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# Economic Geography

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They say money doesn't grow on trees—but you can cut trees down and sell the wood for money! Economics has always been an integral component of human civilization, and economic geography seeks to analyze what effects wealth has had in different areas of the world. An economy can be divided into a number of different sectors and numerous theories have been developed to explain economic development. Read on to learn more about Theories of Economic Geography, Economic Sectors, and more.

## Definition of Economic Geography

The main objective of economic geography is to identify economic patterns across space and time in order to provide insight into how and why economic systems and practices develop.

Economic geography is the study of the spatial distribution of economic activity and economic development.

Because so much of our daily lives revolve around economic transactions, great and small, economic geography is a critical subset of human geography. How and why does economic wealth play a factor in the human condition? What effects does economic development have on human well-being? Studying economic geography helps answer those questions.

But there are quite literally dozens of different ways to approach economic geography. You can look into historical patterns; real estate, gentrification, and urbanization; types of economies; the concentration of wealth within cities, regions, and countries; trading philosophies and policies—the methodologies are endless. That being said, a few theories of economic geography have proven to be foundational to modern study. Let's take a look at those below.

## Theories of Economic Geography

Trying to understand how and why wealth is distributed is no small task, and geographers have developed a number of different theories and hypotheses to explain overarching patterns.

### Weber's Least Cost Theory

German economist Alfred Weber suggested that industries—seeking to minimize costs and maximize profits—would likely choose to locate manufacturing plants where labor and transportation would be the cheapest. This pattern is called the Least Cost Theory. The Least Cost Theory can be seen in action today with the many Western industries that have exported their manufacturing to developing nations where workers can be paid a lower salary.

### Commodity Dependence and Dependency Theory

Commodity dependence is an economic situation in which a country comes to rely on the export of commodities to generate wealth. It is somewhat related to dependency theory, a system that enables or encourages commodity dependence: the flow of resources from developing countries (the periphery) to developed countries (the core). Wealthier countries can benefit from both commodity dependence and dependency theory, as they allow them to take advantage of cheaper resources.

### World-systems Theory

We just mentioned the core and the periphery. Those concepts tie into world-systems theory, associated with economist Immanuel Wallerstein. The world-systems theory is a view of the world that divides nations into three economic tiers based on their trading supremacy: the core, the semi-periphery, and the periphery. Economic wealth is mostly concentrated in the core, to which most resources flow from the periphery. The semi-periphery is somewhere in between. Currently, most economists and geographers largely equate the core with the West.

Fig. 1 - The distribution of core, sem-periphery, and periphery countries in world trade as seen at the turn of the century

### Rostow's Stages of Growth

In 1960, American economist Walt Whitman Rostow (not to be confused with the famous poet!) proposed five stages of economic development in an attempt to identify patterns of economic growth. They are:

2. Preconditions for take-off
3. Economic take-off
4. Drive to economic maturity
5. Age of high mass consumption

Driven by social, political, or military concerns, a nation would eventually face the impetus to transition from bartering, hunting, and gathering to sedentary agriculture, then to industrialization, then finally, to mass consumer spending.

Rostow's stages are more applicable to specifically Western approaches to economic development. Even then, the purely linear nature of the stages can be seen as unrealistic.

## Economic Sectors

Rostow's stages of growth correspond roughly with our modern notions of development, as well as how we categorize economic-based labor. There are five different economic sectors, each of which revolves around a general type of economic activity. As a country becomes more economically developed, it will typically invest more and more energy and/or resources into the next sector, allowing it to generate even more relative wealth.

Once a country has further developed, it can (and sometimes must, to maintain expected profits) outsource its labor to the cheapest market with the most resources. That said, it is very rare for a country to entirely abandon an economic sector; doing so would cause it to be wholly dependent on foreign trade.

### The Primary Economic Sector

The primary economic sector is all about harvesting, gathering, and collecting natural resources. This includes industries like farming, hunting, mining, and fossil fuel extraction. The primary sector is foundational for all other economic sectors—but it doesn't generate the big bucks! Therefore, countries whose economies mostly revolve around the primary economic sector are typically the least developed.

### The Secondary Economic Sector

The secondary economic sector revolves around refining raw natural resources into something that can actually be used, so this sector includes manufacturing and construction. Think about it this way: a ream of printer paper has more economic value than a bucket full of wood pulp, so if you can develop the infrastructure that allows you to turn that wood pulp into paper, you can probably generate more income. Countries whose economies mostly revolve around the secondary economic sector are typically developing.

### The Tertiary Economic Sector

Once an item has been manufactured, it needs to be sold. That's where retail comes in. The tertiary economic sector revolves around not just retail sales and mass consumption, but also the service industry in general, which can range from garbage collection to a taxi ride. Countries whose economies mostly revolve around the tertiary economic sector are typically considered developed.

Fig. 2 - There is often a relationship between economic sectors and the level of economic development. Developed countries are in blue; developing countries are in yellow; and least developed countries are in orange

### The Quarternary and Quinary Economic Sectors

There are two more major economic sectors. The quarternary economic sector revolves around technology and research, while the quinary economic sector revolves around high-level professional decision-making. As with the tertiary economic sector, countries that can afford to invest in and develop these sectors en masse are typically developed.

## World Economy

One key aspect of economic geography should be obvious by now: economic development does not happen in a bubble. Whether from competition or cooperation, economic development is often inextricably linked to a nation's relationship with other nations, be it trade, outsourcing labor, or military and economic rivalry.

Fig. 3 - The world is becoming increasingly interconnected through international trade

Scenarios like this drive the world economy, a term used to describe the collective interactions of all of the world's different national economies. The world economy is becoming increasingly interconnected, partly thanks to a widespread commitment to neoliberalism, a system of economic thought that seeks to make international trade as easy as possible. This is mostly accomplished through the promotion of free trade, wherein countries eliminate tariffs, which are taxes imposed on imports and exports.

On your AP Human Geography exam, you may be asked to identify new global trading patterns that have emerged as a result of neoliberalism. One major example? Mercosur, a South American trade bloc. For more information, check out our explanation on Mercosur!

## Economic Geography Examples

To see economic geography in action, let's take a look at a couple of different examples of development concepts.

### GDP and the Human Development Index

There are several different ways to determine how economically developed a country is. Perhaps the three most common indicators are gross domestic product (GDP), gross national income (GNI), and the Human Development Index (HDI).

GDP is the total monetary value of all of the economic activity within a country's borders. GDP per capita is a division of that GDP by the total number of people that live within the borders. GDP is usually measured annually. So, for example, in 2019, the United States had a GDP of $21.43 trillion; the GDP per capita was a little over$65,000 dollars. GNI is very similar to GDP, except that it measures only the economic activity of official residents and citizens, domestic and abroad. An American citizen living and working in France, for example, would not be included in the GDP but would be included in the GNI.

Typically, the higher the GDP/GNI, the more economically developed a nation is. This is not always the case, however; India, Brazil, and China all command top 10 GDPs, but are considered developing or semi-periphery nations.

To address the fact that GDP and GNI do not present a complete picture, the United Nations promulgated the Human Development Index, a way of measuring development that combines per capita income with other general quality of life indicators like education and life expectancy.

Only one country, Germany, has a top 10 HDI ranking and a top 10 GDP. This discrepancy between GDP and HDI ranking suggests that economic development on its own does not always lead to an improvement in life for the common citizen. This awareness has, in part, led to the concept of sustainable development.

### Sustainable Development and Resistance to Modernization

It is often taken for granted that economic development is a good thing. And for many, if not most people, it usually is. But economic development also brings with it some negative consequences. Uneven development can leave some people impoverished even as national wealth increases. Additionally, economic development often takes a heavy toll on the environment as the natural world is exploited for resources.

Enter sustainable development, a concept that seeks to balance economic growth with respect for human rights, long-term viability, and the environment. The United Nations has even established 17 Sustainable Development Goals to help guide nations toward global sustainability. Check out our explanation on Sustainable Development for more information!

However, it should be said that not every group agrees with the basic premise of economic development. Some groups, like the Maasai of Kenya, reject the very notion of development and prefer to be left alone—more or less ignored by the world economy—to persist in traditional lifestyles, like hunting and gathering or nomadic herding. This puts them at odds with an increasingly interconnected economic landscape.

## Economic Geography - Key takeaways

• Economic geography is the study of the spatial distribution of economic activity and economic development.
• Major theories of economic geography include Weber's Least Cost Theory; Wallerstein's World-systems Theory; and Rostow's Stages of Growth.
• There are five economic sectors, grouped together by type of economic activity: primary, secondary, tertiary, quaternary, and quinary.
• The world economy includes all of the different interactions between different national economies.
• Economic development, the Human Development Index, and sustainable development are all elements of our increasingly complex understanding of economic geography.

## References

Economic geography can account for the GDP and HDI of nations like Germany as well as resistance to economic development by groups like the Maasai.

The main objective of economic geography is to identify economic patterns across space and time in order to provide insight into how and why economic systems and practices develop.

Economic geography is the study of the spatial distribution of economic activity and economic development. It is important because it can provide insight into what roles economic systems and decisions can have on human well-being.

The methods and approaches to economic geography are almost limitless since economics affects so much of human activity. Methods include, but are not limited to, historical patterns, urban patterns, types of economies, distribution of wealth, and philosophies for trade.

Economic geography is very useful in explaining the role of economics in our collective well-being and quality of life.

## Final Economic Geography Quiz

Question

Define sustainable development.

Sustainable development is an approach to socioeconomic development that seeks to balance economic profits with environmental preservation, human rights, and the needs of the future.

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Explain the concept of sustainability with regard to long-term socioeconomic development.

Sustainability prioritizes long-term living conditions over short-term profits.

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Socioeconomics combine ________ and ________.

Human factors and economic factors

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When did the Industrial Revolution take place?

The mid-1700s to the mid-1800s

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Briefly explain the impact of the Industrial Revolution on the Western world.

The Industrial Revolution ultimately increased standards of living in the West, but also had negative effects on the environment. Additionally, human rights were not always prioritized during the Industrial Revolution.

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Question

The United Nations' Sustainable Development Goals are meant to be accomplished by what year?

2030

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How many Sustainable Development Goals has the United Nations adopted?

17

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Question

Which of the following is NOT a UN Sustainable Development Goal?

Elimination of national militaries

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Briefly explain resistance to sustainable development.

Accomplishing sustainable development goals can be paradoxical; sustainable development places hypocritical handicaps on nations that are still developing; sustainable development can prevent corporations from generating maximum profits.

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Which of the following is NOT a fossil fuel?

Nuclear energy

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Which of the following are considered sources of renewable energy? Select all that apply.

Solar energy

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Question

Explain the relationship between agriculture and the environment.

To meet agricultural needs, farmers may have to cut down forests to create new farmland. Overuse of soil can lead to desertification. Cattle can generate large quantities of methane. Certain pesticides can cause pollution.

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Define ecotourism.

Ecotourism is an approach to environmental tourism that emphasizes an appreciation of the natural environment while minimizing your personal footprint.

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Where does the name "fossil fuel" come from?

Fossil fuels come from ancient decomposed plants and animals

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Which of the following are directly related to sustainable agriculture? Select all that apply.

Rotational grazing

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Define ecotourism.

Ecotourism is a type of nature-based tourism that emphasizes reducing or eliminating your environmental impact.

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Explain the main goal of ecotourism and how that is accomplished.

The main goal of ecotourism is to maintain natural areas by creating a financial incentive for their preservation.

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Ecotourism is a form of _________ development.

Sustainable

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Ecotourism is sometimes called:

Green Tourism

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Explain how ecotourism creates a financial incentive to preserve nature.

Locals can generate income from offering tours to natural sites, which has the potential to be more profitable than harvesting natural resources or developing the land for other uses.

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Which of the following is NOT one of Martha Honey's seven principles of ecotourism?

Generate federal tax revenue

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Which of the following are types of ecotourism? Select ALL that apply.

Soft Ecotourism

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Identify the major differences between soft ecotourism and hard ecotourism.

Generally, soft ecotourism is more controlled and less physically demanding. Hard ecotourism is more physically demanding and less controlled.

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List some examples of ecotourism.

Camping, hiking, wildlife viewing, safari, glamping, bird watching, expedition, trek; agrotourism is related

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Which of the following statements is most true?

Ecotourism is profitable, but cannot be as profitable as other uses of land

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What are two major disadvantages of ecotourism?

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Why might native or local people resist ecotourism?

Ecotourism more or less forces these groups to set aside their traditional lifestyles, especially if they are still practicing subsistence hunting.

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Adventure ecotourism is a form of ecotourism that revolves around sport or physical activity in a natural setting.

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How can ecotourism negatively impact wildlife?

Wildlife may become acclimated to humans, which may lead them to attack humans.

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Compare the terms "ecotourism" and "eco-friendly."

Eco-friendly tourism emphasizes minimizing your environmental impact as a tourist. However, unlike ecotourism, eco-friendly tourism does not necessarily have to be related to tourism in a natural area.

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Question

In English, what does Mercosur stand for?

The Common Market of the South

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Which of the following languages are official languages of Mercosur member states? Select all that apply.

French

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Is Mercosur more similar to the European Union or the United States-Mexico-Canada Agreement? Explain.

All three are primarily economic unions. Because Mercosur establishes common citizenship between member nations, it is more similar to the EU.

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Which treaty or agreement officially established Mercosur?

The Treaty of Asunción

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Which four nations are Mercosur's member states?

Argentina, Brazil, Uruguay, Paraguay

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Which nation was suspended from Mercosur in 2016 over concerns about human rights?

Venezuela

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Explain how Mercosur relates to neoliberalism.

Mercosur seeks to eliminate tariffs between nations via free trade agreements. Generally, neoliberalism supports removing barriers to trade.

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Mercosur has the ________ largest economy in the world.

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Which of the following are Mercosur observer states? Select all that apply.

New Zealand

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What is the most significant difference between member states and associated states within the Mercosur Parliament?

Associated states may hold seats but cannot vote.

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Which of the following is NOT a Mercosur associated state?

Costa Rica

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True or False: Every single state that is affiliated with Mercosur is located in South America.

False. Neither New Zealand nor Mexico are located in South America, although both of them are only observer states.

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True or False: Because Mercosur is the "common market of the south," only countries in the Southern Hemisphere are allowed to be affiliated.

False! Mexico, Venezuela, Guyana, and Suriname are located either mostly or entirely in the Northern Hemisphere.

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Explain Mercosur's freedom of movement policy.

Mercosur citizens can travel to other Mercosur member states without the need for a visa or a passport. However, they do need proof of citizenship.

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True or False: Technically, Argentina's economy alone is larger than the economy of Mercosur.

False. In 2021, Argentina had the 26th largest economy in the world, while Mercosur has the fifth largest economy in the world.

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Question

What happens if a major asset loses value in the financial world?

Businesses and people struggle or are prevented from paying their debts to banks, and financial institutions lose liquidity (i.e., cash).

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What is the role of governments in financial systems?

To make policies

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What is the first stage of a global financial crisis?

A failure in financial systems

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What is the second stage of a global financial crisis?

A failure in financial systems

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What is the third stage of a global financial crisis?

A failure in financial systems

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