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Evaluate the major geographical shifts that have occurred in the global economy during the past thirty years

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Introduction

Evaluate the major geographical shifts that have occurred in the global economy during the past thirty years Since the 1970's there has been a great change in the geography of different aspects of the global economy. The emergence of the tiger economies in South East Asia and Latin America has seen a global change in the geography of manufacturing from industrialised Western countries such as North America, the UK and West Germany. Using the measure of foreign direct investment (FDI) as an indicator, there has also been a change in the location of transnational companies (TNC). In 1960, U.S TNC's accounted for nearly half the world total of FDI, with British, Dutch and Swiss companies making up the remainder (in rank order). Due to the expansion of the global economy over the past thirty years, the U.S now only provides a third of the world total, Britain just under fifteen percent in second and Japan and German TNC's close behind (Berry, 1997) (fig.1). How important have these geographical changes been to the global economy? Figure 1 - Berry, B. 1997 Global Economy in Transition The significant shift in the geography of the manufacturing industry within the global economy is due primarily to the rapid growth of the Newly Industrialising Countries in the sector and the deindustrialisation of Western countries. ...read more.

Middle

In fact by 1993 over 75% of Japan's overseas production of electrical components was located in South East Asia (Smith, 1995). Technological advances also allowed TNC's to locate on the Pacific rim. Advances in air freight and containerisation mean components could be shifted from country to country far more easily than before. FDI from other countries aided the tiger economies to take off and over the period1965- 80 had a growth rate in GDP of over 8% (Smith 1995). This growth triggered a shift of manufacturing from the Western world towards the developing world, causing developed countries to deindustrialise. The main reason for deindustrialisation in the UK, West Germany and the USA was because of the comparative advantage that the Asian Economies have - a cheap, efficient manufacturing industry. Developed countries have to pay far more expensive labour costs and have far stricter safety and pollution measures, meaning costs rise, meaning both domestic and foreign investment in manufacturing reduced. A change in focus of Western economy was to follow, with more emphasis on the service and TNC's. In the 1970's industrialised countries concentrated on the service sector, initially in the fields of health care, education and public administration, however they ceased to grow in the 1980's (Wallace, 1990). ...read more.

Conclusion

TNC's have been major in the world's industrial transformation, especially in NIC's. The TNC has been the most important single factor in changing the geography of economic activities in the past thirty years. They have changed areas of the world from completely agrarian cultures into industrialised countries, namely South Korea, Hong Kong, Singapore and Taiwan, the 'four tigers'. In the thirty year period between 1970- 2000 the world has seen a shift of the manufacturing sector from the developed world to South East Asia. This has been because of large amounts of FDI and government intervention in the region. Although there is still some manufacturing in Western countries, policies have shifted more towards finance and knowledge-based sectors. Currently another global shift is occurring. The NIC's have now got economies that are now more advanced than before. Labour costs have now gone up due to this advancement and are now higher than in new, second tier NIC's, such as Thailand and China. This means TNC's from both the Western world and first tier NIC's are now more likely to locate their manufacturing there. It is likely in the next thirty years that NIC's will deindustrialise in favour of a more advanced knowledge based economy. ...read more.

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