let us assume that transportation costs are Rupees 20 per kilometer. 2
kilometer from the market, an additional Rupees 40 decrease in rent occurs .we
are therefore left with a return of Rupees 60 only.

150
Economic Rent
100
(Rupees) Bajra
50

0 2 5
Market Kilometre
(Pune)

Figure (a)

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150
Economic Rent Cauliflower
(Rupees) 100

60
50 Bajra

Market 0 2 3 5 Kilometre
(Pune)
Bajra Zone
Cauliflower Zone
Figure (b)
At 5 Km, with an additional transport charge of Rupees 60, the rent becomes zero,
making it uneconomical to produce Bajra at any greater distance from the market, where
returns would become negative. Production area would contract/expand with any
increase/decrease in the market prices or any charges in transportation cost. The bid-rent
curve would become steeper and contract the production area with increase in
transportation costs. The curve would be flattened with a decrease in rates, encouraging
production at greater distances.
Figure (b) helps find the basis for rings of production around the market (Pune). It shows
a bid-rent line for two products Bajra and Cauliflower. The curve for Cauliflower starts
out in a higher position than the Bajra curve because its market price is significantly
higher than that for Bajra (Rs. 260), more than offsetting the increased cost of
production (Rs. 110). A return of Rupees 150 is found at the market. Transportation costs
for Cauliflower is higher than that for Bajra. 2 Kilometer from the market, Rupees 90 is
the transportation charges, leaving economic rent at Rupees 60. At 5 Kilometer from the
market, another Rupees 135 charge occurs, with rent level going below zero! When these
points are connected, it is seen that it is uneconomical to produce cauliflower beyond 2
Kilometer from Pune market, because at greater distances Bajra becomes more profitable.
The highest return would be given by the curve in top position at any given distance from

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the market. Thus, cauliflower would be produced closest to the Pune market and Bajra
farther away.
5. CRITICISM:
a. NEGATIVE:
(i) Von thunen simply re-invented the wheel, because his concept of land rent
is quite similar to economic rent model of David Ricardo who had
described the same 9 years before Von thunen put forward his concept. Of
course, Von thunen himself was unaware of Ricardo’s economic rent
concept. Instead of basing his model on soil infertility, he assumed equal
fertility and based it on location or distance. One can see similarity
between Ricardo & Thunen’s models from the following concept of
Ricardo of economic rent based on the assumption of declining soil
fertility with increasing distance from the city.

2.0
1.5
Yield 1.0
(tonne per
0.5
hectare)

A B C

City 0
Quality of land decrease

“A” is an area of cultivation close to a city (0). The yield for a given crop is 2.0 tonnes
per hectare. With the expansion of city and its market for products, cultivation gets
extended to area “B”, which is located further away from the city and is considered
having a lower fertility. The yield is 1.5 at location B. So, the economic rent of “A” is 0.5
tonnes per hectare (2.0 -1 .5 = 0.5).

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When area “C” is put under agricultural production, and yield 1.0 tonne per hectare, then
the economic rent of “A” and “B” would be 1.0 (2.0 – 1.0 = 1.0) and 0.5(2.0 – 1.5 = 0.5)
respectively.
(ii) His assumptions are not universally true.
(iii) His model is anachronistic, outdated, irrelevant to contemporary economic spatial
scenario.
(iv) All operators, i.e., agriculturists don’t have complete information.
(v) All operators are not necessarily rational – decision makers.
(vi) All operators differ in their evaluation of the land and the definition of
remuneration for their work.
(vii) All operators need not necessarily make rational choices of crops, live
stock.
(viii) All operators need not seek to maximize their return from their lands.
(ix) All the above factors distort symmetry of the model.
(x) Model is applicable only mainly to commercial agricultural patterns found
in North America and Western Europe.
(xi) Forests belts are no more so important as to warrant proximity to a city in
view of technological advancements in the field of energy generation.
(xii) Being a normative model, it suffers from all the shortcomings of such
models.
(xiii) Changes in transportation/refrigeration have destroyed the symmetry of
land use systems around central markets, since the early 19TH century.
B.
POSITIVE:
1. It was one of the earliest pioneering approach which attempted to explain
agricultural land use patterns in economic sense.
2. It helped put geography on a sound scientific footing.
3. Von Thunen himself pointed out that his work was essentially a method of
approach to the complex subject of agricultural location and that while his

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findings had no claim to universality, the methods by which they were obtained
could be applied generally.
4. The model is applicable at all scales, i.e., local, regional or global (as M.
Chishdin pointed out). Study was done in Uruguay applying this model to
agriculture.
5. Shortcomings of the model prompted newer theories to solve the question of
decision making at the level of the individual farmer like ‘Game Theory’.
6. CONCLUSION:
To conclude in the words of J.R.Peet,
“While transport costs continue to form a major part of the total costs of
producing and marketing crops, at least some semblance of a concentric zonal
system remains.”
4.4 ALFRED WEBER’S MODEL

1. INTRODUCTION:
Alfred Weber attempted in 1909 to develop a theory based on least cost with
respect to transport ( collection of raw materials and distribution of finished
products ) and processing (labour, power, capital, services ) assuming that the
manufacturer would best locate where the sum total of these cost is least . To find
the least cost location ,it is necessary to examine spatial variation in this cost and
to examine the cost structures of different industries, because a location with low
labour cost will not be very attractive to an industry with a small labour cost
component such as oil refining and an area with high labour costs and cheap
power will not attract industries with a high labour, low power component such as
textiles. Alfred Weber tried to find this spatial point of least cost. His model tries
to explain the location of secondary production.
2) ASSUMPTIONS:-
Alfred Weber, inter alia, assumed uniform demand for a product at all locations,
resulting in a uniform price; presence of an isotropic surface, a rational well
informed human being, perfect competition; and therefore the plant located at the
point of least costs would get the highest profits. Occurrence of raw materials/
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labour/markets at specific places only, and immobility of labour supply available


unlimited at aspecific wage level.
3) PRINCIPLES:-
He examined one by one the following:
(i) Least Transport Costs
(ii) Labour Costs
(iii) Tendency to Agglomerate.
(i) LEAST TRANSPORT COST:-
He tried to find first the least transport cost location which he considered
the most important influence,using a ‘locational triangle’.

1 Tonne C C
2 Tonne
2 Tonne
P 1 Tonne
P
M1 M2 M1 M2

a. Weight losing b. Weight gaining

Weber’s locational triangle

Reality is simplified to two raw materials M1 and M2 and one common


consumption point C. The least transport cost point P, is the point at which the
total cost of moving raw material and finished products is least. These transport
costs are calculated by multiplying the weight of material or product by the
distance carried, resulting in a ‘pull’ being exerted on the production point by
each of the corners of the triangle.
In the above figure(a), 2 tonne of material M1 and 2 tonne of material M2 are
needed to produce 1 tonne of finished product. In a weight-losing manufacturing
process such as iron smelting, the least transport cost location is near to the
sources of the raw material. But, in figure(b), one tonne of material M, and1 tonne
of material M2 are needed to produce 2 tonnes of finished goods. In a weight
losing industry such as backing a market oriented location is attractive. The only
raw materials that are localised and not ubiquitous will have a locational effect.
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(ii) LABOUR COSTS:-


He considered that industries would be located away from the point of least
transport costs to the point of least labour costs if savings in labour costs were
greater than any additional transports costs.
In the following figure (c), P is the least transport cost point, and around this point
a series of isodapanes (cost contours) or lines of equal transport cost per unit of
production from P are drawn. Cheap labour at L1 & L2 would reduce costs by
15p per unit of production, and manufacturer has to decide whether it is useful to
relocate from P to take advantage of it. Surely, any location within the 15p
transport isodapane would save more on labour than would be spent on extra
transport and therefore L1 would be a more profitable location than P. Location at
L2 would increase transport costs more than any saving in labour costs. With
efficient transport, labour costs rise and transport isodapanes move further apart.
(iii) TENDENCY TO AGGLOMERATE:-

After combining transport and labour effect, he examined the effects of industry’s
tendency to agglomerate. In figure(d), A,B,C,D, and E are least cost location , but
industrial units located there could cut their production costs by £1 per unit of
production if at least 3 of them operated in the same location. But they must not
incur increased transports cost of over £1 per unit of production. Figure(d) shows
the critical isodapane of £1 drawn round each producer and it also shows that
units C,D,E could reduce their total costs by locating in the shaded portion/area.
Same is for C,D,A and ABD.

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4) CRITICISM:-
(i) POSITIVE:-
(a) Weber’s model has validated in several studies like W. Isard’s
work on the US steel industry and W. Smith’s work on weight-
losing industries in Britain.
(b) It is a pioneering theory.
(c) It has influenced a large number of later writers.
(d) It gave rise to Maximum Revenue theory as a reaction to its
neglect of the demand aspect .
(e) It shows that intermediate plant locations between the raw material
and market locations are undesirable because they induce higher
costs of production due to the effect of increased freight rate
charges.
(f) More realistic behavioral and structural theories have come in
vogue to supplement this classical theory like spatial Margins
theory combining both the production and the demand aspects.
(ii) NEGATIVE:-
a) It holds demand constant at a point. It ignores the locational
interdependence of units.
b) It is too abstract, and emphasizes economics instead of space.
c) It has obvious limitations.It is deterministic .It fixes location.
d) Presence of an isotropic surface, rational human being, full
knowledge, perfect competition are a fallacy.
e) It ignores MNCs creating their own markets/infrastructure.
f) It helped capitalists maximize their profits and exploit the labour
class cold bloodedly.
g) Weber did not discuss variations according to the stage of
production, i.e., raw material and final product transfer costs.
Hoover noted that the raw material shipmant rates often fell below

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those of finished goods due to increased fragility and higher


packing and hanling costs for manufactured items.
h) He failed to acknowledge the advantage of “break of bulk”
location advantage.
i) He failed to recognise various systems like capitalism/socialism
and other similar differences.
j) He ignored disadvantages of agglomeration like space problem,
energy crisis, etc.
6. CONCLUSION:
To conclude in the words of KNOWLES AND WAREING,
“His assumptions about transportation rates and the effect of agglomeration have
been questioned, but the theory is important because of its pioneering nature
and its effects on later writers”.
SOME ADDITIONAL POINTS:
1. A. Weber propounded his views in a book titled “Theory of the location of
industries” translation of 1909 original edition in German.
2. He distinguished between 2 types of materials to determine minimum cost
locations:
(A) {i} weight losing (gross materials)
(ii) Non – Weight losing (Pure Materials).
(B) (i) Localized Material(Restricted availability)
Example: Mineral processing activity.
Location: (Near Raw Material.)
(ii) Ubiquitous Material (Available everywhere)
Example: Locally produced limestone for cement
manufacturing.
Location: (Near Market).
3.Example of contemporary firms primarily having either raw material or market
locations.

Market
Orientation
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Bulk Weight
Baking
Gain
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4.5 WALTER CHRISTALLER’S CENTRAL PLACE THEORY

1. INTRODUCTION:
Walter Christaller in 1933 developed his ‘central place theory’ based on observations
concerning settlement patterns and functions in Bavaria, with a view to discovering
order in the spacing of population clusters and settlements in the landscape. It is assumed
that since there is a degree of order in the relationship between size and ranking of
settlements in any region, there may also be some logic in the distribution or spacing of
settlements of different sizes and functional importance.
However, this theory does not apply to any manufacturing economic activity. To quote
Hartshorne and Alexander (economic geography) ,
“ This theory does not apply to manufacturing or other specialized activity,
but to those functions that occur in central places in response to the needs of the
hinterland market, such as retail goods, banking, and professional services… these
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activities occur in town of various sizes due to the size of the market or trade area
covered.”
2. ASSUMPTIONS :
A. EXPLICIT :
1. Isotropic(even)surface.
2. An economy based on providing goods and services to the surrounding population
and not on the production of primary or secondary products.
3. Even distribution of population on the isotropic plane.
4. Equal ease and opportunity of movement in all directions.
5. Single means of transport and transport costs being directly proportional to distance.
6. Location of service center in the centre of the area served.
7. Visit of nearest Central Place by consumers to minimise travel distance. (i.e, principle
of least effort).
8. Same income and demand for goods/services.
9. Economic men : suppliers try to maximise their profits by locating in the place
where its possible to cover maximum possible area of consumers.
10. Central place is not necessarily central in geometric sense.
11. Central places are points of settlement.
B. IMPLICIT.
1. Dependence of the population size on the goods/services offered.
2. Offering of all goods & services of the lower order center by the higher order central
place.
3. Operating of a minimum number of central places in a systems.
4. Existence of complete information and perfect competition.
5. “Closed Systems” nature of central place hierarchy because each center serves only
its immediate hinterlands. It does not interact with any outside regions like national
or international regions.
6. It is deductive and deterministic, since it deduces conclusions and fixes the place of a
centre and its function.
7. Central place’s existence as a dimension less point.

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8. Serving of hinterland by a central place but non-serving itself or its own needs!
9. Higher order goods have longer ranges.
3. IMPORTANT CONCEPTS :-
Concepts like “Range of a good”, “Threshold”, “Desire lines” , “Order” , “economic
reach” help us understand Christallen’s Central place theory.
4. WORKING OF CENTRAL PLACE HIERARCHY.
LEVEL OF CENTRE Types of goods and services
SHOPPERS CONVENIENCE
Metropolitan Centre X X X X X X X X
Regional City X X X X X X X
City X X X X X X
Town X X X X X
Village X X X X
Hamlet X X X

X = A Centre of the specified level provides goods and services of this order.
Each higher order centre provides services of lower order centres, too.

5. EXAMPLES OF FUNCTIONS IN CENTRAL PLACES OF VARYING


SIZES.

1. HAMLET :
Grocery, Church,gasoline service station.
2. VILLAGE :
Barber shop, Bank.
3. TOWN:
Furniture store, Clothing store.
4. CITY:
Shoe store, Jewellery store, Florist, Hospital.
5. REGIONAL CITY :

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Administrate Government functions.


6. METROPOLITIAN :
International Banking, Finance.

6. PRINCIPLE OF CHRISTALLER’S THEORY :-

Christaller chose the hexagon as the ideal trade area shape because it closely
approximates the qualities of a circle (all areas on boundary are equal distance from the
centre) and avoids the problem of underlap or overlap as shown below :-
He was of the view that the Hexagon would be a more efficient shapes to include all the
surrounding regions/space in one unique trade area and to avoid the problem for each size
of community of overlap or underlap. So trade areas for each size of community
appear as hexagons instead of circles.

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7. THE THEORITICAL BASIS OF CHRISTALLER’S CENTRAL.PLACE NETWORK :-


A. First , populations to settle in the region would be agricultural. Families would
tend to settle in groups and small, largely self sufficient hamlets would be
established in the landscape. However, to buy, sell or exchange goods people
have to travel to the nearest trading centre or hamlets (villages) and villagers in
turn have to look up to higher order towns for higher order goods and services.
B. There are 3 ways of developing this hexagonal network :-
a. Market Principle (K=3)
b. Traffic Principle (K=4)
c. Administrative Principle ( K = 7 )
Here K means the number of areas served by a Central place including its own, i.e.,
K = 3 means Central place + two other equivalent central places.
K = 4 means Central place + 3 other equivalent central places.
K = 7 means Central place + 6 other equivalent central places.
Here equivalent central places means the consumer populations of the central places.
C. (I) Market Principle ( K = 3 ).
Here , the routes which link the higher order center do not pass through the lower order
centres. Consumers divide into 3 equal groups when shopping in the 3 nearest largest

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places. Three largest nearest places , because they can approach only 3 largest centres
equal in importance and equidistant. Each of this lower order consumer group is located
on the each points of hexagon. This would minimise travelling to the next higher order
central place.
Each higher central place has six surrounding points .1/3 rds populations of each these
points can be taken to visit it. So, 1/3rd of populations from 6 points is equal to 1/3*6=2
Full populations or 2 equal size places. Thus, it serves the populations equal to
populations of 2 such places plus its own, i.e ,1+2 = 3 central places.
Thus each higher order serves 3 centres including itself and dominates two centres (lower
order). This chain continues down. There exists only one highest order central and the
number of centres at every level below it increases by a factor of 3.
This K = 3 network would develop where the lower order settlements had to be as near
as possible to the higher order central places.

A central Place Systems Organized according to Christaller’s


Marketing Principle.

Level of Hierarchy Equivalent Number of Equivalent Number of


Central Places dominated by Market areas dominated
the highest order central by the highest order central
place place
Metropolis 1 1
City 2 3
Town 6 9
Village 18 27
Hamlet 54 81

ii. TRAFFIC PRINCIPLE (K = 4)


In marketing principle, the routes linking highest order centers do not pass through lower
order centers, thereby leading to inefficient transportation Network. In traffic principle,

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central places are so located that lower order centers lie along the straight line paths
between higher order centres.

Here, smaller lower order


places divide into two equal
parts, that is ½ when
shopping in the 2 nearest
larger cenral places.

Each higher order serves a population equivalent to population of 3 similar size


central places. For example ½*6 (points) = 3.

Thus, it dominates 3 lower order centres and serves 4 similar size centres including its
own self. This chain continues down the hierarchy.

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A central place system organised according to Christaller’s is


Transport Principle:

Level of Hierarchy Equivalent Number of Equivalent Number of


Central Places dominated by Market areas dominated
the highest order central by the highest order central
place place
Metropolis 1 1
City 3 4
Town 12 16
Village 48 64
Hamlet 192 256

Here, in this principle , the number of settlements are maximised along the straight lines
to facilitate efficient transportation.

This hierarchy would develop in regions where transport costs are more important,
because it maximises the number of central places on straight line routes.

III. ADMINISTRATIVE PRINCIPLE ( K = 7 )

In this case, the whole market area of the each lower order centre is included in the
region. Population has no choice to visit nearest centres and hence no chance of
population getting divided amongst various nearest higher order centres. This is done to
achieve political and administrative goals. For example, district collector has to collect
tax from the whole population of the area .Populations of the area can’t be permitted to
pay some tax to collector of their area and some to collector of other area , because it
causes inefficiencies besides law & order problems.

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Here, all places A, B, C, D, E and F


are controlled fully by central place
G.

The Central place G dominates 6 other places and serves population of 7 places including
its own. K = 7 Network would develop in highly developed systems of central
administration, because the resultant arrangement maximises the number of settlements
dependent on any one central place and eliminates the shared allegiances of other K value
system
A central place system organised according to christaller’s Administrative principle:
Level of Hierarchy Equivalent Number of Central Equivalent Number of Market
Places dominated by the highest areas dominated by the highest
order central place order centre
Metropolis 1 1
City 6 7
Town 42 49
Village 294 343
Hamlet 2058 2401

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8. CRITICISM:
i. NEGATIVE :
a. Assumptions of isotropic surface and rational human beings are wrong.
b. Settlements are not even spaced.
c. Non existence of equal sized equidistant spheres of influence or central places.
d. Sometimes, lower order centres have functions of higher order central places.
e. Consumers need not necessarily act in a rational way.
f. Hierarchical tier functioning is not strictly followed. Higher order central places have
snatched some of the functions of a lower order place.
g. Market forces need not always operate central place systems because governments
too interfere.
h. It is more applicable to regions emerging from a subsistence economy having
clear distinction between town & country but not to economically advanced regions.
Where it is distorted by factors like industrial concentrations and government policies
for regional development.
1. Fixed K value shows a very poor approximation with reality.
ii. POSITIVE :
a. Selective locations and efficient division of space and functions find a rational
basis.
b. It shows interdependence by way of functional and behavioral aspects.
c. It helps find some order in the spacing of settlements.
d. Settlement distributions may be uneven but not disorderly.
e. Central function may be found in socio-economic political structures like temple, etc.
f. It helps understand role of settlement as a place of trade and exchange.
g. The model has been used for regional planning as in Germany.
h. Its validity is proved by examples like settlement pattern in Northern china plain.
i. It helps understand play of concepts like range of good, etc.
9. CONCLUSION:
To Conclude in the words of Sidhhartha & Mukherjee

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(Cities, Urbanisation, & Urban Systems) “Despite all the criticism it must be
emphasized that as with most other social sciences theories the central place theory
is not meant to have universal validity.”
10. CENTRAL PLACE SYSTEM IN INDIA :-
A. India has administrative and demographical hierarchy. It has K = 6 level
administrative hierarchy as follows.:
1. National Capital
2. State Capital Metropolitan Cities
3. District Headquarters
4. Tehsil towns Urban Centres

5. Block Development Centres


5000 population
6. Gram Panchayat Centres Most-Non Urban

Ratio of Districts to States 1 : 19


Ratio of Gram Panchayats to Blocks 1 : 40
Ratio of Tehsils to District 1: 6
Theoretical spacing lower & higher order = 2 : 6
Practical spacing = 2:6
B. The Census has on its own identified various settlements level without applying
any logical of scientific method. Still ,Indian settlements have a close resemblance to the
marketing principle of the theoretical central place systems.
Spacing Theoretical (Marketing principle) high to immediate low order centre = 1: 1:72
Spacing practical actual (Marketing principle) high to intermediate low order centre =
1:1.41 to 1:1.83
Major exceptions relate to million cities.

To quote Siddharth and Mukherjee ,


“It cannot be conclusively proved that central place systems apply to Indian
conditions …. It cannot be rejected as well.”

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5. RESOURCES
5.1 INTRODUCTION:
What do we exactly mean by the term “resources” ? “Resources” in common
person’s parlance means anything available on this earth like Coal, plants, etc.
However, a mare presence of these things does not make them a resource from the
point of view of geography. A a thing becomes a resource only when it is actually
of some use to human beings.
To quote E.W. Zimmermann ,
“ The word resources does not refer to a thing or a substance but to a
function which a thing or a substance may perform or to an operation in
which it may take part, namely, the function or operation of attaining a given
end such as satisfying a want. In other words, the word resource is an
abstraction reflecting human appraisal and relating to a function or
operation.”
A thing is converted into a resource only if it satisfies human wants which may be
of any nature ,i.e., personal or social. To quote Prithwish Roy,
“Only the satisfaction of human beings converts anything or a substance into
resource.”
1. In short, a resource must posses following attributes :
i. functionability
ii. Utility
For example, plants do have functionability. But, if they can’t be utilised to satisfy
human wants, they can’t be termed resources. Conversion of a thing into a
resource depends on many factors like :
1. Human desires/wants
2. Level of cultural development. For example, petroleum is existing in
Arabian countries for a long time. Yet, it could not become a resource
until and unless modern technology could be applied to these areas to

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extract petroleum. Once extracted to satisfy human wants, it became a


resource.
2. A Resource can be viewed from different perspectives :
i. Temporal Perspective : Past, Present, future/potential
ii. Geographical Perspective: Lithospheric, atmospheric,
Hydrospheric, biospheric, extra terrestrial, Geo-centric.
iii. Quantitative Perspective: Sufficient, Insufficient or less/more
iv. Qualitative Perspective: Objective(external), subjective (internal)
All resources broadly fall into above categories. For example, biospheric
resources contain plant, human and animal kingdom resources. Human
resources include man’s own wisdom ,too . To quote E.W.
Zimmermann,
“man’s own wisdom is his premier resource - the key resource that
unlocks the universe.”
4. Changing perspective :
a) Old concept : Prior to industrial revolution (1760), a resource
meant a tangible thing, only natural things, only the quantity of
things, static nature of things. It excluded intangible things like
peace, human population, concept of resistance by things.
b) New concept : It includes intangible things, human population,
concept of resistance of things, dynamism of things. It excludes
things full of resistance and no functionability.
3. NORMAL CLASSIFICATION :
However , a geographer generally classifies a resource into 2 broad
categories :
a) Natural
b) Human
A) NATURAL : Examples are petroleum, iron, copper, etc.
B) HUMAN : Health conditions, culture, technological level etc.

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4. Following are some of the important definitions in the field of Resources


geography.
1. E.W. ZIMMERMANN,
“Resources were defined as means of attaining given end, i.e.,
individual wants and social objectives. Means take their
meaning from the ends they serve. As ends change means must
change also.”

CONVERSION OF A THING INTO RESOURCE

CULTURE
Substances Resources
Natural Human

Overcoming Introduction of
Conversion of Utility
Of Resistance
Neutral Stuff

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INTERRELATION OF NATURE, HUMAN BEINGS AND CULTURE

NATURE

NATURE NATURE

Human beings are both a producer and consumer

2. Wesley C. Mitchell,
“Incomparably, greatest among human resources is
knowledge.”
3. Hamilton, “It is technology which gives value to the neutral
stuffs which it processes; and as the useful arts advance the
gifts of nature are remade. With technology on the march, the
emphasis of value shifts from the natural to the processed
good.”
4. Bowman, “The moment we give them (resources) human
association they are as changeful as humanity itself.”
5. Prithwish Roy, “So, with the efforts of man, through the
functional or operational process, resource is dynamically
created.”
6. Professor Harbison,“Human resources are the energies, skills,
talent and knowledge of people which potentially can and
should be applied to the production of goods and services.”

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7. A.k. Dutta Gupta, “Human resources refer not to human


beings as such, but to the qualities they posses and which can
be used by the community for some useful purpose.”
8. E.W.Zimmermann, “Man (read it as human being) is
predestined to be the director, planner and adviser.”
5. COMPARISON BETWEEN WEALTH AND RESOURCES :
Wealth consists of :
i. Utility
ii. Functionability
iii. Scarcity
iv. Transferability
Resources consist of only :
i. Utility
ii. Functionability
7. COMPARISON BETWEEN RESOURCES AND NEUTRAL
STUFF:
Anything or any process that restricts substance becoming resource is
called neutral stuff. Also, alternatively, if anything or substance does not
contain functionability or utility, it is termed neutral stuff. Whereas, a
resource contains both functionability and utility.

5.2 NATURAL RESOURCES


1. CHARACTERISTICS OF NATURAL RESOURCES:
A) AVAILABILITY :
They are available both spatially and temporally. Both horizontally and
vertically. However , availability may be affected adversely in case of
non-replenishable resources, whether biotic or abiotic, i.e., land his
become a 3 dimensional resource since the industrial revolution. These
resources may be terrestrial or extra-terrestrial.
B) DISTRIBUTION :
Highly uneven distribution.
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C) OCCURRENCE :
1. UBIQUITOUS : Available everywhere, i.e., land, etc.
2. LOCALISED : Restricted to some places only. Two types are:
1.Commonalities – found commonly variedly, i.e., Water bodies.
2.Rarities – Found rarely/scarcely in some places only , i.e. , gold, silver,
etc.
D) TYPES
a. FUND RESOURCES :
These resources will not last forever if used indiscriminately, i.e., coal,
etc. They may be renewable or non-renewable, i.e., Iron Ore (non-
renewable), pig iron (renewable) since scrap can be recycled from pig
iron once more.
b. FLOW RESOURCES :
These resources will last forever , i.e. , water, wind etc. These may be :
1.Finite
2.Infinite.
Infinite resources may be turned into a finite one through
indiscriminate use, i.e., forest resources are a self generating and
renewing resources but dense forests may become barren infertile
wastelands due to indiscriminate felling. E.W. Zimmermann has
termed such resources as silt ed or choked flow resources.

D. DYNAMISM :
Natural resources are dynamic, since nature is dynamic. To quote Prithwish Roy,
“In the eye of a natural scientist nature may be constant but a social scientist
is concerned with the meaning of nature for man – dynamic nature known
to man for his own existence.”
This nature is both expanding and contracting. As the concept of Phantom Pile
(E.W. Zimmerman) shows, application of science and technology produce/expand
the extra resources from a given substance, i.e. ,fuel efficiency increased recently

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(1990 s) leading to plying 8o km per litre compared to 30 km per litre in 1980 s!


To quote E.W. Zimmerman,
“ It (Nature) expands in response to increase in knowledge and improvement
of the arts.Nature reveals herself gradually to man, but no faster than he
can learn”.
E. IMPORTANCE :
i. Natural resources are quite important to human beings in terms of their
forming the basic bedrock upon which the whole edifice of economic
development is constructed. Availability of natural resources gives to a
place the initial advantages on which to build on.
ii. Presence or absence of natural resources may have both positive and
negative effects. For example, natural resources of Africa, North America,
South America and Australia led to their exploitation by European nations,
which were highly advanced in terms of human resources. It created
positive gains to European nations. But, it led to negative consequences of
the still lingering economic backwardness of African countries due to
enslaving of 30 millions of their productive human population during
slave era and their transportation to newly found lands. African countries
have still not recovered from those losses of human beings.
iii. Natural Resources remain meaningless, if there are no corresponding
human resources/cultural advances capable of exploiting these. Despite
being located in equally the same geographical locations (equatorial dense
forests), Malaysian Rubber Plantations have a semblance of development
with all the benefits/fruits of modern economic development, whereas
pygmies are still economically backward and subsisting on nature for their
bare survival with no benefits of modern civilisation owing basically to
superior and efficient human resources/culture/science technology of the
former in sharp contrast to primitive levels of human
resources/culture/science/technology of the later.

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5.3 SIGNIFICANCE OF NATURAL AND HUMAN


RESOURCES IN ECONOMIC DEVELOPMENT
1. INTRODUCTION :
What do we exactly mean by the terms ‘Significance’, ’Natural’, ‘Human’,
‘Economic Development’ ? Once we understand these terms, we are in a firm
position to appreciate the significance of Natural and Human resources in
economic development.
A. SIGNIFICANCE : This words means “Importance” or the “Prime
role”, or “Main role”.
B. NATURAL : This word means all those things which are made
available to human beings by nature. These are freely available to
human beings. Human beings have not created these things. For example,
Sunshine, Wind, etc.
C. HUMAN : This word means all those thing which are related to human
beings and those that are created through human efforts and their
interrelationships. For example, culture, ethics, arts, science and
technology, etc.
D. ECONOMIC DEVELOPMENT : ‘Development’ means growth of a
thing from infancy stage into maturity stage. Economic Development
means development from the point of view of economics. “Economics”
means activities of producing, exchanging and consuming goods/services
and information. Therefore, the phrase “Economic Development” may be
taken to mean development of activities related to production,
exchange and consumption of goods, services and information in a
spatio-temporal context.

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2. SIGNIFICANCE OF NATURAL AND HUMAN RESOURCES IN


ECONOMIC DEVELOPMENT :
A. Economic development of any place, region, or nation depends on the
natural and human resources available to it. Quantitative and Qualitative
aspects of resources are very important. Natural and human resources are
unevenly distributed. Small countries like Kuwait have disproportionately
large natural resources compared to big countries like India, i.e. ,Kuwait
has 500 times more quantity of petroleum than India. Similarly some
spaces may posses higher human resources, i.e. ,places in West Bengal
and Bangladesh have a density of population more than 600 persons per
sq. km ,whereas Himalayan regions posses population of less than 30
persons per sq. km. Therefore, Bengal and Bangladesh are more
developed economically than the Himalayan region.
B. Although natural resources give to a place, region, or space the initial
advantage, yet its human resources which are more important of the two.
To quote E.W. ZIMMERMANN, “ Man is predestined to be the
director, planner and aspirer” . Also, “As an agent of Production man
contributes his labour, mental and physical; with the aid, advice and
consent of nature he builds culture to render more effective his
production and to lessen the impact of resistance ; he discovers new
ways and invents new arts; his aspiration ,aim and purpose. As
beneficiary, he enjoys the advantages of advancing civilisation.”
C. MAN LAND RATIO :
A mere presence of a large/small number of human population is no
guarantor of economic development in all geographical area. Similarly, a
large/small population of human beings may mean less economic
development. It looks contradictory, does it not ? Its really not so, what
matters is not the presence or absence of a large population of human
beings rather its the man - land ratio which is more important. This is
indicated by the following equation:

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Man-Land Ratio = Efficiency of man (Humans)


Efficiency of Land
Efficiency of humans depends on their cultural, scientific, and
technological levels, which can be measured in terms of their productivity
from land per person especially in agrarian areas.
Sparsely populated areas may be under-developed and densely populated
areas may be highly developed in all respects. To quote E.W.
Zimmermann,
“ Man-Land Ratio takes into account all the human qualities bearing
on productivity and all the environmental aspects both natural and
cultural affecting the availability of resources. A high population
density may indicate overpopulation; but even a region with a low
population density may be over populated ,if we consider its man -
Land Ratio.”
For example, European Countries like Holland ,etc., have a higher
population density compared to India . Still , Holland has higher economic
development due to higher man – land ratio due to higher efficiency of
man compared to India. In other words, Holland has qualitatively better
efficient human resources in terms of health, knowledge, capabilities,
activities, productivity. On the other hand, Indian human resources are
poor qualitywise that hampers economic development.
D. SIGNIFICANCE OF NATURAL AND HUMAN RESOURCES IN
ECONOMIC DEVELOPMENT:
To quote E.W. Zimmermann, “Carrying capacity is the capacity to
support human life to satisfy human wants.”
It is both internal (geographical ) and external (cultivated culturally). For
example, though Hongkong possesses low internal carrying capacity, still due to
external capacity (like hard labour, science/technology) it has had tremendous
economic development.

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Thus, human efficiency, cultural level in Juxtaposition with natural resources


determine economic development. A lot many examples are available to prove
this point. Jharkhand state in India possesses one of the richest mineral resources
basis. Still, it is not economically developed simply because of poor quality of
human resources. It has a tribal population, which does not presently posses
requisite skills, knowledge and willingness to make optimum use of those natural
resources like coal ,etc. Consequently, skilled and qualified technical and other
types of labour from outside the state gets employed which naturally means:
1. No benefit of employment to locals.
2. Outflow of salaries/economic benefits to outside areas to which such
imported labour belongs. Naturally, Jharkhandites have low
purchasing power which affects their ability to enjoy basic needs like
proper food, clothing, shelter and other luxuries.
A. Spatial Examples of human – Natural resources’ significance abound. People like
Pygimes, Bushman, and other tribal groups still engage on a subsistence level in
hunting, fishing and gathering. Also, modern and advanced American and
European people engage in these activities. But, Pygmies/Bushmen are
economically less developed, because their economic activities are carried out on
subsistence level, merely enough to satisfy their own basic needs, leaving little to
spare for higher economic activities like exchange, etc. simply because of their
low man-land ratio in terms of their primitive level of science and technology. In
sharp contrast, Europeans/Americans carry out hunting, fishing, gathering on a
commercial basis with the help of their higher levels of science and technology
reflected in their use of modern means of fishing, forestry, agriculture, i.e., in
1995 the total fish catch was 90 millions tons in the world. Grand Bank, and
Dogger Bank are the famous fishing grounds. Atlantic and Pacific Oceans supply
80 % of the catch. This is so because temperate fisherman are skilled, possess
traditional technical skills and higher technology like high-tech processing,
salting, packaging and exporting. Naturally, they have much to spare for market

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besides fulfilling their own needs. This gets them enough money in
domestic/international markets which is further used to speed up their economic
development in terms of better health, education, living conditions, recreational
facilities, higher national income, lower fertility and mortality , etc.
B. Temporal examples: Earlier human civilisations developed around rivers
possessing areas endowed with fertile land like Indus valley, Mesopotamia,
Egypt, Mediterranean and China simply because of superb natural and human
resources, whereas areas like interior of Africa and Asia remained undeveloped.
5.4 Formula of Sustainable Economic Development :

Degeneration of resources(dr) = Regeneration of resources(rr)


Or dr = rr --------(i)
Now, rr = Discovery of new sources of particular resource(N), Discovery of more
efficient way of utilisation of present resources(E), working out alternative
substitute resource(W)
Or rr = (N,E,W) --------(ii)
From (i) & (ii) we get
dr = (N,E,W)
1. Concepts of short term and long term highest possible sustainable
development :

Y
SDPH1 = Short term equilibrium
curve of economic development
5
SDPH2 = Long term equilibrium
4
Consumption of A curve of economic development
Resources 3 SD
PH2
2 B
SD1
1 A
PH1
B
X
0 1 2 3 4 5

Levels of Sustainable Development


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EXPLANATION :
1. In the short run, maximum possible sustainable development level is at 5
on (X –axis), since resources are not fully utilised yet as in Primitive tribal
societies. However, with progressive advance of civilisation, resources
are used increasingly, leading to a situation where a given level of
development is found unsustainable in view of increasing utilisation/rapid
depletion/non-availability of resources. Hence, the point of SDPH, shifts
from B to A.
2. However, since human beings desire not to loose what is gained through
development processes already, it leads to an acceptance of the decline of
the known resources. At the same time , there is worry that they may
actually lose this development state , if not sustained adequately. This in
turn leads to a search for NEW. In due course of time, NEW is acquired.
Thus, now more resources are available to sustain the development.
However, since rate of depletion of resources shifts to a higher level, the
curve of sustainable development shifts to the higher side too as SDPH2.
Curiously enough, having learnt from the pitfalls of short-term run of
development, mankind becomes wiser in the new situation and therefore
makes more efficient and in a much efficient way the use of NEW
resources, thereby prolonging the life of resources. This leads to the point
of maximum possible sustainable development shifting from ‘A’ to ‘B’!
2. Formula for depletion or resource availability on particular given point of
time in future :
1. Total depletion = Present Depletion (1+rate of depletion) time
------------------
100
in future.
2. Resource Availability = OR – Total depletion.

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Where OR = total reserves of exploitable resources.

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5.5 AN INTRODUCTION TO THE INTERESTING ELEMENTS OF IN THE


STUDY OF “RESOURCES GEOGRAPHY”
1. INTRODUCTION :
“OPTIONS GEOGRAPHY” or the “RESOURCES GEOGRAPHY”
becomes an interesting field of study by applying certain basic principles
of economics as illustrated below:
2. LAW/CONCEPTS :
1. LAW OF CONSERVATION AND DEPLETION OF RESOURCES :

Y
D

10
6

5
4
2
1
X
0 C1 C2 C3 C4 C5 C6 C7

(Ideal Long run equilibrium of the conservation and depletion of resources)

C = Conservation of resources
D = Depletion of resources
C1 = Lower level of consumption of resources (C3=Level of consumption)
C4 = Higher level of consumption of resources.
X = Axis showing number of units.
S = Point of intersection or the point of sustainable development.

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(A) 1. Above figure clearly shows that in the short run, when consumption of
resources is at lower level C1, the conservation of resources is very high at level 6 on Y
axis and depletion is low at level 1 on Y axis.
2. At consumption level C3, conservation is still higher at 5 than depletion at 2 on Y
axis.
3. At consumption level C4, both conservation and depletion level are same at 4 on
Y axis.
4. At consumption level C7, depletion at 10 is higher than conservation at 1 on Y
axis.
(B) However, C & D curves tend to exhibit equilibrium in the long run ,because
though in short run initially resources consumed are less leading to a higher level
of conservation than depletion, yet after some time human advancement,
needs/desires lead to a situation where resources consumption assumes alarmingly
higher proportion leading to higher depletion than the known level of
conservation of resources. Consequently, humanbeings realise the folly and start
consuming less of those resources which ultimately leads to a situation where
depletion of comes back to the relative position of the conservation level.
(C) No doubt, at one point depletion becomes more than conservation. Naturally,
question arises as to how can than resources lost brought back so that C equals D/
It looks a fallacy, does it not ? Well, No! Here, resources mean all the resources
taken together that are available to humanbeings. Whenever, any one resource
depletes more than its conservation from amongst the basket of resources,
humanbeings are quick enough to compensate it either by developing viable
alternatives or efficient exploitation techniques. Application of efficient
techniques prolong the life of remaining resource amount, thereby raising its
relative level of conservation. Thus, mankind always achieves a balance between
C & D of resources, i.e., point S where development vs a vs conservation (or
sustainable development) issue gets resolved amicably.

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(D) THEORY :
1. The analysis of D & C illustrates clearly how automatic mechanism
solves the 3 problems of what, how and for whom, i.e., what resources to
be used or created, how to be consumed or how to bring down depletion
level, and for whom to do all this.
2. The conservation schedule :
A conservation schedule illustrates the relationship between the quantity
conserved and the consumption of commodity, other things being held
constant. Such a conservation schedule, depicted graphically by a C curve,
holds constant other things like destruction by natural causes like fire, etc.
Almost all resources obey the law of downward sloping conservation,
which holds that conservation falls as the consumption of resource rises.
This law is represented by a downward sloping conservation curve.
Many influences lie behind the conservation schedule for this
automatic mechanism as a whole: human desires , needs ,natural
hazards, etc. When these influences alter, the conservation curve will
shift.
3. The Depletion Schedule:
The depletion schedule (or depletion curve ) shows the relationship
between the quantity of a resources that humanbeings desire to
deplete- other things constant – and that resource’s consumption .
Quantity depleted generally responds positively to consumption ,
so the depletion curve rises upward and to the right.

Elements other than the resource’s consumption affects its depletion ,too.
The most important influence is the resource’s total availability ,its
known/unknown reserves and the ability of human beings to innovate and
evolve efficient technology to utilise the same for a still further longer
period . Other element in depletion include natural disasters beyond the
control of human beings.

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All resources obey this law of upward sloping depletion which holds that a
quantity depleted increases as a resource’s consumption rises . This law is
represented by an upward sloping depletion curve.

4. Equilibrium of Conservation and Depletion:


The equilibrium of conservation and depletion of resources is achieved in
a geographical setting at a consumption level at which the forces of
conservation and depletion balance each other. The equilibrium
consumption is the consumption at which the quantity of a resources
conserved just equals the quantity depleted. Graphically ,one can find the
equilibrium as the intersection of the depletion and conservation curves.
At a consumption level above the equilibrium, human beings are
confronted with more depletion of resources than they can withstand,
which leads to a shortage of resources & exerts downwards pressure on
consumption of resources .Likewise, a low consumption level of resources
leads to an excess of resources and human beings therefore are led to
consume more and more of them, thereby leading the consumption
upward to the equilibrium.
5) Shifts in the Depletion & Conservation curves alter the equilibrium
consumption and quantity of resources . An increase in conservation,
which shifts the conservation to the right shall increase both
equilibrium consumption and quantity of resources. An increase in
depletion , which shifts the depletion curves to the right shall decrease
consumption and increase the quantity conserved.
6) To use conservation and depletion analysis correctly, we must follow
these steps :-
i) Distinguish a change in conservation or depletion (which produces a shift
in the curve ) from a change in the quantity conserved or depleted ( which
represents a curve movement along a curve ).

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ii) Keep other factors constant, which necessitates distinguishing the effects
of a change in the resource’s consumption from the effect of a change in
the other influences.
iii) Look always for the conservation and depletion equilibrium, which is at
the point where forces acting on consumption and quantity of resources
are in balance.
7) Competitively, consumption levels determine the extent of depletion among
those resources in need of conservation.
2) CONSUMPTION ELASTICITY OF CONSERVATION :
A measure of the extent to which quantity conserved responds to a consumption
change. The elasticity coefficient (consumption elasticity of conservation Ecp ) is
percentage change in quantity conserved divided by percentage change in
consumption. In figuring out percentages, we must use the averages of old and
new quantities in the numerator and of old and new consumption levels in the
dominator disregarding the minus sign.
3) CONSUMPTION ELASTICITY OF DEPLETION:
Conceptually similar to consumption elasticity of conservation except that it
measures the depletion responsiveness to a consumption change. More precisely,
the consumption elasticity of depletion measures the percentage change in
quantity depleted divided by the percentage change in consumption.
4. CONSUMPTION- INELASTIC CONSERVATION (OR INELASTIC

CONSERVATION ):

The situation in which consumption elasticity of conservation is below 1 in


absolute value. In this case, when consumption declines, total resource loss
declines, and when consumption is increased , total resources loss goes up.
Perfectly inelastic conservation means that there is no change at all in quantity
conserved when consumption goes up or down.
5. CONSUMPTION ELASTIC CONSERVATION :
The situation in which consumption elasticity of conservation exceeds 1 in
absolute value. This signifies that the percentage change in quantity conserved is

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greater than the percentage change in consumption. In addition, elastic


consumption implies that the total resource gain (Consumption times quantity )
rises when consumption falls , because the increase in quantity conserved is so
large.
6. UNIT ELASTIC CONSERVATION :
The situation, , between consumption-elastic conservation and consumption
inelastic conservation, in which consumption elasticity is just equal to 1 in
absolute value.

A) LAW OF DIMINISHING AVAILABILITY OF RESOURCES :-

Availability

3
2

1
X
1 2 3 4
0
Consumption
As more and more Quantities of a resource are consumed ,its total availability
declines.
B) LAW OF DIMINISHING CONSERVATION OF RESOURCES :
A law stating that the additional conservation from successive increases of
technological efficiency will eventually diminish when other efficiencies are held
constant. NOTE:

I LEAVE IT TO THE ERUDITE LEARNED READERS TO APPLY PRACTICALLY THE ABOVE


OUTLINED LAWS.

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6. FACTORS OF PRODUCITON
6.1 INTRODUCTION :
Factors which are necessary for production of goods, services and
information are called factors of production. Production may be of several
types : ( a) Primary, (b) Secondary,( c) Tertiary, (d) Quaternary, (e) Quinary.
Production of products, i.e., goods, services and information can not take place
from out of nothing. For example, in primary sector, agriculture generally is
followed. Agriculture involves many activities like tilling the land, sowing the
seeds, irrigating the land, and harvesting the crops. But, if there is no place or
piece of land to cultivate, crops can’t be grown. Similarly, if there are no people
to do the tilling, sowing, and harvesting of crops, again crops can’t be grown.
Likewise, seeds can’t be sown, if the farmer does not have money to buy them.
Again, farmer can’t purchase fertilisers to increase the productivity of soil, if the
farmer does not have enough money to do so. Without technical knowledge, the
farmer can’t apply scientific techniques to farming. Thus, we see that a large
number of factors determine the growing of a crop. Same applies to production of
products in other fields, too. All factors work in an integrated manner and not
in isolation.
6.2 FACTORS OF PRODUCTION :
Following are the main factors of production :
a) Land,(b) Labour, (c) Capital,( d) Technical knowledge,(e)Entrepreneurship,(f)
Organisation, (g) Time, (h) Government policy, (I) Power Resources, (j)
Power Resources, (k) Historical factors, (l) Opportunity cost, (m) Oceans, sky
and space.
1. EXPLANATION:
a) LAND:
Availability and configuration of land besides its quality influences
production. Land includes topographical features like relief, texture and
structure of soil, productivity of soil, minerals ores, plant and animal

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kingdom on it, etc. Financially cheap land attracts people to start some
economic activity there. High costs of land discourages people from
taking up economic activities there , in general. However, in cities, cost of
land determines the type of activities taken up, i.e. , central part of
metropolitans being costly is used for higher economic activities like Big
Shopping Centres ,whereas outer fringe areas, being relatively cheaper are
used for residential areas. Fertile land easily attracts farming activity of
crops ,whereas a barren land does not. But, a barren land may attract other
production activities like manufacturing which does not require land to be
fertile. Thus, in short land acts as an important factor of production.
b) LABOUR :
Quantity and quality of labour help determine the type of production and
location of production units. Without labour ,no production can take
place. Labour can be of several types: Skilled, Semi skilled or Unskilled.
Production activities requiring higher levels of skills/knowledge like
information technology are generally located in and around big cities due
to easy availability of the same. Production activities not requiring skilled
labour can do with unskilled labour. Shortage or excess of requisite
labour affects production ,too. A region lacking in requisite kind of
labour may not be able to take up a particular kind of production activity
or it may have to borrow the same from somewhere like Gulf Countries
are importing from outside the skilled / technical labour to help carry out
the production of petroleum, on a commercial basis. Labour may be
mobile or immobile. Mobility of Labour depends upon, using Everett S.
Lee’s Migration theory, on 4 factors: source, destination, intervening
opportunity and individual’s own perception besides sequential
decisions. Labour intensive production activities generally prefer a
location near labour itself to cut down on labour costs. Thus, Labour
influences in several ways the production.

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c) CAPITAL:
Without Capital, production can’t take place. Capital includes both money
as well as machinery. It may be:- mobile or immobile. Mobility is
determined by the probable distribution of returns. Known customers have
a fair chance of getting more finance from the financial institutes like
Banks, etc. Mobility determines industrial location in free & open
economies. On the other hand, mobility does not determine industrial
locations in Socialistic Countries, because there it is highly mobile. It is
not highly mobile in capitalistic societies. Production may or may not be
capital intensive. Industrial development of a nation state or any region
depends on building of core industries requiring heavy capital. Such
capital may either be borrowed from domestic or international financial
markets.
d) ORGANISATION:
Organisation acts as a factor of production, because without organisation
of production, the firm or productions unit can’t exploit economies of
mass production, raise funds and organize the production process. To
quote Samuelson Nordhaus “Efficient production requires specialized
machinery and factories, assembly lines, and division of labour into
many small operations” That’s why generally speaking production does
not take place in our basement rather it takes place in firms or the
organization ranging from finest individual proprietorship to the giant
multinational corporations or the state owned big corporations/Public
Sector Undertakings.
e) ENTREPRENEURSHIP:
It is considered to be a mobile factor. Entrepreneur is required to kickstart
some kind of production. A region may have numerous entrepreneurs,
especially in a capitalist economy. Entrepreneur takes decisions regarding
location of production unit, etc. For example, J.R.D. Tata was an

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entrepreneur who took decisions to set up steel plants in private sector in


India.
f) TECHNICAL KNOWLEDGE:
To run any production unit / process, a certain minimum amount of
technical knowledge / skill is required. Technical knowledge determines
production functions. Techniques may very spatially or according to
purpose / specific location. For example, in Punjab the farmer can till the
land with the help of a tractor quicker than a farmer working simply with
oxen and a wooden hoe in Orissa. Medical laboratory or cliff house may
be designed for a specific purpose / location. Technical changes enhance
productivity.
g) POWER RESOURCES :
Power is required to run production units. It may be derived either from
living or non – living kingdom .Coal comes from physical or non- – living
kingdom. Ox represents living source of power. Similarly, human labour
represent living type of power. In olden days ,farming depended on
human / animal power. Similarly , manufacturing depended on coal.
However, presently hydel and other sources have taken the place of pride
amongst the sources of power. In fact, no activity can be carried out
without the help of power of some kind or the other. Thus, power
resources act as An important factor of production.
h) HISTORICAL FACTORS:
Historicity acts as a factor of production ,too. With time ,certain places
come to have socio – economic – politico – cultural significance and
become leading centers of production , exchange of goods, services,and
information. This is turn encourages production activities in the region by
virtue of established systems of financial institution, procurements
distribution system, etc.

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i) OPPORTUNITY COST :
It acts as a factor, too. It decides what type of production activity may
take place. If an entrepreneur finds that taking up an activity ‘X’ may cost
him an opportunity ‘Y’ which will result into a net financial loss, the
entrepreneur may switch over to economic activity ‘Y’ from the
economic activity ‘X’.
j) OCEANS (WATER BODIES), SKY & GALACTICAL SPACE: Classical
economists considered only land as a prominent factor on the surface of which an
economic activity takes place. However, in today’s world water bodies, sky &
galactical space have become factors of production ,too. A nation with a large
indented coast line has better harbours / ports in larger numbers than a land locked
country. A country possessing oceanic coast may indulge into economic activities
suitable in such a scenario, i.e. ,India has been able to get mangnese noodles
from ocean surface owing to the availability of this factor of production called
large water bodies (Oceanic). European Nations having coastal locations have
been able to carry on fishery industry or Pisciculture owing to availability of
oceanic factor of production. Sky or atmospheric conditions become a factor, too
by encouraging or discouraging certain types of productions. Space (here it
means galactic, intergalactic) above atmosphere carrying human satellites is
important,too. Recently, it has become a factor in the sense that production of
certain minerals / items require certain conditions which are met only in outer
space, i.e., astronauts / cosmonauts have carried out experiments aboard artificial
satellites and succeded in manufacturing certain types of minerals, etc.
k) GOVERNMENT POLICIES:
In capitalist or free economies ,market forces primarily regulate economic
activities following generally the principle of demand &
supply/economics of scale etc. However, in communist or socialist
political set ups , principles like demand and supply/economies of scale
become rather irrelevent wherein governments of the day decide
production locations, types of products to be produced, and processes to

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be followed for production. Whereas, in mixed economics, both private


and public sectors play a joint role in production. Thus, government
policies act as a factor of production, too.
l) DEMAND FOR A PRODUCT:
Demand acts as a factor, too. No production of a product will take place, if
there is no demand for it irrespective of modes of production/political set
ups like capitalism/socialism or mixed economics.
m) TIME :
To quote Samuelson Nordhaus “ Production requires not only labour
and land but also time.”
A farmer can not change his crops in midseason. Gas pipelines can’t be
built in a single day. Once built, they last for many years together.
Time may be of 2 types: (1) Short run (2) Long run
In short run, fixed factors like Capital can’t be changed. Only variable
factors like materials and labour can be changed. In long run, all factors
including fixed ones like capital can be changed or adjusted, also.
Efficient production requires time in addition to other factors , too.
6.3 SPATIAL VARIATION IN THE FACTOR COST
1. INTRODUCTION :
First of all, let us understand what we mean by the terms "Spatial"
,"Variation" and "Factor Cost". Well ,the word "Spatial" refers to a place
or region on the earth's surface or a heavenly body. The word "Variation"
means a "Change". "Factor Cost" means the cost resulting from use of any
factor of production. These factors of production are: land, labour, capital,
Organization ,etc. Thus, the meaning of the phrase "Spatial variation in the
factor cost is "a change in the cost of a factor of production due to its
differing spatial location”.
2. EXPLANATION :
Production of any goods, services and information is not possible without
existence of certain basic factors like land, capital etc. The cost of these factors is

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not same at all places on the earth's surface or in outer space. For example, labour
cost is lower in rural areas than in the urban areas. Also, labour cost is lower in
less developed countries or regions as compared to the more developed countries.
Likewise, land is cheaper in rural areas. But, it is costly in Urban areas. Similarly,
finance is available at cheaper rates in highly developed financial nerve centres
like London, New York ,etc. But, the same is costly in rural areas. In the same
way, capital like machinery etc. is cheaper in highly industrialised countries. It is
costly in developing countries. Perishable and delicate raw materials transported
over a long distance makes the cost of raw materials very high. , a location of the
production unit near such raw materials decreases its cost of such raw materials.
The cost arising from "Organization and entrepreneurship" aspects are quite low
in industrial complexes like Maharashtra Industrial Development Corporation
(MIDC) complexes in Maharashtra. Whereas, these cost are quite high when a
production unit is set up in isolation ."Power" or "Energy" cost is lower near
sources of power and is higher at increasing distances. “Cost of Production” is
lower in industrially and economically backward areas in “Industrial Parks”.
Whereas, it is higher in units located in economically developed areas. Another
example can given that of the cost of land in the core and periphery of a city. The
cost of land is generally higher in the core compared to the periphery.
3. CAUSES OF VARIATION:
The spatial variation in the factor cost is caused by numerous factors. These
factors are availability or non – availability of these factors at a given place,
mobility or immobility of these factors, and policies of governments. Excess
availability causes reduction in the price at which that particular factor is
available. For example, labour will be cheap if its supply is more than its demand.
Likewise, labour is costly, if its supply is less than its demand, because labour in
such a situation is in a position to bargain for a higher compensation package.
Existence of a large number of financial institutions at a place increases the
mobility of finances and capital, thereby decreasing the cost of these factors in
terms of reduced rates of interest. Likewise, governments give numerous

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concessions like tax free holiday, cancess ional rates of duty, cheap infrastructural
facilities to industrial units located in economically backward areas,etc, This
reduces the overall cost of production. Governments provide these concessions to
achieve various policy decisions like development of economically backward
regions / areas.
4) SIGNIFICANCE OF SPATIAL VARIATION IN THE FACTOR COST
1) Spatial variation in factor cost has got both short term and long term
significance and implications. It may either encourage or dicourage the
exploitation of natural and human resources of a given region in terms of
attraction or repulsion of economic activities ,i.e., primary, secondary ,tertiary.
Quaternary, and Quinary.
2) Spatial variation in factor cost is very important in the location of production
units in capitalist and mixed economics. However ,it is of little significance in
centrally Controlled Command Economies like erstwhile Communist USSR.
3) A study of spatial variation in factor cost cleanly points to the fact that an
ideal location of any economics activity is the point where factor costs are
minimum possible.

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7.TRANSPORTATION
7.1 INTRODUCTION:
What do we exactly mean by the term ‘ Transportation ’ ? Well, it means the
process of carrying something from one place to another or conveyance to
another place by overcoming the friction of geographical/extra terrestrial
/economic distance. It includes Cargo and Passenger. In olden days, means of
transportation and communication were the same. However, in modern days,
these 2 have become separated. Transport excludes communication. Now a days ,
the means of communication include post office, telephone, satellites, Internet,
etc. highly sophisticated scientific and technological gadgets. Days of running
messengers and birds are almost gone away except during natural calamities.For
example, Orissa state police department makes use of trained pigeons during
cyclonic devastations.
7.2 BASIC ELEMENTS OF TRANSPORTATION :
Following are the important basic components or elements of any medium of
transportation.
i. The points of origin and destination.
ii. The route through which transportation takes place.
iii. The vehicle or the carriers on which the goods or passengers are
transported.
iv. The kind or type of power/energy used in the vehicle.
7.3 DIFFERENT MEDIUMS OF TRANSPORTATION :
i. Land
ii. Water
iii. Air
7.4 MEANS OF TRANSPORTATION :
i. Men and animals as carriers and draught power respectively.
ii. Road transport
iii. Rail transport
iv. Ropeways
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v. Cableways
vi. Pipelines
vii. Water ways : ( a)Internal, (b) Oceanic
viii. Air Transport.
7.5 MODELS OF TRANSPORTATION :
Models of transportation means the models which show different patterns of
transport link seen as a network. It gives more importance to lines or links
(edges) or connectivity than the points or areas (nodes or vertices).
1. Types of models and characteristics :
Models of transportation may be viewed from different perspectives as
follows:
i. PLANNER MODELS:
These are characterized by edges or links, which have no
intersections or common points except at the vertices. For
example, the following model of a transportation route from A to E
shows it :

A
B C Vertices
D
E

Edge / Link

ii. NON – PLANNER MODELS:


These are characterized by edges or links, which have several
intersections or common points including the vertices. For
example, the following model of transport routes from points A to
E shows it:

A B

D E
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iii. SIMPLE MODELS:


These models may be quite simple as shown below:
Simple Planner Model Simple Non - Planner Model

A A B

E
B
C D C D
E
These reflect lower connectivity.
iv. COMPLICATED MODELS:
These models are quite complicated and reflect higher connectivity.
Following is an example of a complicated model of transportation
(Planner model):

B E
C D

Following is the example of a complicated Non-planner model:

A B

C D
E
NOTE: In case of a non-planner model, simplicity or complication is a relative
concept. Complicated Transportation (non-planned) models are likely to be more
connected compared to the Transportation models for planned ones for the same
number of points or vertices.

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(v) BUILDER FRIENDLY :


Such models of transportation are builders - friendly in the sense that
these minimize the routes and at the same time ensure that points or
vertices are connected in the network. This minimises the construction
cost of the entire work and maximises revenue generation from the
routes.
(vi) USER FRIENDLY:
These transportation models are user - friendly, because they connect
all the points with each other. In other words, these are non-planned
complicated type of transportation models showing 100% connectivity.
This minimizes the cost of transportation by providing to the user the
shortest route possible between any set of two given points. However, this
causes inefficiency to builder in terms of construction cost.
Thus, we may a clear out idea of the transportation models from the
following flow chart:

TRANSPORTATION MODELS

SIMPLE COMPLICATED

PLANNER NON - PLANNER PLANNER NON - PLANNER

BUILDER USER BUILDER USER BUILDER USER BUILDER USER


FRIENDLY FRIENDLY FRIENDLY FRIENDLY FRIENDLY FRIENDLY FRIENDLY FRIENDLY

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AIR LAND WATER

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viii. SHAPES OF TRANSPORTATION MODELS :


Any type of shape may emerge like Hexagonal, diamond, Star, circular,
radial, etc. depending on the way the vertices/nodes or points are
connected with each other through edges, links or routes.
1. IMPORTANCE OF MODELS OF TRANSPORTATION :
1. Models show the number of maximum possible routes in a given
network, i.e., 0.5 (m2 -m)
2. Models show the connectivity of the vertices/models/points covered by it,
i.e. , 2(0r)
m2 – m
3. Models help practically in avoiding constructing non-profitable routes.
Routes/edges/links or transport network developed may cause often
financial losses to the builders. For example, poor-decision making led to
failure of the great central railway from Sheffield to London, the last
major railway line to London, in 1893-99, because it never paid any
profits. Whereas some transportation networks like Panama Canal have
proved profitable.
2. ELEMENTARY MEASURES (topological) of Network structures (based on
gross characteristics) :
1. For Planner Graphs:
(1) Cyclomatic Number (µ) = E–V+G
(2) Beta Index (β) = E/V
(3) Alpha Index (α) = E-V+G 100
2V-5

(4) Gamma Index (γ) =

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2. For Non Planner Graphs:

(1) Alpha Index (α) =

(2) Gamma Index (γ) =

7.8 OBJECTIVE OF THE STUDY OF TRANSPORTATION :

1. Analysis of transport linkes as a network to measure accessibility and the degree


of connectivity.
2. Measurement of volume of traffic on transport links as flows producing a
complex pattern of principal and subsidiary routes.
3. Studying Transport as a space – adjusting technique in terms of bringing
together of supply and demand by a reduction in distance between them and as
an analysis of economic distance. Economic distance is determined by the
distance upto which a commodity can be carried depending on the transport cost
and the increase in its value.

7.9 VARIATION IN COST OF TRANSPORTATION


1. INTRODUCTION :
Cost of transportation varies according to many factors like type of medium of
transportation, geographical/economic distance covered, terrain, commodity to be
carried. These can basically be reduced to 3 elements:
(1) Operating costs
(2) Profits expected by the carrier at the time of rate determination
(3) Government Policies.

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2. VARIATION :
Following graph shows a simple case of variation in cost according to different
methods of transport :

Road

Transport Costs
Rail
Water

T3 C
T2 B
T1 A

Distance

T1, T2, T3 represent overhead cost or the terminal costs of Road, Rail and Water
transport (Ocean) respectively. Ocean transport has greatest terminals cost,
because it need costly vast apparatus of ports with handling facilities. Whereas,
Road transport does not need such vast terminals, as even goods can be located
near godown along any motorable path. Railways require terminal costs between
the terminal costs of road and water (Ocean) transport. However, roads have
higher line – haul cost (cost of moving goods – fuel costs and wages ), because
only relatively small loads are carried and so the costs get spread over a few items
of cargo only. Oceans have lowest line – haul cost, because these rise slowly with
increasing distance due to their spread over much larger cargoes. Rail transport
cause intermediate type of line – haul costs.

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Thus, as the above explanation of graph clearly shows ,the road transport is
cheapest over short distances (A-B), rail over medium distances (B-C) and ocean
transport over long distances (Beyond C). However, this is very much an
oversimplified and highly idealised explanation of transport costs. Transport cost
is affected by numerous others factors in addition to geographical distance and the
medium of transport.
3.CLASSICAL CASE STUDY:
Van Royen & Bengstn published in 1964 comparative Transport costs per Tonne
– Kilometer between methods taking railway transport costs as base of 100. This
study shows water transport to be the cheapest, followed by rail, road, airways in
that order. Following is the result of the case study: -

Medium Method Cost


( Rail transport = 100 )
Land Man 1,800 – 1,700
Horse & Cart 1,800
Road 430
Rail 100
Water River 28
Ocean 14
Great Lakes 7
Air Air Craft 1,500

4.TYPES OF COSTS :
(1) Line - Haul costs
(2) Overhead Costs (cost of equipment such as terminal facilities, ships, or railway
track, etc.)
(3) Transfer costs (indirect costs like insurance cover for the cargo).

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5.FACTORS OF VARIATION IN TRANSPORTATION COSTS :


(1) GEOGRAPHICAL/ECONOMIC DISTANCE:
Quite naturally costs increase with an increase in geographical distance. For
example, a journey of 700 km will cost more than a journey of 400 km,
because terminal costs can be spread over more distance (long – haul
advantage) .Break – of – Bulk point may increase costs. However, provision
of in – transit privileges may help keep costs constant, i.e., grains from
canadian prairies enjoy such a privilege.
(2) TERRAIN:
Terrain causes variation in transport cost. It is costly to cross land than oceans.
Likewise, it is costly to cross mountains than plains.
(3) TYPE OF CARRIER:
Carrier causes variation, too. Petroleum movement through pipeline is less
costly than through tankers.
(4) COMMODITY:
Different commodities attract different transportation costs. Raw materials /
semi finished products, being of low value and requiring less handling and
other charges are cheaper to transport than the finished products / breakable
/perishable articles which require much care ,handling and specialised packing
leading to building of higher transport charges. Some non – perishable
articles may not increase costs, however, other non – perishable articles may
require special need , and care like precision instruments / passengers which
causes higher transportation costs. For example, a tonne of coal is cheaper to
transport over the same distance than the refrigerated treat, since refrigeration
increases costs. Type of commodity is the basic factor determining the
level of a freight rate.
(5) COMPETITION :
Monopoly of any type of carrier causes higher transportation costs.
Competition leads to lower transportation costs, since every carrier tries to
attract business by offering lower freight rates compared to the competitor.

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For example, competition offered by New York state Barge has forced to keep
railway freight rates low between New York and the Greak Lakes. This has
meant that freight is transported more cheaply over a greater distance (1,446
km) from Chicago to New York than over a smaller distance (1,309 km) from
Chicago to Philadelphia. Earlier in 1836, freight rates fell from 12 ½ P per
tonn to 1 ½ p on the Loughborough Navigation.Slashing of airfare in 2002 by
nearly 40% by Jet Airways and Indian Airlines on pune-delhi air route has
narrowed the difference in fare charged by the railways and airways on pune-
delhi sector triggering a cut throat fare warfair between railways and airways ,
since by paying this just nominal higher airfare the traveler feels tempted to
travel by air saving 22 hours of journey!
(6) QUANTITY AND FREQUENCY OF COMMODITY MOVEMENT:
Commodities moving in large quantities cause less transport charges, because
even after charging lower rates per unit, the carrier can still get a large volume
of cumulative profit. To get the same level of profit as a full cargo, the carrier
charges higher freight rates per unit, if quantity of commodities is quite less.
Likewise frequent movement of commodities ensures steady and cumulative
profits to the carrier, even after charging less. Also, a carrier charges less the
frequently moving commodity to earn the goodwill of the shipper.
(7) CONCESSIONS:
Transporter may give back – haul rates to the customer to avoid empty return
of the cargo containers from the point of destination. These rates for goods
movement from destination to origin may be quite less than that for movement
of cargo from origin to destination. The idea is to earn whatever is possible
and it is a bonus of sort to the carrier. For example, the return of grain flows
from the Prairies to the Atlantic ports of North America enjoy such a
concessional rate.
(8) SPECIACISED NATURE OF SERVICES :
Premium or higher rates may be charged when specilised services are
provided. For Example, higher rates are charged for high-speed passenger

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train Shatabdi. than the normal - speed trains in India. The charges for a
chartered plane are higher than a flight aboard regular passenger aircrafts.
(9) GOVERNMENT POLICIES :
Government policies cause variation in transport cost , also. These policies
relate to three groups - Economics, Political and Social.
As regards economic reasons, government may take a decision to concentrate
or disperse economic activities. In India, industries have been encouraged to
be set up or disperse to remote undeveloped areas through provision of cheap
reliable transport lines despite their high initial construction costs. Ruhr
industrial belt in Germany saw concentration of industries due to differing
govt. policies on transport of iron ore and coal (lower/higher cost respectively)
which encouraged import of iron ore from Sweden more cheaply than the
costly transportation of coal export. As regards political reasons , government
may encourage or discourage provision of transportation and affect freight
rates by placing higher tariffs. For example, this was done in Europe till 1958
by doubling the handling charges on fuel and ore crossing international
boundaries. Trans continental railways of the USA and Canada, and Trans
Siberian Railway line of U.S.A. were created for political binding of the coast
to coast units or large stretches of land. This involved pricing policy,too.
From social perspective too, government influence by making transportation
cheap, since transportation is considered more a social service rather than a
business activity. It does it by 2 means of subsidizing:
(1) Direct cash grants to compensate for losses.
(2) Indirect subsidies by imposing uniform rates over the whole transport
system / network leading to supporting of loss making roots / transports by
the profit making one. Indian railways is able to connect to remote areas
due to this reason.

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7.10 MODES OF TRANSPORTATION:


INTRODUCTION:
First of all, let us understand the meaning of the phrase “Modes of Transportation”.
This key words are “Modes” and “Transportation”. Meaning of the word “Mode” is
“Way, Manner, Style”. Meaning of the word “Transportation” is “ Conveyance to
another place” or “Carrying from one place to another”. Therefore, meaning of the
phrase “Modes of Transportation” is “Ways or manners of conveyance or carrying
from one place to another”. “Meaning of the word “Conveyance” is “act of carrying ,
carriage or vehicles”. Thus, above explanation shows clearly that there are different
manners or ways in which “act of carrying” may take place. It may be by using
animated or lively and inanimated or lifeless ways. Lively ways include use of human
beings and beast of burden. Lifeless ways (in an organic sense) include roadways,
railways, airways, waterways, pipeways, and space ways.
EXPLANATION :
All the ways of transportation follow four broad mediums for passage :
1. Air
2. Land
3. Water
4. Space
Roadways and Railways constitute main forms of transportation on land. Ocean going
ships and boats/ streamers in inland lakes/rivers/canals form main type of water
transportation. Aeroplanes, helicopters, balloons, cable trolleys, and missiles are the
principal types of air transportation. Of late, Space transportation has assumed
significance, too. It takes place through space shuttles, space crafts and orbiters/satellites
mainly. Gaspipes, Oilpipes and Water pipes are the base of pipe ways kind of
transportation

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FLOW CHART SHOWING MODES OF TRANSPORTATION :

TRANSPORTATION MODES

ANIMATED INANIMATED

HUMAN BEAST OF
BEINGS BURDEN

Roadways Railways Waterways Airways Spaceways Pipeways

7.11 CHARACTERISTICS OF DIFFERENT MODES OF TRANSPORT


1. INTRODUCTION :
First of all, let us understand what we mean by the term “Characteristics” of
different modes of transport. It means special features which are peculiar only
to a particular type of transport. These features may be advantageous or
positive and disadvantageous or negative.
2. CHARACTERISTICS :
i. AIR : Following are the chief characteristics of air transportation :
a) POSITIVE/ADVANTAGEOUS :
1. It saves time, because it allows travel at very high speeds as
compared to other modes of transportation like water or
land.
2. It helps follow great circle routes on the earth’s surface,
since there are no obstructing features of the earth’s
surface.

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3. In times of emergency like floods, this is the only mode


available to transport relief materials.
4. It does not requires maintenance of a large network of
infrastructural facilities like roads, water ways, canals, etc.
5. It can sometimes take advantage of prevailing winds to
achieve speed just as in case of jet streams.
6. Its very useful in transporting perishable ,delicate and high
value small items.
7. Its very useful during war times to quickly transport troops
and attack enemy posts with lethal effect.
b)NEGATIVE / DISADVANTAGES :
1. Its very costly and out of the reach of the common people.
2. Its operational and maintenance costs are astronomical.
3. It is ineffective during bad weather which sometimes creates problems of
visibility to aircraft causing crashing of planes.
4. It requires highly trained and skilled people to drive the Aeroplanes.
5. It is the most risky mode of transport ,because even a slight mistake by a fraction
of second may lead to pilot error causing crashes leading to violent deaths of
passengers.
6. Its very costly as regards low value bulk items.
7. Aeroplanes are easy targets by terrorists.
3. ROADS :
A) POSITIVE /ADVANTAGES :
1. Its cheap over short distances on land.
2. It can be followed on foot, too.
3. It does not require construction of costly infrastructure like Aerodrums.
Simply, any piece of land on which a vehicle can be parked is sufficient.
4. It helps in direct delivery of products at the door-step of the consumers.

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5. The transporter can earn profit on return journey by bringing products


back from destination even if on low charges, because the cost of plying
vehicle to and for already is recovered from the original customer.
B) NEGATIVE/DISADVANTAGES :
1. Inaccessible and remote physical terrain discourages land transport.
2. It may get badly affected and rendered useless during natural hazards like
floods, earthquakes.
3. Its costly over long distances as compared to sea and rail transport,
because the cost of wear and tear outweighs the benefits of spread of
economies of scale.
4. Unlike sea and air mode, land transportation requires a vast network of
good metalled and motorable all weather roads.
5. It requires continuous maintenance of roads.
2. WATER :
Sea, Lakes, Rivers, Canals
WATER BODIES :
A) POSITIVE/ADVANTAGES :
1. It is economically very cheap over long distances as compared to other
modes, because there are no maintenance costs of routes involved.
2. It is suitable for transporting low value-high volumes commodities.
3. It can make use of prevailing wind directions to cut down costs on fuels,
i.e.; sailing from Europe to USA under the influence of North Eastern
trade winds and then sailing back to Europe under the influence of
prevailing south westerlies.
4. Tunnels under sea bed can be constructed to make travel easier, i.e., tunnel
beneath ocean between France and U.K. has made the travel easier. A
plan to link Spain and Morocco by building a tunnel (39 km long) 400
meter below sea level under the strait of Gibraltar already has been drawn
up. Point Paloma (Spain) and Malabata (Morocco) are chosen sites .It is

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300 metre below sea level at its deepest point and would cost us $ 8 billion
(1996 estimate).
5. The coefficient of friction on water is small as compared to road and rail.
One horse power can move 4,000 kg on water ,150 kg on road and 500 kg
on rail.The ratio for road,rail and water transport is 3:10:80
respectively.Therefore, water transport is the cheapest.
B) NEGATIVE/DISADVANTAGES :
1. It requires good natural or artificial harbours and ports to drop
anchor at.
2. Increased sedimentation at the mouth of river channels makes
inward navigation from sea quite difficult.
3. Sudden oceanic upheavals like storms such as hurricanes,
tornadoes may break or sink vessels into the ocean.
4. It takes a very long time to cover greater distances from origin to
destination as compared to Air transportation.
5. In times of Crisis, getting help becomes very difficult despite
advanced instruments abroad like , etc., as compared to disasters in
case of Road or rail transport.
6. RAIL :
A) POSITIVE/ADVANTAGES :
1. It is placed midway between road and sea transport as regards
transport cost, whether over short or long run haul.
2. It does not face problems like traffic congestion as faced
sometimes by road transport over busy routes and crossing.
3. It provides employment to large number of people, i.e., the Indian
railway the 4th largest in the world is the biggest employer in India.
B) NEGATIVE/DISADVANTAGES :
1. It requires heavy initial investment and infrastructure.
2. It has a long gestation period.
3. It can’t do door delivery like Truck-farming .

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4. One can’t stop train enroute like Buses and board or alight down as
wished.
5. A train stops generally at specified marked stops called railway
stations and not anywhere else.
6. Higher energy is consumed for pulling coaches/wagons on steep
slopes. One foot increase in height every 100 feet is called one per
cent grade. At one percent grade, railway engine is able to pull up
only 1/5th of the load it can pull on a plane surface. Thus,
sometimes two engines have to be used to pull the train. Andes
mountains have a 4 percent grade!
7. It requires digging of tunnels across non-negotiable mountains. It
is very costly.
(5) SPACE SHUTTLES/SPACE CRAFTS :
In future, space crafts are likely to transport human beings/commodities, etc. to other
planets and heavenly bodies like moon once colonisation of these celestial spheres takes
place.
A. POSITIVE/ADVANTAGES :
1. It makes easy to transport goods, and human beings to far distance
heavenly bodies like Moon.
2. It makes easy the space travel.
3. It helps put in sky the artificial satellites useful to human beings like
Remote sensing satellites , etc.
B. NEGATIVE/DISADVANTAGES :
1. Its economically a very costly affair.
2. It requires highly complicated crafts and sophisticated technology.
3. It carries a high degree of risk of failure.
4. There are little or no chances of human survival aboard a space craft, if it fails in
space.
(6) PIPE WAYS :
Pipes have emerged as an important way of transportation. This mode of transportation helps in
carrying gas, oil and water over a large distance.

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A. POSITIVE/ADVANTAGES :
1. It is one of the best, efficient and economically cheap way of transporting liquids
across great distances.
B. NEGATIVE/DISADVANTAGES :
1. It is very costly to build, operate and maintain.
2. It carries high risk.
3. Pipelines under ocean can easily be tempered with without any one
having to bear responsibility for it.
4. Oil pipelines often face political problems, i.e., Iranian gas pipeline to
India through Pakistan found it difficult to take off due to unfriendly
relations between these two later countries.
(3) SIGNIFICANCE :
A deep knowledge of different modes of transportation and their characteristics is quite
significant on many counts:
1. It helps in building the best possible efficient transportation network for a given
area or a region by utilising the strengths of different modes and avoiding their
inherent weaknesses. For Example, by constructing Suez and Panama canals,
human beings have taken advantage of water transportation in terms of its cheap
costs. Suez canal has helped connect Atlantic Ocean via Mediterranean sea to
Indian Ocean via red Sea. Likewise, Panama canal has connected eastern pacific
ocean with Western Atlantic Ocean. This has saved thousands of kilometers of
sailing around the cape of Horn, the southern tip of south America. This means
saving in fuel and other costs.
2. It helps a lot during times of crisis like natural hazards, war, epidemics, etc. by
timely rushing in of aid, relief material and other kind of logistics support.
3. It helps expand frontiers of human knowledge, skills, and abilities far beyond the
planet earth.
4. It helps in exploitation of natural and human resources of a given place or region
by providing appropriate and efficient modes of transportation.
5. It helps avoid building uneconomical transportation systems. For example,
in high mountainous regions, road transportation is more economical than
rail transport.

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8. ECONOMICS AND SCALE


8.1 INTRODUCTION :
In economics, effects of the increase in the amount of an input on total output
holding all other inputs constant is sometimes studied. This study is called the Law
of Diminishing returns. This law states that less and less extra output is obtained
with the addition of an additional dose of an input while holding other inputs fixed.
In other words, the marginal product of each unit of input will decline as the
amount of that input increases, holding all other inputs constant.
But, what if all the inputs are increased proportionately? Well, this leads to the
introduction of the concept of “scale”.
8.2 MEANING :
“Scale” means “an increase”. When scaling up of all inputs takes place
proportionately, there may be 3 outcomes:
i. Constant returns,
ii Increasing returns,
iii Decreasing returns.
These returns are called returns to scale, because these are the returns or (gains in
output) to an increase in inputs (scale). Thus, we have following 3 types of returns:
1.Constant Returns to Scale:
It is a situation in which a change in all inputs leads to a proportional change in
output i.e. if factors like labour, demand, etc. are increased by 3 times, the output
increases by 3 times ,also. Handloom operations in a developing country or
haircutting in U.S.A. are prime examples.
2. Increasing returns to scale :
It is a situation in which a change in all inputs leads to a more-than proportional
increase in the level of output. For example, in engineering field many
manufacturing processes get modestly increasing returns to scale for plants upto the
largest size, i.e., an engineer may get more than 15% proportional increase in output
by increasing inputs by 15%.
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3.Decreasing returns to scale :


It is a situation in which a proportional increase in all inputs leads to a less than
proportional increase in total output. It may happen due to increased costs of
management or the control. Prime examples are activities like growing wine
grapes, provision of clean drinking water to a city, electricity generation plants.
8.3 ECONOMIES OF SCALE

INTRODUCTION :
As a brief study of the concept of “SCALE” shows clearly, an increase in inputs
leads to an increase in output irrespective of it being just proportional, more than
proportional or less than proportional. This increase in output or production helps
reduce or minimise the cost of production by way of getting especially the fixed
costs spread over a larger number of units produced.
Mass production techniques require factories to be of certain minimum size. With
an increase in output, firms divide production into smaller steps, taking advantage
of specialization and division of labour. It also allows intensive use of specialized
capital equipment, automation and computerized designes and manufacturing to
do simple repetitive jobs easily and quickly. Once Economies of scale has been
achieved especially in terms of constant returns to scale, it can be maintained by
replicating or duplicating elsewhere the existing manufacturing processes
irrespective of the level of output.
8.4 TYPES:
Advantages of large scale production or economies of large scale production may
be grouped into 2 categories:-
(1) Internal Economics
(2) External Economics
8.5 INTERNAL ECONOMIES:
These are advantages of cost reduction of output obtained by a firm from its
own growth. These can further be subdivided as follows :

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a) ECONOMIES OF INCREASED DIMENSION:


Increasing of the dimension of the input leads to cost reduction per unit of
output in terms of increased output, i.e. ,use of machine leads to a larger
production.
b) ECONOMIES OF LINKING PROCESSES:
Linking processes give advantages. In large scale production, all the
processes right from beginning to end are linked with each other under single
control, thereby reducing the cost, i.e. , in a Sugar factory, all the processes
right from thrashing to sugar production are linked together under one
control.
c) ECONOMIES OF SUPERIOR TECHNIQUES:
Large-scale production requires use of superior techniques which may be
costly. But these superior techniques help increase production on a large
scale, thereby minimising the possible costs.
d) ECONOMIES OF SPECIALISATION AND DIVISION OF LABOUR:
With increase in production, a firm has to use division of labour and
specialisation. It has to divide or allocate different steps of the specialised
work/job to different workers specialising in their areas of competence.
Machines are employed to do highly specialised job. All this causes large
production leading to lower costs.
1. MANAGERIAL ECONOMIES :
With increase in the size of the production unit, one individual is unable to
look after all the aspects. It leads to delegation of authority and division of
labour. It in turn leads to better management resulting into a higher
efficiency. Higher efficiency generates a larger production.
2. MARKETING ECONOMIES:
A production unit has to incur marketing costs for its finished products
and raw material inventory. With a large market for products, it has to
maintain big stocks of raw materials. This raw material gets available at

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lower prices, because it is purchased in bulk or a big quantity. Low price


of raw material helps it to lower the cost of production. Plus, cost of
marketing (like by sample method) gets distributed over the total quantity
produced.
3. FINANCIAL ECONOMIES:
A large firm gets a goodwill in market, amongst financial institutions,
investors, stock exchanges. This all helps in mobilising required capital
from market at lower rates, which helps in increasing the production.
4. ECONOMIES OF RISK BEARING :
A large firm has the advantages of product and market diversification. It
can offer a mix of different products and in different spatial/geographical
markets. It reduces the risk of product failure. If one product fails, its
losses are compensated by profits in other products. Similarly, losses in
one sales territory are sustained by profits in other sales territories. With a
large production, costs of products goes down, too. This minimises the
risk of failure or uncertainty. This practice is called “Putting eggs in
different baskets” .
8.6 EXTERNAL ECONOMIES:
These advantages or the economies are those advantages or economies which a
production unit gets from outside due to concentration of other production units in
the same area.
These are further subdivided as follows:
i. ECONOMIES OF CONCENTRATION :
Concentration of production units in a area gives it a significant independent
industrial identity and standing causing setting up of different facilities in the area
like transportation, financial institutions, etc. This helps in large-scale production
by getting certain required inputs easily, cheaply and quickly like finances.
ii. ECONOMIES OF INFORMATION :
Production units may have advantages in an industrial cluster or belt like some
common platform to discuss their problems and share information.

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This helps in large-scale production by getting quickly, easily, cheaply the


requisite information ,i.e. ,Maharatta Chamber of Commerce located at Pune in
Maharashtra is such a forum.
iii. ECONOMIES OF DISINTEGRATION:
Large-scale production is made possible also by getting advantages of
disintegration in terms of existence of supporting or ancillary units. This avoids
wasting time, money and energy on some activities which are done by these
ancillary units. The saved time, money and energy are devoted to increasing the
production.
DISECONOMIES OF LARGE SCALE PRODUCTION :
Large scale production may lead to following disadvantages :
1. Decreasing returns to scale due to need for management and supervision.
2. Problems of management and co-ordination.
3. Ineffective management of increasing product lines and market areas
geographically.
4. Cutting off from the realities of market, etc. due to lesser time available to higher
controlling authorities with an increasing size of the firm involving delegation of
authority and spread of the functions over a large geographical/technical area.
5. Isolation from the reality causes slow responses to changes, i.e., General Motors
lost its much market share to smaller firms in the 1970s oil Prices Rise Crisis.

8.7 SPATIAL VARIATION IN DEMAND


1. INTRODUCTION:
What do we mean by spatial variation in demand? It means that the demand
for a product changes with a change in geographical space or area or
distance. With increasing distance from a market place, the demand for a product
goes on decreasing because the price goes on increasing. Price increases because
of other costs like the increased cost of transporting the products from market area
to the outside areas or the increased cost of transportation involved in travelling
from a place outside to the market area. In simple words, this is the meaning of
the phrase “Spatial Variation in Demand.”
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2. GEOGRAPHICAL PERSPECTIVE :
There are various theories to explain the reasons for location in space of various
industries. Some of these theories take demand as constant or unchanged. Such
theories consider the effects of variations in the cost of manufacturing due to
different spatial or geographical locations of factors of production like raw
materials, labour, technology, etc. These theories totally ignore effect of other
factors on the choice/decision /action of locating a particular industrial unit at a
particular geographical location like effect of demand by consumers, behaviors or
psychology of the consumer & so on. Alfred Waber’s theory of location of
manufacturing units (secondary production) is such a prime example.
So, to overcome the shortcomings of such theories considering only factors of
production, some economists/ geographers came up with the idea of location of
industries based on the demand for a particular product. Such theories have come
to be known as Maximum Revenue Theories, because of the tendency of
manufactures to locate their industrial units in such a strategic geographical
location as would maximise their revenue based on optimum demand by
consumers. Demand in turn depends on 3 important factors:
(1) Price of the product
(2) Transport costs
(3) The Possibility of the substitution.
3. EXAMPLE : H. Hotelling has given a classical example of the working of
maximum revenue theory. He tried to find the location that would give
maximum sales to 2 ice-cream sellers on a mile of beach as shown in the
following diagram:

A A1 B

M
Beach
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2 Vendors of ice – cream selling the same brand of ice - cream at the same price
would have ideal location at two points A and B, because M divides the beach
into 2 equal parts. One half has point ‘A’ as its centre. The other half has point
‘B’ as its centre. Naturally, both vendors can equally cover all the customers on
the beach. Now, supposing one vendor moves to point A1, here he/she will attract
‘B’ customers also. To avoid this, ‘B’ may move towards M. This may lead to a
situation wherein both A & B stand back to back to retain customers from their
areas and to avoid their customers going to the other vendor. But , it always may
not work. For example, one vendor may be selling superior quality brand to get
which a customer may be willing to travel more distance despite the same prices.
Thus, a location of a manufacturing unit affects and is affected by the location of
other units. This is also called locational interdependence.
4. THEORY:
The best known general theory of location giving more importance to demand
was proposed by August Losch in 1940. He tried to explain the size and shape
of market areas within which a location would command the largest revenue. To
simplify the matters, he assumed :
(1) Isotropic surface ( a flat uniform plain ).
(2) Constant Supply of products.
(3) Decrease in demand for a product within increase in its price.
(4) Decrease in demand with increasing distance owing to increased
transportation costs from the production centre to the market centre.
(5) Existence of monopolistic competition instead of perfect competition unlike
A. Waber.
(6) Non – Existence of economic discriminations amongst population. Open and
uniform career building opportunities to all individuals.
(7) Even distribution of population & self-sufficiency of area in agricultural
production.
(8) Uniformity in tastes, knowledge, andtechnical skill of people.

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(9) Uniformity and proportionality of transport costs in all directions.


(10) Limited Number of producers & Consumers.
(11) Satisfactory location to both producer and consumers.
(12) Equal serving of the entire area by factories .
(13) No entry of a new firm.
(14) Confirmity in the range and quantum of profit

A A = No demand due to very high price


OP = Price at production point
PQ = Quantity sold at P
Price AQN = demand Curve
Q
P
P = Production Point

O N
Quantity

(i)

Sales = Volume of Cone

P
A
Distance

Market area boundary

(ii)

Demand Curve rotated around production point to get cone AQP


(Source: August Losch ,“ The Economics of Location” ,Yale University Press1954)
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As the figure (i) shows, demand decreases with an increase in price. This leads to
demand curve AQN. Now , let us suppose that price increases due to increasing
transportation costs, its clear that at price A, the demand is zero. Now, let us assume that
this price A is at the maximum distance beyond which there is negative demand! In other
words, we can assume PA as the distance from production point P. Now ,lets rotate the
curve around production point P, the shape of the market will be circular and the size of
the market will be volume of the cone AQP, i.e., 1/3πr2h (volume of a right circular cone)
as shown in Figure (ii).
Further, increasing competition on the plain causeS development of hexagonal market
areas to avoid overlap and under lap. Also, each market shrinks due to eating up of
revenue by competitors. Each product has different market area depending upon the
relative importance of transport costs in its price. Different patterns of market areas
develop. When such patterns are rotated around a common production center point, then
some of these patterns may coincide nearly, thereby giving indications of formation of
points of maximum demand. This in turn should develop as concentrations of industry.
CRITICISM :
Positive:
1) It has successfully explained the effect of demand on industrial locations.
2) It led to further theorising in the field of locational analysis of industries in terms
of demand.
3) Its failure to consider other factors led to emergence of theories like “Spatial
Margins to profitability theory “by D. M. Smith, “Sub – Optimal locations
theories”,Optimiser theory and satisfier theories.
4) He was first person to give importance to influence of demand on industrial
location.
5) Right & correct emphasis upon the role of competition.
6) Simple and easily applicable calculations.
7) Philosophical contributions on the motive of entrepreneur’s role.
8) Introduction of Equilibrium concept.

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9) More précised nature of the concept of “profit maximization” in sharp contrast


to the “least cost” concept of A.Waber.

How Market Areas become Hexagonal

1 2 3 4

Final pattern
Firms Competition To avoid
of market
Operate with increases to overlap of
areas
Circular serve all the Circles and to
Market potential serve all areas,
Areas market the
market areas
become
hexagonal

(Source : August Losch, “The Economic of Location, , Yales University Press, 1954)
Negative:
1) This theory is too abstract in nature.
2) It does not consider problems of locational interdependence.
3) It gives too much importance to one aspect, that is the demand just as had been
given to supply by Alfred Waber.
4) It fails to consider other factors like human psychology &human behavior .
5) It generalises human behavior in sharp contrast to postmodern geographical theme
of “ heterogeneity, particularity and uniqueness.”
6) It is not universally applicable, when checked against reality.
7) It is too simplified a model of reality. It rarely occurs in actuality.
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8) Its more of an intellectual exercise, because his assumptions are hardly present in
the real / decision making world.
9) Ignorance of “Political decision role “ in industrial location.
10) Neglect of factors like variation in the cost of raw materials and labour wages
rate.
11) Arbitrary dichotomy of the role of agriculture and industry.
12) Agriculture may show a play of the abstract and optimum situation, but industrial
location is a far more complex matter. This theory may be more practical in
agriculture rather than in industry.
13) Demand curve must be rotated around production point O, where there is
maximum demand ON. By taking P Production point , he has ignored the
maximum production at point O. The actual size of the market should be the
volume of the right circular cone ANO and not the volume of the right circular
cone AQP!
OTHER IMPORTANT THEORIES:
1. TRANSPORT COST THEORY OF EDGAR M. HOOVER:
It is an extension of A. Waber’s theory. It emphasizes on the role of 4 costs:
Procurement, production, distribution, transport.
2. BEHAVIONRAL THEORY:
It places emphasis on the role of individual behavior or entrepreneurial decisions
as chief determinants of industrial location. Allan Pred’s Matrix theory is the
most well known behavioral theory.
3. MARKET AREAS THEORY:
It emphasizes more on the competition with others as chief determinant of
industrial location . Frank Fetter is the most well known theorist of this
approach.
4. INTEGRAL THEORY:
It emphasizes on the integrated role of both factors supply and demand. Green
hut & Walter Isard are the well-known theorists of this approach.

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9. ECONOMIC DEVELOPMENT
9.1 CLASSIFICATION OF COUNTRIES
Countries have variously been classified in economic geography by taking into consideration
different criteria.
Here, we follow the classifications given by T.A. Hartshorne & J. W. Alexander in their
book “Economic geography” and the U.N.O.
1. CLASSIFICATION BY HARTSHORNE & ALEXANDER :
(A) FIRST WORLD COUNTRIES:
Highly developed countries of North American continent and Europe like U.S.A. ,
England excluding the communist block are called first world countries / Nations.
(B) SECOND WORLD COUNTRIES:
Countries having centrally planned economies like China and the erstwhile USSR,
besides other communist countries are called second world countries/ nations.
(C) THIRD WORLD COUNTRIES:
Countries which are developing areas lacking in a modern urban – industrial
structure are generally known as third world countries/Nations. For example, Kenya
,Pakistan etc.
2. CLASSIFICATION BY UNITED NATIONS :
To quote Asha A Bhende and Tara Kanitkar (in “Principles of Population
Studies”) ,
“The United Nations prefers to designate the economically advanced countries as
“more developed” and the economically backward countries as “less developed
countriess.”
Accordingly, following is the classification given by the U.N.O:
a) “More Developed” Countries
1. North America
2. Japan
3. Europe
4. Australia & New Zealand
5. Temperate South America
b) “Less Developed” Countries

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All other countries other than more developed countries mentioned above fall
into this category.

9.2 MEASURES OF ECONOMIC DEVELOPMENT


Economic development of a country/region can be measured in various terms called “Measures” .
These measure or indicators broadly include factors like population, gross domestic
product, Adult literacy and life expectancy.
Economically advanced countries have a low population growth rate, low birth and death rates,
high life expectancy and literacy rates besides a higher standard of living. On the other hand ,
less economically developed countries have still not reached the post demographic transition
population growth and these countries have a relatively higher rate of mortality, low life
expectancy ,low literacy and poor standards of living.
Output per worker is indicative of economic development,also. For example, since 1870,
in 16 high income category countries like USA, West European nations , Japan &
Australia, the output per worker grew by 2.4 % per annum ( a factor of 16 over 120
years) closely moving with increasing standard of living.

Following chart, quoted from “Economics” by Samuelson Nordhaus, illustrates it


amply:
Average growth rate (%)

Period GDP GDP/Person –Hours Labour Force Total Hours worked


1870 – 1913 2.5 1.6 1.2 0.9
1913 – 1950 1.9 1.8 0.8 0.1
1950 – 1973 4.9 4.5 1.0 0.3
1973 – 1990 2.5 2.7 1.1 - 0.1

WORLD DEVELOPMENT REPORT 1997 (world bank ,WASHINGTON 1997):


Nation states or countries are grouped by the world bank into 4 main groups based upon
their per capita incomes. Each includes important indicators of economic development
like , Adult illiteracy and life expectancy.
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Country Population GDP Adult Life


/Group/ In 1995 Total Per Capita Per Capita Illiterac Expectancy
ECONOMIE ( in millions) Total Level 1995 Growth y at birth
S 1995 ($ billion) (1985-95) 1995 (Years)
($ billion) % per year ( %)
Low income
China/India 2130 1035 499 6.1 32 66
others 1050 317 290 -1.4 46 56
LOWER
MIDDLE 1153 2026 1670 -1.3 20 67
INCOME
ECONOMIE
S
(Philippines,
Thailand)
UPPER
MIDDLE 438 1982 4260 0.2 14 69
INCOME
ECONOMIE
S
(Brazil,
Malaysia
etc.)
HIGH
INCOME 902 22486 32039 1.9 <5 77
GROUP
ECONOMIE
S
(USA, Japan,
France, etc.)

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Broadly speaking aforesaid discussion is enough to understand the measures of economic


development. Of course, one may enumerate a large number of other variables or
indicators, too as follows:
1. Gross national product/Net National product
2. Per Capita income
3. Per Capita Consumption of iron & steel
4. Population growth rate
5. Infant mortality rate
6. Birth rate
7. Death rate
8. Literacy rate
9. Occupational structures
a) Commercial activities – Developed countries
b) Substantive activities – Less Developed countries
10. Technological Levels
11. Migration trends
12. Religious influences
13. Food availability (malnutrition, etc.)
14. Health (good, poor, etc.)
15. Use of family planning devices
16. Proportion of Urban population
17. International trade.
For example, in 1995, the per capita GNP of USA was $ 26980, Germany $27,510 ,India-
$340, Bangladesh - $ 240, Ethiopia - $ 100.
FOLLOWING INFORMATION AMPLY ILLUSTRATES VARIOUS MEASURES
OF ECONOMIC DEVELOPMENT:
(A) World as a whole had a population of 5840 million in mid 1997, with more
developed countries having a share of 1175 million and the less developed
countries a share of 4666 millions (including china). World in mid 1997 had a
birth rate of 24, death rate of 9, an annual natural increase rate of 1.5 % in

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population, population doubling time of 47 years, infant mortality rate of 59, total
fertility rate of 3.0 , life expectancy of 64 years (males) 68 years (females), 32 %
below 15 years and 7 % above 65 years of age population, 43 % urban
population, 56 % of married women using contraception of all kinds and only 50
% of married women using modern methods of contraception, and world per
capita GNP (1995) of US $ 4920.
(B) Comparatively, More developed countries had a population of 1175 millions,
Birth rate of 11 per 1000 population, death rate of 10 per 1000 population, 0.1 %
of annual natural increase in population, 564 years of population doubling time,
infant mortality rate of 9 per 1000 population, total fertility rate of 1.6 % , 20 %
of < 15 years and 14 % of > 65 years of age population , life expectancy at birth
of 71 years for males and 78 year for females, 74 % of population as urban, 66 %
of married women using contraception of all methods and only 60 % of married
women using contraception of only modern methods, and per capita GNP of US $
19,310 ( as in 1995).
(C) Less developed countries ( including China) had a mid 1997 population of 4666
million, a birth rate of 27 pr 1000 population , a death rate of 9 per 1000
population , an annual increase of 1.8% in population growth, a population
doubling time of 38 years, infant mortality rate of 64 per 1000 population , total
fertility rate of 3.4 % , 35% of < 15 years and 5 % of above 65 years population,
life expectancy at birth of 62 years for males and 65 yeas for females, 36 % of
population as urban, 54 % of the married women using contraceptives of all kinds
and only 49 % of married women using modern methods of contraceptives, and a
per capita GNP of US$ 11,20 (as in 1995)
[Source: 1997 World Population Data Sheet, Population, Reference Bureau
Washington D.C.]

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9.3 GEOGRAPHICAL ACCOUNT OF W.ROSTOW’S NON-


SPATIAL MODEL

1. INTRODUCTION:

The non-spatial model formulated by W. Rostow in 1955 identifies five


stages of economic development. This model was formulated to explain varying
economic development without reference to spatial (geographical) aspect. It is
called The Rostow Model of economic development ,also.
2. PRINCIPLE:
Economic development takes place in five stages, with take-off into self
sustaining growth coming about as one sector of the economy develops rapidly
and encourages the growth of other sectors.This way , the whole region develops.
The Classical Economic theory is the basis of this model. This theory assumes
existence of uniform costs, perfect competition, perfect mobility of capital and
labour in a given region. Further , it assumes that these assumed conditions shall
produce equilibrating forces to maintain inter-regional equality.
For example, excess labour migrate out from a region which has no employment
opportunities- thus, the given region loses labour to outside region-but, low labour
costs in the given region attracts new industry which helps develop economically
the given region – therefore, inter-regional equality is maintained.
3. EXAMPLES:
The great Industrial Revolution in U.K. was led by the cotton industry, which in
turn encouraged the textile machinery industry, transport improvements, service
industries in the expanding towns and so on.
4. CRITICISM:
i. Positive:
a) It is the best-known non-spatial model formulated to explain the
process of economic development.
b) It is easy to understand.

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ii. Negative:
a) The model is too simplistic overlooking complex spatial variation.
b) It does not specify time required to move from one stage to the next.
c) It does not tell any mechanism to find out the stage in which a
particular economy is.
d) Its not necessary that an economy has to go through the sequence
suggested by W.Rostow.
e) It is totally incorrect to assume existence of uniform costs, perfect
competition, perfect mobility of capital and labour in a given region.
Further , it is incorrect to assume that these assumed conditions shall
produce equilibrating forces to maintain inter-regional equality.
f) Regional inequalities is a global feature.
g) To quote KNOWLES & WAREING ,
“ If economic development affects the structure of the economy by
producing leading sectors, it may be inferred from Rostow Model that
the distribution of economic activity will be similarly affected, with
the emergence of leading regions.”
For example, in 19th century Britain, the leading sectors of the economy
such as cotton and iron were certainly characterised by regional
specialisation and concentration.
h) It is suggested by many economists that economic development
actually encourages regional inequalities.
i) Costs are never uniform, competition is never perfect, and capital and
labour are not perfectly mobile. These forces don’t maintain inter
regional equality.

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1.
5 The ages of
high mass
Consumption

4 The drive to
Maturity

3 Take - Off

2 The
Preconditions
for take - off

1 The
Traditional
Society

Decades

THE ROSTOW MODEL OF ECONOMIC DEVELOPMENT

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9.4 G.MYRDAL’S SPATIAL MODEL OF ECONOMIC


DEVELOPMENT

INTRODUCTION :

The most important model attempting to explain spatial variations in economic prosperity
by G. Myrdal in 1956 is called Myrdal’s model of economic development.This is a
spatial model or a geographical model.

2. PRINCIPLE :

Contrary to classical theory, economic market forces increase regional differences rather
than decrease them. Two associated processes cause unequal growth. These are :
i. Cumulative Causation
ii. Spatial Interaction

i. Cumulative Causation: Economic development takes place in a region initially


because of the natural advantages offered by it, like raw materials, and presence
of power. Then, once such a region moves forward and ahead of others, a process
of cumulative causation takes place, as acquired advantages are developed to
reinforce the status of the region and ensure that it continues to grow and stay
ahead of others. One development leads to another development.

ii. Spatial Interaction: It occurs with movement of labour, capital and commodities
into the growing region. Such growth produces a backwash effect in the other
regions in that the other regions lose skilled labour and capital to the growth
region and their markets are flooded with goods, thereby preventing local
development.

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Location of
new Industry

Expansion of Development Provision of better


local of external infrastructure for
population and
employment economies industrial
and population for former’s development –
development roads, factory,
sites, public
utilities, etc.

Attraction of Increase in Development Expansion of


capital and local pool of of ancilliary local
enterprise to trained industry to government
exploit industrial supply former funds through
expanding labour. with inputs, increased local
demands for etc. tax yield.
locally
produced goods
and services.

Expansion of
service
Industries and Expansion of
others serving general wealth
local market. of Community

Consequently, growing and stagnating regions are born. On the other hand, with the
expansion of economy, the benefits of growth begin to affect all regions and the spread

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effect of an expanding economy may encourage the process of cumulative causation to


occur and self – sustaining growth to take place in other regions.

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3. STAGES OF REGIONAL DIFFERENTIATION:

A region passes through 3 stages of regional differentiation in the Myrdal Model :


i. Pre-industrial : There are few regional inequalities.

iii. Second : Great inequalities are produced by cumulative causation and its
backwash effect as the economy “takes off” and expands rapidly.

ii. Third : The spread effect of growth operates to reduce regional


imbalances or differences.

4. CRITICISM :

A. Positive :

a. It successfully explains the development processes in the underdeveloped countries.

B. Negative :

1. To quote KNOWLES AND WAREING “…the forces


producing regional inequalities are much more powerful than
the spread effects operating to reduce them” .
For example, despite government action ,regional inequality
persists in U.K.

2. It does not fully explain the process of development in more developed


economies for which other theories like export base theory, regional
multiplier (input-output analysis), growth poles ,etc. have been advanced.

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10. INTERNATIONAL TRADE

10.1 INTRODUCTION
1.) MEANING :
The trade carried on an international level is called international trade.It can be
bilateral(BETWEEN TWO COUNTRIES) or multilateral(AMONGST MORE THAN
TWO COUNTRIES).
2.) BACKGROUND :
International trade has been going on since ancient times. For example, condiments and
pepper were exported from India to cold temperature European countries to make the
meat tasty there. Similarly, silk route was famous for trade between countries of west and
the Far East china. Presently, big multinational companies are involved in international
trade besides local national players.

Examples : Bilateral Trade


India and china – US $ 3 billion (2000 A.D.)
Foreign Exchange Reserves
India reported foreign exchange reserves of US $ 50 billion (2002 A.D.)

The value of goods in world trade since 1938 (Exports in million of US $)


Economics 1938 1950 1960 1970 1980
Developed market 15,100 37,026 85,845 224,908 1,270,323
Developing market 6,000 19,163 27,067 55,684 5,40,353
OPEC 1,000 4,014 7,792 18,032 296,376
Centrally planned 1,600 4,596 15,363 33,2786 177,329
World Total 22,700 60,785 128,275 313,868 1,988,005

SOURCE : UN STATISTICAL YEARBOOK

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CERTAIN FACTS AND FIGURES ABOUT


INTERNATIONAL TRADE/GLOBAL ECONOMY:
1. In a single day all over the world, 40%
of the goods and services produced is
traded and nearly 1.5 trillion US $ gets
exchanged in the world exchange
markets.
2. World trade stood at US $ 3.4 trillion
in 1999 and 6.2 trillion in 2000.
3. Value of world output was US $ 24.4
trillion in 1994 and 31.4 trillion in
2000(Source:IMF).
4. Following table gives trend in growth
of the world output:
PERIOD AVERAGE VALUE (US $ trillion ) GROWTH RATE
1983-1992 18 3.4 %
1993-2000 29.6 3.6 %

5. USA was the largest importer and


exporte with imports and exports
worth $ 1060 billion and $ 695 billion .
15 member EU had exports worth US $
799 billion , but its imports were of less

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value than USA’s .China ranked 10th in


exports.India ranked 30th in
exports.Indian exports were primarily
directed to USA(21%) and EU(20-
25%).Figures given here are for the
year 2000.
6. World trade grew at the rate of 5.4%
in 1980s and 7.5% in 1990s. As per
W.T.O. , this growth was 12.5% in the
year 2000.
7. Increase in the world trade was more
than the increase in world GDP at the
rate of 5.4% in 1980s and 7.5% in
1990s.
8. Indian exports grew from US $ 32366
million in 2000 (April-Dec.) to US $
32572 million in 2001 ( April-
Dec.).Indian imports rose from US $
38242 million in 2000( April-Dec.) to(
April-Dec.) US $ 38362 million in 2001(
April-Dec.).Thus,exports showed a
growth of 0.64% and imports
0.31%.During the same period , Indian
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IT software and services exports rose


by 25% in value.
9. Export of cashew held the third
position with a contribution of 0.93%
(Rs.1882.23 crore)of the total export
earnings of India in 2000-01.
10.Bilateral trade between India and China
during January-Novembar period of 2001
amounted to 3.27 billion US $ ,up 26% over
the same period in 2000.Indian exports to
China during 2001 was 1.56 billion dollars
and China’s exports to India was 1.71 billion
dollars .
11.Following table gives the yearwise value in
indian rupees (crores) of Indian Imports and
Exports since 1950-51:
Year imports exports total value balance of trade
1950-51 581,17 606,81 1187,98 + 25,64
1960-61 1121,62 642,39 1764,01 - 479,23
1970-71 1634,20 1535,16 3169,36 - 99,04
1980-81 12,549,15 6710,71 19,259,86 - 5838,44
1986-87 20,083,53 12,566,62 32,650,15 - 7516,91
1990-91
2000-01

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As the above table shows, Indian imports and exports grew by


27 times in value from 1950-51 to 1986-87. However, imports
grew by 34 times and exports by 20 times during this period.
India had a trade deficit of 100 crore rupees in 1970-71 and
7516 crore rupees in 1986-87.Such unfavourable trade is a
cause of concern to India.
Indian exported mainly raw materials and imported
manufactured products before 1951. But, after independence,
this trend has got changed.The following 6 commodities
formed main items exported from India in 1951:
1. Cotton thread and
apparels.
2. Jute products.
3. Tea.
4. Vegetable oil and
products made from it.
5. Leather and skins.
6. Tobacco and products
made from it.
The following 6 new commodities formed main items exported
from India in 1983-84,1984-85,1985-86:
1.Precious jems and jewellery.
2.Cotton apparels , readymade garments.
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3.Tea.
4.Machines and transport equipments.
5.Iron ore.
6.Leather, leather products and shoes.
TREND: Since 1980s , Indian trade has shown a tremendous change
in its structure.Now, the items mainly exported are no more raw
materials or semi-manufactured products. The products being exported
are mainly those which have value addition through excellent Indian
craftsmanship and skill ,i.e.,jems and jewellery, readymade cotton
garments, leather products and shoes,etc.Other main export items are:
ores and engineering products.India imports certain items like Cashew
and Jems and exports these items after increasing their value through
excellent Indian craftsmanship and skill .Thus, Indian exports consist of
services ,also. Recently, Information Technology exports has become a
major item of Indian exports.
12.Following table gives the structure of world
economy in the year 2000:
ECONOMIES % SHARE IN GLOBAL
OUTPUT TRADE
1.DEVELOPED 57.1 75.7
2.DEVELOPING 37.0 20.0
3.CENTRALLY PLANNED 5.9 4.3
WORLD 100.0 100.0
4. USA $ 6 other big nations 45.4 47.7
5.Asia 21.6 9.2
6.China 11.6 3.7
7.India 4.6 0.8
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9. Global economy witnessed


4.8% growth in 2000 and it weakened in 2001 mainly due to a
slow down of USA’s economy which grew at the rate of 1-2%
in the first half 2001 against 5% in 2000.The USA SLOW
DOWN hit several East and South East Asian countries
dependent on the American market for their exports of
electronics and computer products.In a 10 years’ period , the
year 2000 was the peak of growth.Industrial countries had an
average growth of 4.1% and developing countries 5.8% during
this period.IMF projected a global economic growth of 3.2% in
2001 in the hope of USA economic recovery in the second half
of 2001 and emerging of Japan out of its longest recessionary
period.Though there have been many cuts in interest rates by
US Federal Reserve Bank , yet 11th September , 2001 event of
collapsing of the World Trade Centres in Newyork by
terrorists adversely affected the whole global economy
including the American economy.The only beneficiary was
Pakistani economy which saw huge inflow of American Aid
meant to wipe out AFGHANI TALIBANS , besides
remittances by Pakistanis settled abroad anxious to avoid
getting their financial assets frozen due to any suspicion on
them by USA for their any possible role in the 11th September
2001 Tragedy! “The World Economic Situation and Prospects
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for 2002” report released by the United Nations says that the
terrorist attacks in New York and Washington caused the
lowest growth in Gross World Product ( GDP ) in a decade.The
GWP fell from decade high of 4% in 2000 to 1.3% in 2001.The
report foresees a gradual recovery in 2002 with GWP expected
to grow by 1.5% and world trade by 3%.It means limited
growth in 2002 with no growth in per capita world output for 2
consecutive years.
ADVANTAGES OF INTERNATIONAL TRADE :

1. John Stuart Mill says ,“ the benefit of international trade – a more efficient
employment of the productive forces of the world. ”

2. Mc Kinsey Study (Mc Kinsey Global Institute) 1990 identified following benefits
a. Competitiveness leads to increased real income.
b. Globalization increases productivity by improvement through introduction of
leading cutting edge technologies and stimulating competition.
c. High productivity leads to high living standards in terms of trade, capital, and ideas
from advanced countries and consequent competition.
d. The so called much hyped economies of scale/manufacturing techniques and
workers’ skill level/education are of little significance. Large differences exist
within firms in the same industry.
3.) CAUSE OF INTERNATIONAL TRADE :
International trade is carried on due to demand and supply factors involved in
goods and services produced, exchanged and consumed with reference to spatial
aspect on the earth. Countries deficit in certain goods and services import them.
Simultaneously, countries having surplus export them. This is the basic primary

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cause generating international trade. However, there are other compelling reasons,
too like the need to earn foreign exchange or repay for goods and services purchased
from other countries.
10.2 BASIC CONCEPTS
1. TRADE :
Exchange of goods, services or information.
2. TRADE BALANCE :
The part of a nation’s balance of payments that deals with merchandise (or
visible) imports or exports, including such items as foodstuffs, capital goods,
and automobiles.
3. BALANCE ON TRADE ACCOUNT :
When services and other current items are included in a nation’s balance of
payments, this measures the balance on trade account.
4. BALANCE OF INTERNATONAL PAYMENTS :
A statement showing all of a nation’s transactions with the rest of the world
for a given period. It includes purchases and sales of goods and services,
gifts, government transactions, and capital movements.
5. BARTER :
The direct exchange of one good for another without using anything as
money or as a medium of exchange.
6. OPEN ECONOMY :
An economy that engages in international trade is called an open economy.
7. FOREIGN EXCHANGE RATE :
It is the price of one currency in terms of another currency.
8. FOREIGN EXCHANE MARKET :
A market in which currencies of different countries are traded and foreign
exchange rates are determined.

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9. FLEXIBLE EXCHANGE RATES :


A system when exchange rates are completely flexible and move purely
under the influence of supply and demand.
10. FIXED EXCHANGE RATES :
A system when governments specify the rate at which their currency will be
converted into other currencies.
11. DEPRECIATION :
A fall in the price of one currency in terms of one or all other currencies.
12. APPRECIATION :
A rise in the price of a currency in terms of another currency.
13. DEVALUATION :
A situation in which a country has officially set or, “pegged” its exchange
rate relative to one or more other currencies and the pegged rate or parity is
changed by lowering the price of the currency.
14. REVALUATION :
When the pegged rate or parity is changed by raising the price of the
currency.
15. CREDIT :
If a transaction earns foreign exchange currency for the country, it is called a
credit and is recorded as a plus item.
16. DEBIT :
If a transaction makes a nation loose foreign exchange currency, it is called a
Debit and is recorded as a negative item.
17. BILATERAL TRADE :
Trade between two countries which is generally unbalanced.
18. MULTILATERAL TRADE :
Trade amongst more than two countries, which is generally beneficial.

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19. TARIFF :
It is a tax levied on imports.
20. QUOTA :
It is a limit on the quantity of imports.
21. PROHIBITIVE TARIFF :
A tariff so high that it chokes off all imports.
22. NON PROHIBITIVE TARIFF :
A tariff which is so low as to injure but not kill off trade.
23.TERMS OF TRADE: -
It is the ratio of export prices to import prices.
24. OPTIMAL TARIFF :-
The set of tariffs that maximizes domestic real incomes is called the optimal
tariff.
25. PROTECTIONISM :-
Any policy adopted by a country to protect domestic industries against
competition from import (most commonly, a tariff or quota imposed on such
imports ).
26 ECONOMIES OF SCALE :-
Increase in productivity, or decreases in average cost of production, that
arises from increasing all factors of production in the same proportion.
27. MONETARY UNION :-
Adoption of a common currency by a groups of nations ,i.e.,,”Euro” by
European countries under the maastricht Treaty of 1991.
28. GLOBALIZATION :-
Exposure of a region/country to competition with the world leader in a
particular industry.

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29. COMPETITIVENESS :-
The extent to which a nation’s goods can compete in the world market place.
30. PRODUCTIVITY :-
It is the output per unit of input.
31. REAL NET EXPORTS :-
The quantity of exports minus the quantity of imports, both measured in
constant prices.
32. OVERVALUED CURRENCY :-
A currency whose value is high relative to its long run or sustainable level.
33. IMPORT :-
Bringing in of a product, services or information on payment from a foreign
country.
34. EXPORT :-
Selling to another country on payment products, services or information.
35. FAVOURABLE TRADE :-
When Exports are more than imports.
36. UNFAVOURABLE TRADE :-
When Exports are less than imports.

10.3 FACTORS INFLUENCING THE INTERNATIONAL TRADE :

A combination of different GEOGRAPHICAL AND NON- GEOGRAPHICAL


factors Influence international trade. These factors may act as encouraging
or discouraging one from time to time and may vary in degree of
importance spatially.GEOGRAPHICAL FACTORS SHOW PRIMACY IN THE
SHORT RUN.HOWEVER, NON-GEOGRAPHICAL FACTORS BECOME MOST
IMPORTANT IN THE LONG RUN.

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International trade is totally dependent on transport Network or systems. Without


transportation , no movement or flow of goods and services can take place. 2 important
theories/ models have been advanced to explain this flow of goods and services system or
transport network:
1. FLOW THEORY :
E.L.Ullman has identified 3 basic factors influencing interaction between
regions: Complementarily, intervening opportunity and transferability.
(a) COMPLIMENTARITY :
First, there has to be a demand in one region that can be met from other region.
Secondly, the area of demand must be able to pay for the supply of goods and services to
generate a two- way movement of the same. This demand and supply region develops a
complimentary relationship. Earlier, tropical regions would supply primary goods to
temperate regions in exchange for manufactured goods. Regional specialization
strengthens complimentarity. Of course, buyers and sellers may have alternative options.
So, it’s just one of the factors.
(b) INTERVENING OPPORTUNITIES :
With the development of synthetic rubber, interaction between tropics and temperate
regions has decreased due to decrease in demand for natural rubber. Likewise, depletion
of lake superior iron ore deposits has resulted in the use of South American and African
ores in the U.S.A. Thus, the principle of intervening opportunity in economic context,
determines/influences international trade.
(c) TRANSFERABILITY :
Interaction between complimentary regions can take place only if the
products/services/informations are transferable. Transferability decreases as economic
distance increases and any intervening opportunity will be taken , if it reduces this
distance. Transferability changes from time to time since intervening opportunity and
economic distance are not constants.
To quote KNOWLES & WAREING in “ Economic and Social Geography”,
“ The development of transport systems must be seen as a process in which
complementarity operating to encourage movement between regions, is balanced

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against intervening opportunity and transferability, which operate to discourage


movement.”
2. GRAVITY MODEL :
Applying gravity model, one may conclude that the amount of economic
interaction/international trade depends on the product of the economic size (purchasing
power) of the two regions divided by the result of the economic distance between them.
Or in other words, it’s the operation of distance decay theory, meaning that the
interaction decreases with increasing economic distance.
3. NETWORK REVOLUTION :
The network revolution that began in the great age of discovery in Europe
influenced international trade. Europeans were originally marginalised due to fall of
Constantinople to the Turks in 1453 and the venetian monopoly of eastern trade.
However ,during the renaissance period, revival of Greek ideas of a spherical earth,
navigational aides like compass, improvements in ship design encouraged the search
for alternative routes to bypass the Mediterranean. Discovery of India in 1498,
America in 1492, China in 1513 through sea and Magellan’s expedition around the
world in 1519-22 changed Europe’s position from relative isolation to being centre
of the world trade.
New patterns of trade emerged. Trade Winds helped trade leading to development
of a triangular or quadrangular Atlantic trade in manufacturing goods from Britain
to West Africa in exchange for slaves to the West Indies or American Colonies in
Exchange for sugar, rum, Cotton & Tobacco back to Britain. Cargo changed,also .
Tea, Sugar & Tobacco entered World Trade, yet it was essentially in high value low
bulk goods.
4. THE CARGO REVOLUTION:
The process of industrialization using steam power and mechanical methods of
manufacturing to increase production, creating a demand for large quantities of
raw materials and a supply of manufactured goods caused cargo revolution leading
to the large scale transfer of bulk cargoes. Increased complimentarity ,growing
population ,increased urbanization ,high demand for food staffs leading to new

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methods of finance like extension of credit by the new commercial banks, free trade
philosophy ,improved methods of transport, settling of Europeans in Americas and
Australia, creating new sources of supply and demand ; the scramble for Africa in later
19th century led to a search for materials and market. All this influenced nature and
structure of World Trade.
5. WARS AND ECONOMIC SCENARIOS:
Wars and prevailing economic scenario influenced world ,too, i.e, two world wars and the
great depression of the 1930’s have greatly changed the structure and direction of world
trade especially since 1945.
6. POPULATION GROWTH :-
Growth in population since 1945 especially great “baby boom” of 1950s has greatly
stimulated demand for international products services and information.
7. EMERGENCE OF ECONOMIC BLOCKS :-
Emergence of syndicates or blocks amongst countries influences world trade.
Generally, countries of a block encourage trade amongst its members only and
discourage trading activities with outsiders by way of reduced and increased tariffs
respectively.
8. DIVERSITY IN NATURAL RESOURCES :-
Noted economist Samuelson Nordhams says ,
“ Trade may take place because of the diversity in productive possibilities among
countries”.
These productive possibilities in part reflect endowment of natural resources ,i.e.,
Saudi Arabia is blessed with Petroleum, whereas India has a fertile land producing
enough food grains to spare for trade.
To quote Knowles & Wareing,
“Trade arises mainly from regional economic difference and serves to balance
production and consumption by moving goods and services from areas of surplus to
areas of deficiency”.
9. DIFFERENCES IN TASTES :-
Even if conditions of production were identical in all regions , countries might still
engage in trade if their tastes for goods were different , i.e , Indians and Pakistanis
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produce sugar and movies. But ,lets say Indians have fondness for sugar more than
cotton and Pakistanis for movies than the sugar. In such a situation both can
maximise happiness by mutually exchanging sugar and movies.
10. ECONOMIES OF SCALE OR THE DECREASING COSTS :-
To quote Samuelson Nordhaus (Economics) ,
“Perhaps the most important reason for trade is difference among countries in
production costs”.
The economies of scale gives a country high volume- low cost products in the areas of its
cumulative acqusitions advantages of a headstart. It gives it a comparative advantage
over the other country in terms of cost effectiveness. Thus, David Ricardo’s (1817) law
of comparative advantages comes into play. This factor influences trade.
11. FOREIGN EXHANGE REGIME :-
If the exchange rate of a currency goes higher relative to other currencies , it
encourages imports by making them cheaper & discourages exports by making
them costly to buyers abroad. Reverse happens with a decrease in the value of a
currency, i.e,depreciation or devaluation. This factor affects the composition of the
trade, its structure and flow of commodities , services and information.

10.4 STRUCTURE OF INTERNATIONAL TRADE


Structure of International trade can be approached from 2 perspectives:
1. Volume of Trade
2. Composition of commodity flows
1. Volume of trade :
a) World trade has been growing at a rate of 8% per annum since 1950. It has
increased almost 50 times since 1938 ,i.e. ,to 1,988005 million US $ (1980)
from US $ 22,700 millions (in 1938). Its still 6 fold increase after allowing for
currency inflation.
b) Period since 1945 has seen rapid economic growth.

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c) Despite destruction of productive capacities of much of Europe, USSR &


Japan in 2 world wars, these regions have witnessed rapid economic growth at
a level higher than 1938s due to economic upsurge sweeping all advanced
economies.
d) There is a reduction in Tariff barrier since 1945.
e) High population growth, increased standard of living and enhanced
demand for materialistic comforts has stimulated volumes.
f) Increase in volumes of trade is not uniform.
Following chart shows it :
% SHARE OF WORLD TRADE

Countries/Economics 1938 1972 1980 2000


Developed 69.6 - 75.1 75.7
Developing 23.0 - 12.3
OPEC - 6.6 14.9 20.00
Centrally paired 7.4 - 8.9 4.3
World 100.00 100.00 100.00

2. COMPOSITION:
1938 1980 2000
Primary 50% 33%
Secondary 46% 63%
Tertiary and Others 4% 4%
100% 100% 100%

b) The above table shows decreasing importance of primary products in the world trade.
Type of commodity has changed. In 1980, Wool, Rubber, Fruit dropped out from
top 20 commodities. Tin, Lead, Zinc have increased in importance. Petroleum has
constituted 50% of total tonnage of the world trade since 1960.

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Primary reasons for decrease in the importance of primary products are:


1.Development of synthetic for rubber silk and cotton.
2.Application of scientific methods to agriculture in the developed countries
increasing their primary production.
3.Population increase in food exporting countries leading to less availability of
surplus food for trade.
4.Protection of agriculture by tariffs on imports despite the GATT (1947).
5.Decreased irrigation in agricultural sector in developed countries due
to comparatively higher price of water diversion for irrigation leading to a drop in the
agricultural products.

3. TRENDS/DIRECTION:
A. Direction of commodity flows from the pattern established in the 19th
century has changed. Earlier in the 19th century, manufactured goods from
developed countries were exchanged for the food stuffs and raw materials
from the less developed countries.
To quote KNOWLES &WAREING (Economic & Social Geography),
“Now most trade is in manufactured goods between developed
countries and 60% of trade takes place between 2 leading areas,
Anglo-America and Western Europe, although there are important
traders such as Japan elsewhere.”
B. Britain,s share of exports has declined, especially to Latin America,
Commonwealth countries like Australia and New Zealand. This has
reduced London’s role as the hub of trade.
C. Other exporters have developed to fill up the gap left by Britain’s ouster :
1. USA is now the world’s leading exporter with extensive markets in
Europe, Japan & Canada.
2. Germany has been able to increase its exports due to removal of tariff
barriers in the EEC.
3. Japan has carried out aggressive policies in USA & Europe.

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4. Asian Dragons are a force to reckon with.


D. Trade has increased between Erstwhile USSR & its European allies/satellites with
smaller increases to Western Europe and developing countries.
E. There is a small increase in the trade of a few small number of primary products,
largely restricted to minerals.
F. Role of the 3rd world countries has decreased due to developing economies
increasingly trading among themselves.
G. Formation of several duty free areas made up of several countries too has altered
the direction of trade . Following are some of the most important trading blocs
mentioned against their year of formation:
i. 1957 – EEC
ii. 1959 – European free trade Area (EFTA)
iii. 1959 – Central American Common Market (CAMT)
iv. 1960 – Latin American free trade Association (LAFTA)
v. 1960 - Organisation of Petroleum Exporting Countries (OPEC)
These areas/unions increase trade between members, restrict trade between
members and non-members and encourage trade between non-members ,i.e.,
Britain’s entry into the EEC in 1972 increased its food imports from Europe and
decreased the same from traditional suppliers like New Zealand. New Zealand in
turn directed its exports to new markets like Japan.
H. To quote KNOWLES & WAREING, “Flows of international trade are therefore
large and complex and are constantly growing and changing and this is reflected
in the complex transport networks that have been built to make these exchanges
possible.”

10.5 PROBLEMS OF INTERNATIONAL TRADE :


Following are the problems related to International trade :
1. PAST 2. PRESENT 3. FUTURE
Despite temporal or time veriation aspect, most of these problems remain the same
whether we study contemporary international trade, past trade or the future trade.

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PROBLEMS :
1.Imbalance in the volume of trade amongst countries.
2.Imbalance in terms of composition of commodity flows.
3.Imbalance in terms of direction of commodity flows.
4.Prohibitions, restrictions.
5.High import tariff rates /protection.
6.Foreign Exchange Problem.
7.Balance of International payments.
8.Non-Tariff Barriers.
9.Subsidies to domestic production areas like agriculture.
10. Wars and bad diplomatic ties amongst countries.

1.Foreign Exchange Rate Problem.


To avoid a repetition of the Great Depression of 1929,the noted
economist John Maynard Keynes & others made conceted efforts. Their efforts led
to the setting up of Bretton Woods system(1944) at New Hampshire. Under this
system, each currency was linked to Gold or Dollar terms or both. Later on,
International Monetary Fund (IMF) was established as a central bank to solve the
problem of Balance of payments faced by member nation states so as to mitigate
/discourage inflation and attendant problems. It administers International
monetary system. The World Bank was established to finance economically sound
projects & it disbursed loans worth US $ 21 billion in 1996. However, Presently,
Hybrid System is in vogue which consists of
1.Free floating currencies
2.Managed but flexible currencies
3.Pegging to basket currencies (gliding /crawling peg)
4.Currency-bloc currencies
5.Intervention by countries.
2.Balance of Payment Crisis :

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India had to face this crisis in 1990 when it had to mortgage to London 250 tonne of
Gold!

PROBLEMS OF INTERNATIONAL TRADE


OR
THE FACTORS INFLUENCING INTERNATIONAL TRADE

1.INTRODUCTION :-
International trade has faced several problems in the past. It is facing problems
even presently. It shall continue facing one or the other problem in future ,too,
Thus,problems are a part and parcel of international trade.
2) PROBLEMS :-
Problems of international trade can broadly be classified in the following two categories:
i.) General ii) special or immediate
i) GENERAL :-
These problems generally exist at all points of time in varying degrees of
importance. These may be summarised as follows:
1) HISTORICAL:
Historicity acts as a problem, sometimes. For example, African countries over a fairly
long period of history have been drained of their precious human resources by
European countries. Consequently, Agricultural and other developments in Africa
suffered. Comparatively, European countries with their historical stock of financial,
technological and other resources experienced a higher stage of economic growth and
came to dictate terms of trade in the international market. This has created problems
for smaller and less developed countries of Africa which can’t compete on an equal
footing with European Nations due to later’s superiority in technology, management,
finances, etc.
2) POLITICAL:
World politics creates problems ,too. For example, the creation of trade blocks
encourages trade amongst member countries and discourages trade with non members

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countries. European Nations (EU), a trade block comprising of 15 European nations,


experiences intratrade to the tune 61% and only 39% of its trade takes place with non
member countries.The following table gives a clear idea about % of intra -block
exports(exports within the block members)as in 2000 A.D.:
TRADE BLOCKS PERCENTAGE OF INTRA-BLOCK EXPORTS
NAFTA 52.0
ASEAN 20.6
SAARC 4.5
In world politics, enemy nation state tries to protect its enlightened national self
interests through various means like diplomacy, war, negotiations, trade restrictions,
high import tariff rates, etc. This creates problems. For example, World War I and II
adversely affected world trade from 1919 to1950. On the other hand, existence of peace
encourages international trade, because traders are able to carry out trade activities
without fearing any losses due to war or armed clashes.
3) ECONOMIC: -
Certain economic factors create problems . For example ,poor means of transportation
and communication; poor demand and supply of goods, services and information;
recession; lack of goodwill in the market; poor financial conditions; Lack of foreign
exchange resources to pay for imports, fluctuation in the foreign currency exchange
rates, Economic Distance, existence of same selling price of a product, etc. we can get
an idea of the significance of this factor by discussing the impact of recession on
trade. During recession , supply outstrips the demand leading to a piling up of a huge
inventory/stocks. This causes loss of employment because manufacturers try to cut
down on costs by retrenching the workers on all levels. This triggers a chain reaction
by restricting the purchasing power of the general public, which in turn causes a drop
in the demand for products whether indigenously manufactured or imported from
outside. This drop in the demand causes a drop in the volume and value of
international trade, because no one would like to incur losses by trading in products
which have no demand! Great Depression of 1929 in U.S.A is a classic example.
Even as recently as 2001, South Asian and East Asian Countries supplying computers

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related products to U.S.A could not do much trading of these items due to a poor
demand in U.S.A owing to a slow down of U.S.A domestic economy.
4) GEOGRAPHICAL / PHYSICAL :-
Physical or natural factors like geographical location, relief features, climate, soil, etc.
hampers trade, too. For example, Nepal, Bhutan, Mangolia and Afghanistan are land
locked countries with no direct access to cheap sea routes. Consequently, these
nations have to incurr heavy transportation costs in moving their cargoes through
land routes of neighbouring countries for further onward shipping through seas!
Alternatively, transportation by air becomes costly, thereby reducing their
competitiveness in international markets. This in turn may sometimes discourage
them from undertaking trade activities on an international trade.
5) CULTURAL :-
Cultural factors like race, religion, caste, creed, language, etc. may hinder
international trade. For example, in medieval India, it was forbidden and considered
a sin to travel across the seas to other lands inhabited by the so-called “Malechhas”.
Consequently, Indians could not take advantage of contemporary international trade.
Whereas foreigners like Arabs and Europeans with no such social / religious
restrictions indulged in international trade and reaped the benefits. Islam enjoins upon
its practitioners to travel far and wide. Consequently, Arabian Muslims travelled far
and wide which encouraged trading activities in the Middle East and other Muslim
dominated regions. Till the beginning of Renaissance in Europe, the church
discouraged international trade indirectly by disapproving material comforts of life.
One can’t trade in pork with Muslim countries and in beef with Hindu country like
Nepal because pork and beef eating are forbidden in their respective
religions/regions.
6) TECHNOLOGICAL :
Non-availability of appropriate scientific and technological aides hampers
international trade, too. For example, it was only after the introduction of
freezing/cold storage facilities aboard ships that beef could be exported to
European countries from Argentina. Highly perishable and delicate items

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require a high degree of sophistication in packing and handling.Availability of


such facilities has made it possible to export to the gulf countries from
Maharashtra in India the highly perishable items like grapes and “Hapus
Mangoes” by air.
7) NATURAL HAZARDS:
Sometimes, natural hazards block the carrying out of trade
Activities. The Great Bubonic plague of 1348 wiped out a large
number of European population leaving little scope for
international trade to prosper due to reduced demand for products.
Famines and Epidermic cause vast devastation and loss of life,
thereby reducing the population having requisite purchasing
power. Low purchasing power and a lower number of people mean
a lower demand for goods, services and information.
(ii) SPECIAL OR IMMEDIATE FACTOR:
Although the general factors mentioned above go on affecting international trade all
the time in varying degree, yet their impact may not vary dramatically. From the point
of view of the present time, it is the immediate factor which makes the most powerful
impact on international trade. This special or immediate factor varies from time to
time. For example, the division of the world into communist and capitalist blocks
during cold war era was the most important factor which inhibited the growth of trade
amongst countries of these two blocks. This factor has lost its importance with the
disintegration of the erstwhile USSR and the emergence of U.S.A. as the global super
power. The year 2001 saw the emergence of threats by international terrorism as the
immediate factor, which hampered the recovery of U.S.A. and the global economy
and consequently the international trade. The collapse of the “North” and “South
Towers” of World Trade Center (WTC) at New York on 11th September 2001 by
terrorists through hijacked aeroplanes caused a loss of thousand of billions US
Dollars in terms of economic growth and trade by sending the whole global economy
into a panic, because WTC was the nerve centre of the World Financial Market.

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10.6 PROSPECTS OF INTERNATIONAL TRADE:


1. Taking into consideration contemporary development in the world, it seems
reasonably well to see bright prospects on the horizon for international trade, since the
world is inching towards integrated global dynamic spatial economy by slowly removing
tariff barriers in the direction of a perfectly balanced world economic landscape.
2. The period from 1950 to 2000 has witnessed a mixed picture, with some successes and
some failures. However, an overall impartial assessment would show that international
trade has grown faster than output for every major country.
Having learned the dangers of protectionism in the 1930’s ,nations have now joined
together in multinational trade treaties and agreements to overcome the temptation to
impose trade restrictions, i.e. ,1993 Uruguay round which extended the principle of free
and open trade to new sectors and new nations.
3. MAASTRIHT TREATY (1991) which usheredd in “Euro ” currency and the resultant
1992 crisis have shown that :-
A country can’t have simultaneously :-
1. a fixed but adjustable exchange rate.
2. Open capital market.
3. Independent domestic monetary policy.

10.7 DAVID RICARD’S CLASSICAL THEORY


1. INTRODUCTION :
David Ricardo, the British Economist in 1817 gave the law of comparative
advantages. This law shows that international specialization benefits a nation. In
other words, international trade benefits all trading nations.
2. BACKGROUND :
Around 1800, questions were raised whether nations should import nothing and
‘protect’ their markets with tariffs or quotas. For example, will America import
nothing if its labour (or resources) is absolutely more productive than European
Labour? Is it economically wise for Europe to “protect” its markets with tariffs or

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quotas? David Ricardo answered these questions by his classical theory of


comparative advantages.
3. EXPLANATIONS :
David Ricardo considered two types of advantages :
i. Absolute
ii. Comparative
For simplicity, he took two regions and only two goods. He chose to measure all
production costs in terms of labour-hours. He analysed food and clothing for
Europe and America.
In America, it takes 1 hour of labour to produce a unit of food and 2 hours of
labour to produce a unit of clothing. In Europe, it takes 4 hours of labours to
produce a unit of food and 3 hours of labour to produce a unit of clothing.
Clearly, America has absolute advantage in both goods, because it takes less time to
produce these in America compared to in Europe. However, America has comparative
advantage in food compared to clothing because it takes less time to produce food than
the clothing. Europe has comparative advantage in clothing, because it takes less time to
produce clothing than the food. From these facts, Ricardo proved that both regions will
benefit, if they specialize in their areas of comparative advantage, i.e., if America
specializes in the production of food and Europe specializes in the production of clothing.
Thus, America will export food to pay for European clothing and Europe will export
clothing to pay for American food.
American and European Labour Requirements for Production

Necessary Labour for production


(labour-hours)
Product In America In Europe

1 unit of food 1 4
1 unit of clothing 2 3

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Comparative Advantages Depends only on Relative Costs. In a hypothetical example,


America has lower labour costs in both food and clothing. American Labour productivity
is between 1½ and 4 times Europe’s (1½ times in clothing and 4 times in food).
Now, there are two situations :
i. Before trade
ii. After trade
i. Before trade : The real wage of the American worker for an hour’s work is 1
unit of food or 1/2 unit of clothing. The real wage of the European worker for an
hour’s work is 1/4 unit of food and 1/3 unit of clothing per hour work. With
perfect competition, in America clothing will be 2 times as expensive as food
,because it takes twice as much labour to produce a unit of clothing as it does to
produce a unit of food. In Europe, clothing will be only 3/4ths as expensive as
food.
ii. After trade : After trade, the relative prices of food and clothing must be
somewhere between the European Price Ratio (4/3 = food to clothing ratio) and
the American Price Ratio (1/2 = food to clothing ratio) which is assumed to be
2/3. So, 2 units of clothing trade for 3 units of food, because it takes more hours
to produce clothing than food (i.e. 3 hours) : In one hour, only 1/2 unit of food is
available. In one hour, only 1/3 unit of clothing is available. 1 unit of clothing is
completed in three hours as follows :
1/3 +1/3+1/3=3/3 = 1 unit
In three hours, following unit of food is ready =
1/2+1/2+1/2=3/2 units
Thus, to get 1 unit of clothing prepared in 3 hours ,the other one has to give 3 hours of
food which is 3/2 units of food. Or to get 2 units of clothing , 2 times the 3/2 units of food
have to be exchanged. Therefore
3/2 * 2 = 3 units of food
2 units of clothing = 3 units of food

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ECONOMIC GAINS FROM TRADE:


Initially American worker was required to work for 3 hours and European 7 hours to get
one unit each of food and clothing.
After opening of trade, the American has still to produce food (within 1 hour) and has to
work for another 1 ½ hour to get a unit of clothing (assuming that price of food is $2 per
unit and $3 for clothing per unit) Thus, he has to work only for 2 ½ work, thereby
saving ½ hour or gaining real wage by 20%. Similarly, European worker has still to work
for 3 hours to produce one unit of clothing. However, he has to work to get one unit of
food. Since food cost is $ 2 and his each hour’s work is equal to $ 1, he has to work for
another 2 hours. Thus, he has to work only for 3+2=5 hours, thereby saving 2 hours. It
means an increase of 40% in the real wages.
Then workers and consumers can obtain a large quantity of consumer goods for the same
amount of work, when they specialize in the areas of comparative advantage and trade
their own production for goods in which they have relative disadvantage.
4. IMPORTANCE :
This theory can be applied to trade between and amongst countries. When countries
produce products in which they have comparative advantage, then they are better off.
Free trade allows the world to move to its production – possibility frontier as shown
below :

Production Possibility Frontier


500
X
E After Trade
Clothing
Before Trade

500 Z
Food

Bilateral, multilateral trade in numerous commodities benefit from operation of


the law of comparative advantages. Bilateral balancing of trade leads to severely

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reduced economic gains. Trade between a single country and “the rest of the
world” stands to gain numerous benefits for its operators.
Following Figure shows it:

Oil
Developing
Countries Japan

Consumer
Machinery Electronics
America

Or

Following example:

India ‘s Pakistan’s
Comparative wheat engineering products sugar Comparative
Advantage Advantage

5. CRITICISM :
i. Positive : It clearly shows the importance/significance/advantages of
International trade. Other sectors will gain more than the injured sectors
will lose. Over long periods of time, those displaced from low-wage
sectors will move towards higher-wage jobs.
ii. Negative :
a)Classical assumption : Classical assumption of a smoothly working
competitive economy with flexible prices and wages and voluntary
unemployment is quite wrong. Imports may lead to unemployment of
workers in that particular sector due to cheaper imports compared to
domestic products.Overvalued foreign exchange rate may reduce demand

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for workers who may not find comparable jobs in other sectors. Nation
may be pushed inside its PPF with rising unemployment and falling GDP.
1930s depression led to Tariff walls inU.S.A.
To quote Samuelson Nordhaus (in Economics),
“The classical theory of comparative advantage is strictly valid only
when exchange rates, prices, and wages are at appropriate levels and
when macro economic policies banish major business cycles and trade
dislocations from the economic scene.”
c) Income distribution : People, sectors or factors of production or regions
may get harmed due to substitution of people, sectors or factors of high
income countries by low-wage developing countries or regions. This
leads to loss of wages in the receiving country due to availability of cheap
foreign products rendering local labour or factors incompetitive.
d) Those who are temporarily injured by international trade are genuinely
harmed and are vocal advocates for protection and trade barriers.

6. CONCLUSION:
To quote Samuelson Nordhaus,
“Notwithstanding its limitations, the theory of comparative advantage is one
of the deepest truths in all economics. Nations that disregard comparative
advantage pay a heavy price in terms of their living standards and economic
growth.”
“Petition of the Candle Makers,”Written by French economist/Satarist Frederic
Bastat aptly sums up the whole truth of comparative advantage and protectionism
in the following paragraph,
“To the chamber of Deputies:We are subject to the intolerable competition of a
foreign rival, who enjoys such superior facilities for the production of light that
he can inundate our national market at reduced price. This rival is no other than
the sun. Our petition is to pass a law shutting up all windows, openings, and
fissures through which the light of the sun is used to penetrate our dwellings, to

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the prejudice of the profitable manufacture we have been enabled to bestow on


the country.
Signed : The Candle Makers,”

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REFERENCES
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