Module 5: urbanization and rural - urban migration ● Economic Causes

Poverty in rural areas, due to large

companies creating commercial farms and small
1. Content / Discussion / Learning Resources / Links
farmers finding it harder and harder to make a
● urbanization. grown significantly, and living, forces people to move to the urban areas in
our economies have become more search of better employment opportunities. The
industrialized over the past few hundred years, rise of industry in developing countries has
and as a result many more people have moved provided more job opportunities in urban areas,
into cities. and cities have increased significantly in size due
● industrialization began in the eighteenth to this.
century that cities really began to boom.
● Education
● megacity, city that has more than 10 million Opportunities for education at universities
inhabitants. and technical colleges draw young people to the
urban centers, where they hope to provide better
Another effect of urbanization is urban prospects for the future for themselves and their
sprawl. Urban sprawl is when the population families. Urban centers in developing countries
of a city becomes dispersed over an have become hubs of education and training, as
increasingly large geographical area. they are also in developed countries.
Sprawl also increases the need for travel
infrastructure, such as roads, because people’s ● Natural Population Increase
homes are likely to be farther away from There has been a natural increase of
where they work and the amenities they enjoy. population in many developing countries due to
improved medical care, immunization programs,
better sanitation and more widespread education.
By 2050, the urban population will almost double Death rates have decreased, and there are fewer
to 6.3 billion — two-thirds of all the people on the infant deaths, resulting in population growth. As
planet. Cities are gaining 77 million new residents populations grow so does the urban sprawl. As the
each year. cities become overcrowded with not enough
employment to go around, more and more people
A. Causes of Urbanization live in substandard housing.
. The movement of people from one place to ● Environmental Degradation
another is called migration. Migration is When the natural habitat of farming families
influenced by economic growth and is destroyed due to deforestation, mining or
development and by technological change industrial expansion, they are forced to find
(Marshall et al., 2009) and possibly also by somewhere else to live. Often small amounts of
conflict and social disruption. It is driven by pull compensation from logging and mining companies
factors that attract people to urban areas and push provide the funds for families to move to urban
factors that drive people away from the areas, but there is no guarantee of work in the
countryside. cities, and many families move there and are
Rural to urban migration can be a selective forced into poverty because they cannot find
process, as some types of people are more likely to enough work.
move than others. One of the factors involved is
gender, because employment opportunities vary ● Social Causes
greatly with different jobs for men and women. Many young people migrate to urban
Another factor is age. Young people are more centers in search of lifestyle changes and with the
likely to move to towns, with more elderly people desire to become associated with the club scenes in
and children left in rural areas. Selectivity in large cities. Such scenes provide employment
migration affects the population in both the rural opportunities, but they sadly also attract gambling
and the urban areas. If more men move to towns and crime syndicates to develop (Fritzerald,
and cities than women, this leaves a predominantly 2017).
female society in rural areas.

Positive and Negative Impact of Urbanization

● Political Causes
During times of political unrest Positive Impact of Urbanization
(dissatisfaction), families are forced to leave their 1. Industrialization
rural farming villages, and they migrate to the Industrialization is a trend representing a
urban areas in search of shelter, food and shift from the old agricultural economics to a novel
employment. When large numbers of people are non-agricultural economy, which creates a
driven from their rural villages, especially in modernized society. Through the industrial
war-ravaged countries, the cities become saturated, revolution, more people have been attracted to
and slums start to grow on the outskirts of the move from rural to urban areas on account of
cities. improved employment opportunities. The
industrialization has increased employment need to develop better infrastructure, better
opportunities by giving people the chance to work education institutions, better health facilities, better
in modern sectors in job categories that aids to stir transportation networks, the establishment of
economic developments. banking institutions, better governance, and better
housing.
2. Commercialization extensive urbanization mostly results in
Commerce and trade play a major role in adverse effects. Below listed points are a few of
urbanization. The distribution of goods and them.
services and commercial transactions in the modern 1. Housing Problems
era has developed modern marketing institutions Urbanization attracts people to cities and
and exchange methods that have tremendously towns which leads to a high population increase.
given rise to the growth of towns and cities. With the increase in the number of people living in
Commercialization and trade come with the general urban centers, there is a continued scarcity of
perception that the towns and cities offer better houses. This is due to insufficient expansion space
commercial opportunities and returns compared to for housing and public utilities, poverty,
the rural areas. unemployment, and costly building materials
which can only be afforded by a few individuals.
3. Social Benefits and Services
There are numerous social benefits 2. Overcrowding
attributed to life in cities and towns. Examples Overcrowding is a situation whereby a huge
include better educational facilities, better living number of people live in a small space. This form
standards, and better sanitation and housing, better of congestion in urban areas is consistent because
health care, better recreation facilities, and better of overpopulation and it is an aspect that increases
social life in general. day by day as more people and immigrants move
On this account, more and more people are into cities and towns in search of a better life. Most
prompted to migrate into cities and towns to obtain people from rural or undeveloped areas always
a wide variety of social benefits and services which have the urge of migrating into the city that
are unavailable in rural areas. normally leads to congestion of people within a
small area.
4. Employment Opportunities 3. Unemployment
In cities and towns, there are ample job The problem of joblessness is highest in
opportunities that continually draw people from urban areas and it is even higher among educated
rural areas to seek a better livelihood. Therefore, people. It is estimated that more than half of
the majority of people frequently migrate into unemployed youths around the globe live in
urban areas to access well-paying jobs as urban metropolitan cities. And, as much as income in
areas have countless employment opportunities in urban areas is high, the costs of living make the
all developmental sectors such as public health, incomes seem horribly low. The increasing
education, transport, sports and recreation, relocation of people from rural or developing areas
industries, and business enterprises. Services and to urban areas is the leading cause of urban
industries generate and increase higher value-added unemployment.
jobs, and this leads to more employment 4. Development of Slums
opportunities. The cost of living in urban areas is very
high. When this is combined with random and
5. Modernization and Changes in the Mode of unexpected growth as well as unemployment, there
Living is the spread of unlawful resident settlements
Modernization plays a very important role represented by slums and squatters. The growth of
in the process of urbanization. As urban areas slums and squatters in urban areas is even further
become more technology savvy together with exacerbated by fast-paced industrialization, lack of
highly sophisticated communication, infrastructure, developed land for housing, a large influx of rural
medical facilities, dressing code, enlightenment, immigrants to the cities in search of a better life,
liberalization, and other social amenities and the elevated prices of land beyond the reach of
availability, people believe they can lead a happy the urban poor.
life in cities. In urban areas, people also embrace
changes in the modes of living namely residential
habits, attitudes, dressing, food, and beliefs. As a 5. Water and Sanitation Problems
result, people migrate to cities and the cities grow Because of overpopulation and rapid
by absorbing the growing number of people day population increase in most urban centers, it is
after day. common to find there are inadequate sewage
facilities. Municipalities and local governments are
6. Rural-urban Transformation faced with serious resource crisis in the
As localities become more fruitful and management of sewage
prosperous due to the discovery of minerals,
resource exploitation, or agricultural activities, facilities. As a result, sanitation becomes poor and
cities start emerging as the rural areas transform sewages flow chaotically, and they are drained into
into urbanism. The increase in productivity leads to neighboring streams, rivers, lakes, or seas.
economic growth and higher value-added Eventually, communicable diseases such as
employment opportunities. This brings about the typhoid, dysentery, plague, and diarrhea spread
 very fast leading to suffering and even deaths. Agriculture is the fundamental occupation of
Overcrowding also highly contributes to water the rural people and forms the basis of the rural
scarcity as supply falls short of demand. economy. A farmer has to perform various
agricultural activities for which he needs the
6. Poor Health and Spread of Diseases cooperation of other members. Usually, these
The social, economic and living conditions members are from his family. Thus, the members
in congested urban areas affects access and of the entire family share agricultural activities
utilization of public health care services. Slum .
areas in particular experience poor sanitation and d. Close Contact with Nature
insufficient water supply which generally make The rural people are in close contact with
slum populations susceptible to communicable nature as most of their daily activities revolve
diseases. around the natural environment. This is the reason
why a ruralite is more influenced by nature than an
Environmental problems such as urban pollution urbanite. The villagers consider land as their real
also cause many health problems namely allergies, mother as they depend on it for their food, clothing
asthma, infertility, food poisoning, cancer and even and shelter.
premature deaths.
e. Homogeneity of Population
7. Traffic Congestion The village communities are homogeneous
When more people move to towns and in nature. Most of their inhabitants are connected
cities, one of the major challenges posed is in the with agriculture and its allied occupations, though
transport system. More people means an increased there are people belonging to different castes,
number of vehicles which leads to traffic religions and classes.
congestion and vehicular pollution. Many people in
urban areas drive to work and this creates a severe f. Social Stratification
traffic problem, especially during rush hours. Also In rural society, social stratification is a
as the cities grow in dimension, people will move traditional characteristic, based on caste. The rural
to shop and access other social needs/wants which society is divided into various strata on the basis of
often cause traffic congestion and blockage. caste.

8. Urban Crime g. Social Interaction

Issues of lack of resources, overcrowding, The frequency of social interaction in rural
unemployment, poverty, and lack of social services areas is com­paratively lower than in urban areas.
and education habitually lead to many social However, the interaction level possesses more
problems including violence, drug abuse, and stability and continuity. The relationships and
crime. Most of the crimes such as murder, rape, interactions in the prima­ry groups are intimate.
kidnapping, riots, assault, theft, robbery, and The family fulfills the needs of the members and
hijacking are reported to be more prominent in the exer­cises control over them. It is the family, which
urban vicinities. Besides, poverty-related crimes introduces the members to the customs, traditions
are the highest in fast-growing urban regions. and culture of the society. Due to limited contacts,
These acts of urban crime normally upset the peace they do not develop individuality and their
and tranquility of cities/towns viewpoint towards the outside world is very
narrow, which makes them oppose any kind of
B. Characteristics of Rural and Urban Areas violent change.
Some people think that living in a city (urban)
is more advantageous than living in a province h. Social Mobility
(rural). However, others insist upon the idea that In rural areas, mobility is rigid as all the
living in a province is unquestionably fascinating. occupations are based on caste. Shifting from one
Paul Mondal (n.d.) compares and contrasts the occupation to another is difficult as caste is
rural life and the urban life by citing the determined by birth. Thus, caste hierarchy
characteristics of each area. determines the social status of the rural people.
The ten essential characteristics of the rural i. Social Solidarity
community are as follows: The degree of social solidarity is greater in
villages as com­pared to urban areas. Common
a. Size of the Community experience, purposes, customs and traditions form
The village communities are smaller in area the basis of unity in the villages.
than the urban communities. As the village
communities are small, the population is also low. j. Joint Family
Another characteristic feature of rural
b. Density of Population society is the joint family system. The family
As the density of population is low, the controls the behaviour of the individuals.
people have intimate relationships and face-to-face Generally, the father is the head of the family and
contacts with each other. In a village, everyone is also responsible for maintaining discipline
knows everyone. among members. He manages the affairs of the
family.
c. Agriculture is the Main Occupation
Characteristics of Urban Community 8. Segmentation of personality
Most routine urban contacts are of
1. Large size and high density of population secondary group rather than primary group nature.
The size of the urban community is much larger Most contacts are instrumental, that is, we use
than the rural community. Not only is this, in urban another person as a necessary functionary to fulfil
areas, there is a high density of population. Density our purposes. We do not neces­sarily interact with
increases the number of short-term, impersonal entire persons but
and utilitarian social relationships a person is
likely to have. with people in terms of their formal roles as
postman, bus driver, office assistant, policeman
2. Heterogeneity and other functionaries. We thus interact with only
Urban population is heterogeneous. It a segment of the person, not with the whole
consists of various shades of people—different person.
castes, classes, ethnic groups, religions, etc. They
are not all alike. Urban community is noteworthy
for its diversity.
Module no. 6: Human capital; education and health in economic
3. Anonymity development
The sheer pressure of number marks for 1. Overview
anonymity. Anonymity is a loss of identity and
Jim Yong Kim, the World Bank President
sense of belongingness. The heterogeneity of city
in 2013, stressed that to end poverty and boost shared
life with its mixture of people of all races, castes,
prosperity, countries need robust and inclusive
classes, creeds, occupations and ethnic origins
economic growth. And to drive growth, they need to
heightens the sense of anonymity.
build human capital through investments in health,
education and social protection for all their citizens.
4. Mobility and transiency
Indeed, education and health are the basic
Urban life is dynamic. Social relations are
objectives of development as health is central to
temporary. Therefore, permanency does not
well-being and education is essential for satisfying and
develop in urban relations. There is a high rate of
rewarding life. Health and education are fundamental to
geographical as well as social mobility in urban
the broader notion of expanded human capabilities that
areas. In America, on an average, a person changes
lie at the heart of the meaning of development
his job (occupational mobility) within six years.
(Samuelson & Nordhaus, 2015).
Consequently, his residence also changes.
Different types of mobility usually mean
transiency of contact. As such, urban social A. Education and Health as Important
relations continue for a very short time. Urban Inputs for Development
dweller continually makes new social contacts. Human capital refers to the
productive investments embodied in human
5. Formality of relations persons, including skills, abilities, ideals,
In urban social life, relations are not health, and locations, often resulting from
intimate and kinship based. Most routine social expenditures on education, on-the-job training
contacts in the city are impersonal and segmented. programs, and medical care.
Formal politeness takes the place of genuine
friendliness. The impersonality of urban life is a Health
necessary and convenient way of urban living. The World Health Organization
(WHO) states that health is not only the
6. Social distance absence of illnesses. It is also the ability of
City people are physically crowded but people to develop to their potential during
socially distant. Social distance is a product of their entire lives. In that sense, health is an
anonymity, impersonality and heterogeneity. asset individuals possess, which has intrinsic
Occupational differences may be even more value (being healthy is a very important source
important sources of social distance. Urbanites of well-being) as well as instrumental value. In
become nigh-dwellers, not neighbours. Apartment instrumental terms, health impacts economic
dwellers may live for years without any growth in a number of ways. For example, it
acquaintance with many of the other occupants. reduces production losses due to worker
illness, it increases the productivity of adults
7. Regimentation as a result of better nutrition, and it lowers
The city is always in hurry. The life (work absenteeism rates and improves learning
and entertainment) in the urban community among school children. Health also allows for
becomes ‘clock regulated’. Order, regularity and the use of natural resources that used to be
the punctuality are the characteristics of urban life. totally or partially inaccessible due to
On the streets, his movement is controlled by illnesses. Finally, it permits the different use of
traffic lights, on railway stations and other places financial resources that might normally be
by elevators and escalators. destined for the treatment of ill health.
Several economists believe that
health affects economic growth directly
through labor productivity and the
 economic burden of illnesses. Health also and parent income and education affect the health
indirectly impacts economic growth since and nutrition of their children. For a poverty trap to
aspects such as child health affect the future exist, several elements must be combined. Health
income of people through the impact health also generates returns in the adult population’s
has on education. income, although the structure and magnitude of
their returns would not by themselves generate a
Education poverty trap. Instead, child nutrition and health
● one of the fundamental factors of play a pivotal role in poverty traps, since they
economic development. establish the foundations of human capital
● No country can achieve sustainable investment, in particular, education.
economic development without When early childhood development is
substantial investment in human deficient due to shortcomings in education, health
capital. and parental income, children’s educational
● Education enriches people's achievements are poor and the poverty trap is
understanding of themselves and reinforced. Because the poverty trap is associated
the world. to the restrictions faced by poor households to
● It improves the quality of their accumulate human capital, it is also called a
lives and leads to broad social “human development trap”. Since there are
benefits to individuals and society. increasing returns for education, and since
● Education raises people's nutrition and health offer high yields in
productivity and creativity and educational achievements and future income at
promotes entrepreneurship and a relatively low cost, the foregoing conclusions
technological advances. show that there is an important and systematic
● it plays a very crucial role in degree of underinvestment in health and education.
securing economic and social This implies that market mechanisms for human
progress and improving income capital investment are flawed. Establishing which
distribution. market mechanisms are failing is important,
especially for public policies, but it requires further
Few centuries ago, Adam Smith research.
identified, “the acquired abilities of all the A list of possible market failures
inhabitants are a kind of capital,” what is now responsible for underinvestment in human
called “human capital,” as one of the four capital includes:
types of fixed capital that contribute to ● Imperfect parenting, as in the
production in a national economy. case of absent parents or
more educated workers are more undernourished parents; their lack
productive and that they earn higher salaries. of health or knowledge.
There is also no doubt that average levels of ● Imperfect credit and insurance
education and national income rise markets.
simultaneously. So, this idea not only support ● Uncertainty or a lack of
Adam Smith’s view that acquired abilities are information or foresight
a form of capital but also proves that education regarding the benefits of early
plays a large and critical role in the economic childhood development.
development process and that it most likely is ● Impatience or excessive risks due
the limiting factor in this process (Akbari, to poverty since although
2016). investment in human capital has
Finally, the human capital and the necessary returns, problems
physical capital are complementary; education inherent to the poor, such as a
has both direct and indirect effects on national lower life expectancy, imply they
income. So the human capital and physical will not be willing to invest as
capital are both required for economic much.
development and that each has a positive ● Unavailability of the necessary
external effect on the productivity of the other. public goods for health and
To end with Education is the key to solve education. Examples would be
every problem, no nation could achieve the supply of drinking water,
sustainable economic development without drainage, health services, and
substantial investment in human capital. micronutrients; information,
communication, and transport
infrastructure. (who.int).

B. Health and Poverty Traps Barriers to Education

Due to its direct and indirect impact, health Before we discuss some of the barriers to
is one of the important determinants of the education, it is important to make mention of
incidence of poverty as well as its persistence over some global education facts provided by
time, known as “poverty traps”. The latter occur the UNESCO. These include the following:
because child health and nutrition are important ⮚ In 39 out of 99 countries, fewer than
factors that determine an adult’s level of education.
Education, in turn, has a strong impact on income, 50% of the poorest children have
 completed primary school. In some zones. According to UNESCO, the first two years
countries like South Sudan, that figure of Syria’s civil war erased all the country’s
is as low as 7%. educational progress since the start of the century.
Without quality education, many fear that Syria’s
⮚ More than 50% of young people in 58
children will become a lost generation.
out of 133 countries have not 5. Climate change
completed upper secondary school. In Extreme weather patterns are on the rise and
Niger, only 2% of its young people have can send vulnerable communities tumbling into
completed this education. poverty. One of the first things families are forced
⮚ In 24 out of 52 countries, fewer than to do in these situations is pull their children out of
school. They can no longer afford the fees, and
25% of children in rural areas attend a need their children to work. Climate change related
pre-primary program like events like El Nino and La Nina can also destroy
kindergarten. In Afghanistan, fewer or damage classrooms, leaving them closed for
than 1% get this crucial basic education. long stretches of time
⮚ In 30 countries, fewer than 90 females 6. Unpaid teachers
for every 100 males complete When governments are dysfunctional,
lower-secondary school. public servants do not get paid. That includes
⮚ In 35 out of 75 countries, at least 25% teachers. In some countries, teachers are not paid
of the poorest young women are for months at a time. Many have no choice but to
illiterate. quit their posts to find others sources of income or
are moved to other districts. Schools often struggle
Given these global facts, it is important to to find qualified teachers to replace those who
identify the factors that cause them. Below are the have left. Without qualified teachers in the
unexpected barriers to education around the classrooms, children suffer.
world. 7. Being an older student
According to UNICEF, adolescents are
1. Lack of toilets twice as likely to be out of school compared to
Many schools have no toilets (let alone younger children. Globally, that means one in five
separate bathrooms for boys and girls). This means students between the ages of 12 and 15 miss
missed school days for kids with minor stomach school. As children get older, they face increased
bugs — or for girls who get their period. The pressure drop out so that they can work and
World Bank estimates that girls around the world contribute to their family income. One solution
miss up to 20% of their school days due to their we’ve adopted at Concern is to help those who
period. Usually this is because they don’t have didn’t complete their education build invaluable
sanitary pads or private bathroom facilities. Access skills.
to clean and safe toilets increases the amount of 8. Being female
time that children can be in school. One of the cruellest barriers to education is
2. Harvest & market days gender. In many countries around the world, girls
In farming communities, the harvest is not are more likely to be excluded from education than
only an important source of food. With surplus boys. This is despite all the effort and progress
crops sold at market, it is also a vital source of made in recent years to increase the number of
income. During these periods, children are often girls in school. According to UNESCO, up to 80%
required to skip school to help their families of school-aged girls who are currently out of
harvest and sell crops. Sometimes they’ll be out of school are unlikely to ever start school. For boys
school for weeks at a stretch. Families who make currently out of school, the rate of never starting
their living from farming often have to move school is just 16%. This rate is highest in
around to go with their grazing herds, or to harvest emergency situations and fragile states.
crops planted in different areas. This is also 9. Violence and bullying in the classroom
disruptive for children and their education. Traditionally, we think of school as a safe
3. Child marriage place for children. Unfortunately, it’s a place
Child marriage and a lack of basic education where many experience violence (at home and
go hand-in-hand in many countries. Girls who get abroad). A UN study found that, while 102
married often drop out of school to take care of countries had banned corporal punishment in
their new husbands and families. There’s also a schools, the ban isn’t enforced. The report also
correlation between a lack of formal education and found that many children faced sexual violence
girls marrying young. According to the UN, and bullying in schools. Children will often drop
one-third of girls in the developing world wed out of school altogether to avoid these situations.
before the age of 18, and one in nine get married Even when children stay in school, violence can
before the age of 15. In most instances, marriage affect their social skills and self-esteem. It also has
and childbearing means the end of a girl’s formal a negative impact on their educational
education. achievement.
4. Conflict and war 10. Cost of supplies and uniforms
Conflict may seem like an obvious barrier to Though many countries provide free
education, but the scale of its impact is staggering. elementary education, attending school still comes
USAID reports that about half of all children not at a cost. Parents and caretakers often pay for
attending school are living in crisis and conflict mandatory uniforms and other fees. School
 supplies are also necessary. According to a World localized epidemics, with dire implications for what
Bank report, these costs can keep many students may happen during a full-fledged global pandemic
out of the classroom. (Madhav, et.al, n.d.) .
11. Outbreaks and epidemics A pandemic is defined by the World Health
Even if the student body is healthy, they Organization (WHO) as “an epidemic occurring
may be kept out of school if an epidemic has hit worldwide, or over a very wide area, crossing
their area. Teachers might get sick, families with international boundaries and usually affecting a large
sick parents may need their children to stay home. number of people”. The classical definition includes
Quarantines can go into effect. The 2014-16 West nothing about population immunity, virology or
African Ebola outbreak was a severe barrier to disease severity. By this definition, pandemics can be
education in countries like Liberia and Sierra said to occur annually in each of the temperate
Leone. Ebola put the education of 3 million southern and northern hemispheres, given that
children in these countries on hold. As a response, seasonal epidemics cross international boundaries and
we worked with the governments of both countries affect a large number of people.
to deliver lessons by radio. We also trained
community members to work with small groups of
children on basic reading and math. As schools
reopened, we shifted our focus to help children get Risks
back into classrooms safety ● Pandemics have occurred throughout
Other barriers to education history and appear to be increasing in
There are many expected barriers to frequency, particularly because of the
education that have an equally high impact on increasing emergence of viral disease from
children. This includes a lack of funding for animals.
schools and untrained teachers. What does the ● Pandemic risk is driven by the combined
most damage changes from one area to the next. effects of spark risk (where a pandemic is
But perhaps one of the top barriers is when likely to arise) and spread risk (how
children are not properly taught the basics of likely it is to diffuse broadly through
reading and writing. This has a ripple effect on human populations).
their ability to learn in all other subjects, and ● Some geographic regions with high spark
causes many children to drop out of school risk, including Central and West Africa,
altogether. lag behind the rest of the globe in
pandemic preparedness.
C. Pandemics: Risks, Impacts, and Mitigation ● Probabilistic modelling and analytical
Pandemics are large-scale outbreaks of tools such as expedience probability (EP)
infectious disease that can greatly increase morbidity curves are valuable for assessing
and mortality over a wide geographic area and cause pandemic risk and estimating the potential
significant economic, social, and political disruption. burden of pandemics.
Evidence suggests that the likelihood of pandemics ● Influenza is the most likely pathogen to
has increased over the past century because of cause a severe pandemic. EP analysis
increased global travel and integration, urbanization, indicates that in any given year, a 1
changes in land use, and greater exploitation of the percent probability exists of an influenza
natural environment. pandemic that causes nearly 6 million
The international community has made pneumonia and influenza deaths or more
progress toward preparing for and mitigating the globally.
impacts of pandemics. The 2003 severe acute
respiratory syndrome (SARS) pandemic and growing Impacts
concerns about the threat posed by avian influenza
led many countries to devise pandemic plans. ▪ Pandemics can cause significant,
Delayed reporting of early SARS cases also led the widespread increases in morbidity and
World Health Assembly to update the International mortality and have disproportionately
Health Regulations (IHR) to compel all World Health higher mortality impacts on LMICs.
Organization member states to meet specific ▪ Pandemics can cause economic damage
standards for detecting, reporting on, and responding through multiple channels, including
to outbreaks. short-term fiscal shocks and longer-term
Despite these improvements, significant negative shocks to economic growth.
gaps and challenges exist in global pandemic ▪ Individual behavioral changes, such as
preparedness. Progress toward meeting the IHR has fear-induced aversion to workplaces and
been uneven, and many countries have been unable to other public gathering places, are a
meet basic requirements for compliance. Multiple primary cause of negative shocks to
outbreaks, notably the 2014 West Africa Ebola economic growth during pandemics.
epidemic, have exposed gaps related to the timely ▪ Some pandemic mitigation measures can
detection of disease, availability of basic care, tracing cause significant social and economic
of contacts, quarantine and isolation procedures, and disruption.
preparedness outside the health sector, including ▪ In countries with weak institutions and
global coordination and response mobilization. These legacies of political instability, pandemics
gaps are especially evident in resource-limited can increase political stresses and
settings and have posed challenges during relatively tensions. In these contexts, outbreak
 response measures such as quarantines
have sparked violence and tension
between states and citizens.

Mitigation

⮚ Pathogens with pandemic potential vary

widely in the resources, capacities, and ⮚ For many poorly prepared countries, surge
strategies required for mitigation. capacity will likely be delivered by
However, there are also common foreign aid providers. This is a tenable
prerequisites for effective preparedness strategy during localized outbreaks, but
and response. global surge capacity has limits that likely
⮚ The most cost-effective strategies for will be reached during a full-scale global
increasing pandemic preparedness, pandemic as higher-capacity states focus
especially in resource-constrained settings, on their own populations.
consist of investing to strengthen core ⮚ Risk transfer mechanisms, such as risk
public health infrastructure, including pooling and sovereign-level catastrophe
water and sanitation systems; increasing insurance, provide a viable option for
situational awareness; and rapidly managing pandemic risk.
extinguishing sparks that could lead to
pandemics. Knowledge Gaps
⮚ Once a pandemic has started, a ❖ Spending and costs specifically associated
coordinated response should be with pandemic preparedness and response
implemented focusing on maintenance of efforts are poorly tracked.
situational awareness, public health ❖ There is no widely accepted, consistent
messaging, reduction of transmission, and methodology for estimating the economic
care for and treatment of the ill. impacts of pandemics.
❖ Most data regarding the impacts of
⮚ Successful contingency planning and
pandemics and the benefits and costs of
response require surge capacity—the mitigation measures come from
ability to scale up the delivery of health high-income countries (HICs), leading to
interventions proportionately for the biases and potential blind spots regarding
severity of the event, the pathogen, and the risks, consequences, and optimal
the population at risk. interventions specific to LMICs (Madhav,
et.al, n.d.) .

—-------------------------------------------------------------------------------

Module 7: The environment and development millions of other species. But those gases are now
out of balance and threaten to change drastically
A. The environmental costs of economic which living things can survive on this planet.
growth Atmospheric levels of carbon dioxide, the
Rapid economic growth combined with a most dangerous and prevalent greenhouse gas are
rapid population growth damage to the at the highest levels, ever recorded. Greenhouse
environment gas levels are so high primarily because human
▪ Air/land/water pollution causes health have released them into the air by burning fossil
problems and can damage the productivity of fuels. The gases absorb solar energy and keep heat
land and seas. close to Earth's surface, rather than letting it escape
▪ Global warming leads to rising sea into space. That trapping of heat is known as the
levels, volatile weather patterns and could greenhouse effect (Nunez, n.d.)
cause significant economic costs The Fourth National Climate Assessment,
▪ Deforestation damages soil and makes areas published in 2018, warned that if we do not curb
more prone to drought. greenhouse gas emissions and start to adapt,
▪ Economic growth leads to resource depletion climate change could seriously disrupt the
and loss of biodiversity economy. Warmer temperatures, sea level rise and
▪ Creation of waste and toxins. extreme weather will damage property and critical
infrastructure, impact human health and
productivity, and negatively affect sectors such as
The past 50 years has seen a 60% increase agriculture, forestry, fisheries and tourism. The
in CO2 emissions which is a product of economic demand for energy will increase as power
growth. The first essential aspect is for society and generation becomes less reliable, and water
governments to recognise all the external costs and supplies will be stressed. Damage to other
external benefits of the environment. Carbon countries around the globe will also affect U.S.
dioxide, a key greenhouse gas that drives global business through disruption in trade and supply
climate change, continues to rise every month. By chains (Cho, 2019).
trapping heat from the sun, greenhouse gases have
kept Earth's climate habitable for humans and
 increase in crime as well as prostitution in
External costs from pollution slums. Practices such as the intake of alcohol,
Reducing CO2 emissions can be done with use of open spaces or drains as latrines and
only marginal cost to current consumers. However, improper disposal of garbage in front of
damaging the environment in the long-term could dwelling places are aspects of social and
lead to a devastating high cost to future consumers. visual pollution. Most social problems arise
from low-income areas and slums.
B. Urban Development and the Environment
The promise of jobs and prosperity,
among other factors, pulls people to cities. Slums have formed in many large
Half of the global population already lives in cities around the world, as a consequence of
cities, and by 2050 two-thirds of the world's urbanization and development. Slums were
people are expected to live in urban areas. even formed in New York City, in what is
But in cities two of the most pressing now known as Central Park. Slums are
problems facing the world today also come concentrated informal settlements
together: poverty and environmental occurring in urban areas. More hope for
degradation. Poor air and water quality, financial prosperity and employment
insufficient water availability, waste-disposal opportunities are found in and around
problems, and high energy consumption are cities, so although slums seem distasteful
exacerbated by the increasing population and dirty from the outside, they are
density and demands of urban environments. necessary for the transition of rural to
Strong city planning will be essential in urban. Slums can be considered a
managing these and other difficulties as the transitory phase from poverty to
world's urban areas swell. prosperity (Karelse & McMannis, 2018).
Uncontrolled urban growth and Slums are characterized by poor
internal migration from the countryside to sanitation, overcrowded and crude habitation,
the town are the major causes of urban inadequate water supply, hazardous location
slums. and insecurity of tenure. The people living in
Living conditions in slum slums are highly vulnerable to different forms
settlements are often materially worse than in of risks- both natural and man-made. Their
the villages from which the migrants came. living conditions depict poverty in terms of
Overcrowding of premises in slums and both inadequate incomes and environmental
shanty-type construction are typical. There is deprivation. Studies show that slum poverty
enormous pressure on water supplies and the puts major stress on people's lives through
arrangements for waste disposal. Malnutrition pollution, congestion, noise, stagnant water
and diseases add to the burden on medical and flooding. Households living in these poor
services. Schools are overcrowded and environments pay more for basic services
anti-social behavior is common. This (i.e., water and electricity), have poorer
concentration of unassimilated migrants tends health status, have poorer school
to encourage juvenile delinquency, adult performance, have lower productivity and are
crime, vice, alcoholism, gambling, mental vulnerable to crimes and violence. While the
disorders, and political instability. Children of country has made substantial progress in
the slums are both materially and emotionally water and sanitation targets of the MDGs, it
disadvantaged and underprivileged. Other has done poorly in improving the lives of
social problems linked with urban people in slums and in providing quality of
environmental factors are the unbalanced life for most of the urban poor.
distribution of population by age group in Since the living conditions of these
urban and suburban areas, non-adaptation of areas are noticeably of lesser quality and the
rural migrants, dissatisfaction due to population density is above average, the state
instability of employment opportunities, and is often involved in removing slums. If
difficulty in integrating youth. Sickness and governments destroy these informal
disease, along with high mortality rates, are settlements without relocation initiatives, it
commonplace. makes it harder for displaced people to move
Social pollution is becoming a up the poverty ladder. Slums are a coping
serious problem in the cities. Due to the strategy for the urban poor, and until the
industrial growth and expansion of urban poor have an adequate voice, vote, and
commercial activities. Urban-rural migration dignity that is recognized by the state, their
has given rise to the growth of a large number economic condition will not improve. Slum
of slums. The location of slums are generally upgrading or subsidized family relocation
relegated to sites that are lease desirable from projects by the government could be possible
the habitat point of view - low lying area that improvements. Political will, funding, and
arc susceptible to inundation, quarry pits, community participation are three essential
tank beds, along railway lines, near ingredients to the future of housing in
cemeteries, slaughter houses etc., making the sustainable cities.
city unhealthy. Social and economic problems
are also important in inducing social
pollution. Inadequate income has led to an
C. Environmental Economics specific problems to be rectified, but there
Environmental economics is an can be many approaches to solving the same
area of economics dealing with the environmental problem. If a state is trying to
relationship between the economy and the impose a transition to clean energy, for
environment. Environmental economists example, they have several options. The
study the economics of natural resources government can impose a forcible limit on
from both sides - their extraction and use, and carbon emissions, or it can adopt more
the waste products returned to the incentive-based solutions, like placing
environment. They also study how economic quantity-based taxes on carbon emissions or
incentives hurt or help the environment, and offering tax credits to companies that adopt
how they can be used to create sustainable renewable power sources.
policies and environmental solutions. The basic argument underpinning
Environmental economists research environmental economics is that there are
the economics of environmental issues such environmental costs of economic growth that
as renewable energy use, construction of new go unaccounted in the current market model.
hydroelectric power plants or transnational These negative externalities, like pollution
pipelines, and pollution control measures. and other kinds of environmental
They may conduct cost-benefit analyses of degradation, could then result in market
industrial activities or proposed regulations failure. Environmental economists thus
involving natural resources, usually using a analyze the costs and benefits of specific
suite of advanced statistical and computer economic policies, which also involves
software programs. They may also run running theoretical tests or studies on
sophisticated environmental modeling possible economic consequences of
programs. Based on these analyses, they may environmental degradation (Chen, 2019).
develop cost-effective and sustainable policy Economics as applied to
recommendations, and communicate them to environmental issues can then be
policymakers through reports and characterized by the application of
presentations. mainstream neoclassical theory to the
More specifically, Environmental environment. The
economists are concerned with identifying
emphasis is on identifying efficiently between different uses and in
circumstances in which the market is likely to designing policies to enable the government
fail in its task of allocating resources to intervene to 'correct' the market failure.
The main theoretical foundations problems like traffic congestion, dumping of
for the field of environmental economics are toxic wastes, and emission of
found in the theory of externalities due to
market failure. Externalities are present when greenhouse gases, pesticides in
the activities of an economic agent like a firm food chains, acid rain, and ozone depletion.
have external consequences for other agents
other than by affecting prices, and these
external effects are not compensated for.
Most environmental problems are externality
module no. 8: international trade theory
1. Overview
Globalization is one of the most frequently
used words in discussions of development, trade, and
international political economy. It is the process by
which the economies of the world become more
integrated, leading to a global economy and,
increasingly, global economic policymaking such as the
World Trade Organization.
Some of the major actions governments
take are free trade policies or tariffs. Free trade policies
encourage trade between certain countries. A good
example of this is NAFTA, the North American Free
Trade Agreement, which allowed free trade throughout
the United States, Mexico, and Canada. Tariffs are
sometimes imposed on other countries as possible
punishment for negative actions or to prevent the
industry in those countries from damaging similar
domestic industries.
This lesson presents the pros and cons of
globalization, classical or country-based trade theories,
modern or firm-based trade theories, and economic
integration. You will also be able to identify the levels
of economic integration that includes free trade, custom
union, common market, economic union, and political ✔ There is now a worldwide market for
union. At the end of the topic, a case study shall take companies and consumers who have
place where you are aimed to apply the lessons access to products of different countries.
discussed in the class. ✔ Gradually there is a world power that is
being created instead of
A. Globalization compartmentalized power sectors.
Politics is merging and decisions that
Globalization refers to an emerging ‘global are being taken are actually beneficial
culture’, in which people consume similar goods for people all over the world.
and services across countries and use a common ✔ There is more influx of information
language of business, English. These changes between two countries, which do not
facilitate economic integration and are, in turn, have anything in common between
further promoted by it. But in its core economic them.
meaning, globalization refers to the increased ✔ There is cultural intermingling and each
openness of economies to international trade, country is learning more about other
financial flows, and direct foreign investment cultures. Since we share financial
(Samuelson & Nordhaus, 2015). The World Trade interests, corporations and governments
Organization (WTO) is the only global are trying to sort out ecological
international organization dealing with the rules of problems for each other.
trade between nations. It serves as watchdog and ✔ Socially we have become more open
enforcer of international trade agreements. and tolerant towards each other and
For some people, globalization suggests people who live in the other part of the
exciting business opportunities, efficiency gains world are not considered aliens.
from trade, more rapid growth of knowledge and ✔ Most people see speedy travel, mass
innovation, and the transfer of such knowledge to communications and quick
developing countries, facilitating faster growth. On dissemination of information through
the other hand, globalization for other people raises the Internet as benefits of globalization.
troubling concerns. International inequalities they ✔ Labor can move from country to
believe may be accentuated both across and within country to market their skills. Sharing
countries and environmental degradation may be technology with developing nations will
accelerated. International dominance of the richest help them progress. Transnational
countries may be expanded and locked in, and companies investing in installing plants
some people and regions may be left further in other countries provide employment
behind. for the people in those countries often
Therefore, globalization carries benefits and getting them out of poverty.
opportunities as well as costs and risks. Because it
is a complicated issue it is necessary to evaluate the Disadvantages of Globalization
advantages and disadvantages before drawing any ▪ The general complaint about
conclusions. globalization is that it has made the
Advantages of Globalization rich richer while making the
Supporters of globalization argue that it has non-rich poorer.
the potential to make this world a better place to ▪ Globalization is supposed to be
live in and solve some of the deep-seated problems about free trade where all barriers
like unemployment and poverty. are eliminated but there are still
✔ Free trade is supposed to reduce barriers many barriers. For instance161
such as tariffs, value added taxes, countries have value added taxes
subsidies, and other barriers between (VATs) on imports which are as
nations. high as 21.6% in Europe. The U.S.
✔ The proponents say globalization does not have VAT.
represents free trade which promotes ▪ The biggest problem for developed
global economic growth; creates jobs, countries is that jobs are lost and
makes companies more competitive, transferred to lower cost countries.
and lowers prices for consumers. According to conservative
✔ Competition between countries is estimates by Robert Scott of the
supposed to drive prices down. Economic Policy Institute, granting
✔ It also provides poor countries, through China most favored nation status
infusions of foreign capital and drained away 3.2 million jobs,
technology, with the chance to develop including 2.4 million
economically and by spreading manufacturing jobs.
prosperity, creates the conditions in ▪ Workers in developed countries
which democracy and respect for like the US face pay-cut demands
human rights may flourish. from employers who threaten to
✔ According to supporters, globalization export jobs. This has created a
and democracy should go hand in hand. culture of fear for many middle
It should be pure business with no class workers who have little
colonialist designs. leverage in this global game
 ▪ Large multi-national corporations International trade is the exchange of goods
have the ability to exploit tax and services between countries. Trading globally
havens in other countries to avoid gives consumers and countries the opportunity to
paying taxes. be exposed to goods and services not available in
▪ Multinational corporations are their own countries, or which would be more
accused of social injustice, unfair expensive domestically. On the other hand, some
working conditions (including argue that international trade actually can be bad
slave labor wages, living and for smaller nations, putting them at a greater
working conditions), as well as disadvantage on the world stage.
lack of concern for environment, International trade theories provide
mismanagement of natural explanations for the pattern of international trade
resources, and ecological damage. and the distribution of the gains from trade. The
▪ Multinational corporations, which theories convince most economists of the benefits
were previously restricted to of liberal trade. There are two main categories of
commercial activities, are international trade theories: the classical or
increasingly influencing political country-based trade theories and the modern or
decisions. Many think there is a firm-based theories.
threat of corporations ruling the
world because they are gaining
power, due to globalization. 1. Classical or Country-Based Trade Theories
▪ Building products overseas in
countries like China puts our Mercantilism
technologies at risk of being copied Developed in the sixteenth century,
or stolen, which is in fact mercantilism was one of the earliest efforts to
happening rapidly develop an economic theory. This theory stated that
▪ The anti-globalists also claim that a country’s wealth was determined by the amount
globalization is not working for the of its gold and silver holdings. In its simplest sense,
majority of the world. During the mercantilists believed that a country should
most recent period of rapid growth increase its holdings of gold and silver by
in global trade and investment, promoting exports and discouraging imports. A
1960 to 1998, inequality worsened closer look at world history from the 1500s to the
both internationally and within late 1800s helps explain why mercantilism
countries. The UN Development flourished. The 1500s marked the rise of new
Program reports that the richest 20 nation-states, whose rulers wanted to strengthen
percent of the world's population their nations by building larger armies and national
consume 86 percent of the world's institutions. By increasing exports and trade, these
resources while the poorest 80 rulers were able to amass more gold and wealth for
percent consume just 14 percent. their countries. One way that many of these new
▪ Some experts think that nations promoted exports was to impose
globalization is also leading to the restrictions on imports. This strategy is called
incursion of communicable protectionism and is still used today.
diseases. Deadly diseases like Although mercantilism is one of the
HIV/AIDS are being spread by oldest trade theories, it remains part of modern
travelers to the remotest corners of thinking. Countries such as Japan, China,
the globe. Singapore, Taiwan, and even Germany still favor
▪ Globalization has led to exports and discourage imports through a form of
exploitation of labor. Prisoners and neo-mercantilism in which the countries promote a
child workers are used to work in combination of protectionist policies and
inhumane conditions. Safety restrictions and domestic-industry subsidies.
standards are ignored to produce Nearly every country, at one point or another, has
cheap goods. There is also an implemented some form of protectionist policy to
increase in human trafficking. guard key industries in its economy. While
▪ Social welfare schemes or “safety export-oriented companies usually support
nets” are under great pressure in protectionist policies that favor their industries or
developed countries because of firms, other companies and consumers are hurt by
deficits, job losses, and other protectionism. Taxpayers pay for government
economic ramifications of subsidies of select exports in the form of higher
globalization. taxes. Import restrictions lead to higher prices for
▪ Globalization is an economic consumers, who pay more for foreign-made goods
tsunami that is sweeping the planet. or services. Free-trade advocates highlight how
We cannot stop it but there are free trade benefits all members of the global
many things we can do to slow it community, while mercantilism’s protectionist
down and make it more equitable. policies only benefit select industries, at the
expense of both consumers and other companies,
within and outside of the industry.
B. International Trade Theories
Absolute Advantage
 In 1776, Adam Smith questioned the produce and export goods that required resources
leading mercantile theory of the time in The Wealth or factors that were in great supply and, therefore,
of Nations. Recent versions have been edited by cheaper production factors. In contrast, countries
scholars and economists. Smith offered a new trade would import goods that required resources that
theory called absolute advantage, which focused on were in short supply, but higher demand.
the ability of a country to produce a good more For example, China and India are home to
efficiently than another nation. Smith reasoned that cheap, large pools of labor. Hence these countries
trade between countries shouldn’t be regulated or have become the optimal locations for
restricted by government policy or intervention. He labor-intensive industries like textiles and
stated that trade should flow naturally according to garments.
market forces. In a hypothetical two-country world,
if Country A could produce a good cheaper or Leontief Paradox
faster (or both) than Country B, then Country A In the early 1950s, Russian-born American
had the advantage and could focus on specializing economist Wassily W. Leontief studied the US
on producing that good. Similarly, if Country B economy closely and noted that the United States
was better at producing another good, it could was abundant in capital and, therefore, should
focus on specialization as well. By specialization, export more capital-intensive goods. However, his
countries would generate efficiencies, because their research using actual data showed the opposite: the
labor force would become more skilled by doing United States was importing more capital-intensive
the same tasks. Production would also become goods.
more efficient, because there would be an incentive According to the factor proportions theory,
to create faster and better production methods to the United States should have been importing
increase the specialization. labor-intensive goods, but instead it was actually
Smith’s theory reasoned that with increased exporting them. His analysis became known as the
efficiencies, people in both countries would benefit Leontief Paradox because it was the reverse of
and trade should be encouraged. His theory stated what was expected by the factor proportions theory.
that a nation’s wealth shouldn’t be judged by how
much gold and silver it had but rather by the living
standards of its people.
2. Modern or Firm-Based Trade Theories
Comparative Advantage In contrast to classical, country-based trade
David Ricardo, an English economist, theories, the category of modern, firm-based
introduced the theory of comparative advantage in theories emerged after World War II and was
1817. Ricardo reasoned that even if Country A had developed in large part by business school
the absolute advantage in the production of both professors, not economists. The firm-based theories
products, specialization and trade could still occur evolved with the growth of the multinational
between two countries. company (MNC). The country-based theories could
Comparative advantage occurs when one not adequately address the expansion of either
country can produce a good or service at a lower MNCs or intraindustry trade, which refers to trade
opportunity cost than another. This means a between two countries of goods produced in the
country can produce a good relatively cheaper than same industry. For example, Japan exports Toyota
other countries. advantage which looks at the vehicles to Germany and imports Mercedes-Benz
monetary cost of producing a good. automobiles from Germany.
Unlike the country-based theories,
Heckscher-Ohlin Theory (Factor Proportions firm-based theories incorporate other product and
Theory) service factors, including brand and customer
The theories of Smith and Ricardo did not loyalty, technology, and quality, into the
help countries determine which products would understanding of trade flows.
give a country an advantage. Both theories
assumed that free and open markets would lead Country Similarity Theory
countries and producers to determine which goods Swedish economist Steffan Linder
they could produce more efficiently. In the early developed the country similarity theory in 1961, as
1900s, two Swedish economists, Eli Heckscher and he tried to explain the concept of intra industry
Bertil Ohlin, focused their attention on how a trade. Linder’s theory proposed that consumers in
country could gain comparative advantage by countries that are in the same or similar stage of
producing products that utilized factors that were in development would have similar preferences. In
abundance in the country. this firm-based theory, Linder suggested that
Their theory is based on a country’s companies first produce for domestic consumption.
production factors—land, labor, and capital, which When they explore exporting, the companies often
provide the funds for investment in plants and find that markets that look similar to their domestic
equipment. They determined that the cost of any one, in terms of customer preferences, offer the
factor or resource was a function of supply and most potential for success. Linder’s country
demand. Factors that were in great supply relative similarity theory then states that most trade in
to demand would be cheaper; factors in great manufactured goods will be between countries with
demand relative to supply would be more similar per capita incomes, and intra industry trade
expensive. Their theory, also called the factor will be common. This theory is often most useful in
proportions theory, stated that countries would understanding trade in goods where brand names
and product reputations are important factors in the competitive advantage in 1990. Porter’s theory
buyers’ decision-making and purchasing processes. stated that a nation’s competitiveness in an industry
depends on the capacity of the industry to innovate
Product Life Cycle Theory and upgrade. His theory focused on explaining why
Raymond Vernon, a Harvard Business some nations are more competitive in certain
School professor, developed the product life cycle industries. To explain his theory, Porter identified
theory in the 1960s. The theory, originating in the four determinants that he linked together. The four
field of marketing, stated that a product life cycle determinants are (1) local market resources and
has three distinct stages: (1) new product, (2) capabilities, (2) local market demand conditions,
maturing product, and (3) standardized (3) local suppliers and complementary industries,
product. The theory assumed that production of and (4) local firm characteristics.
the new product will occur completely in the home
country of its innovation. In the 1960s this was a
useful theory to explain the manufacturing success 1. Local market resources and capabilities (factor
of the United States. US manufacturing was the conditions). Porter recognized the value of the
globally dominant producer in many industries factor proportions theory, which considers a
after World War II. nation’s resources (e.g., natural resources and
It has also been used to describe how the available labor) as key factors in determining what
personal computer (PC) went through its product products a country will import or export. Porter
cycle. The PC was a new product in the 1970s and added to these basic factors a new list of advanced
developed into a mature product during the 1980s factors, which he defined as skilled labor,
and 1990s. Today, the PC is in the standardized investments in education, technology, and
product stage, and the majority of manufacturing infrastructure. He perceived these advanced factors
and production process is done in low-cost as providing a country with a sustainable
countries in Asia and Mexico. competitive advantage.
The product life cycle theory has been less 2. Local market demand conditions. Porter believed
able to explain current trade patterns where that a sophisticated home market is critical to
innovation and manufacturing occur around the ensuring ongoing innovation, thereby creating a
world. For example, global companies even sustainable competitive advantage. Companies
conduct research and development in developing whose domestic markets are sophisticated,
markets where highly skilled labor and facilities trendsetting, and demanding forces continuous
are usually cheaper. Even though research and innovation and the development of new products
development is typically associated with the first or and technologies. Many sources credit the
new product stage and therefore completed in the demanding US consumer with forcing US software
home country, these developing or companies to continuously innovate, thus creating
emerging-market countries, such as India and a sustainable competitive advantage in software
China, offer both highly skilled labor and new products and services.
research facilities at a substantial cost advantage 3. Local suppliers and complementary industries. To
for global firms. remain competitive, large global firms benefit from
having strong, efficient supporting and related
industries to provide the inputs required by the
Global Strategic Rivalry Theory industry. Certain industries cluster geographically,
Global strategic rivalry theory emerged in which provides efficiencies and productivity.
the 1980s and was based on the work of 4. Local firm characteristics. Local firm
economists Paul Krugman and Kelvin Lancaster. characteristics include firm strategy, industry
Their theory focused on MNCs and their efforts to structure, and industry rivalry. Local strategy
gain a competitive advantage against other global affects a firm’s competitiveness. A healthy level of
firms in their industry. Firms will encounter global rivalry between local firms will spur innovation
competition in their industries and in order to and competitiveness.
prosper, they must develop competitive advantages. In addition to the four determinants of the
The critical ways that firms can obtain a diamond, Porter also noted that government and
sustainable competitive advantage are called the chance play a part in the national competitiveness
barriers to entry for that industry. The barriers to of industries. Governments can, by their actions
entry refer to the obstacles a new firm may face and policies, increase the competitiveness of firms
when trying to enter into an industry or new and occasionally entire industries.
market. The barriers to entry that corporations Porter’s theory, along with the other
may seek to optimize include research and modern, firm-based theories, offers an interesting
development, the ownership of intellectual interpretation of international trade trends.
property rights, economies of scale, unique Nevertheless, they remain relatively new and
business processes or methods as well as extensive minimally tested theories (saylordotorg.github.io).
experience in the industry, and the control of
resources or favorable access to raw materials.

Porter’s National Competitive Advantage Theory C. Economic Integration

In the continuing evolution of international Economic integration is an arrangement
trade theories, Michael Porter of Harvard Business among nations that typically includes the reduction
School developed a new model to explain national or elimination of trade barriers and the
 coordination of monetary and fiscal policies. It
aims to reduce costs for both consumers and
producers and to increase trade between the
countries involved in the agreement. Economic
integration is sometimes referred to as regional
MEASURING NATIONAL INCOME
integration as it often occurs among neighboring
nations.
There are several stages in the process of economic NATIONAL INCOME
integration, from a very loose association of the total income earned by all households and businesses in an
countries in a preferential trade area, to complete economy within a given period of time.
economic integration, where the economies of
member countries are completely integrated. It was very difficult to ascertain whether the economy of a country
A regional trading bloc is a group of
has improved or not over the year before the concept of gross
countries within a geographical region that protect
themselves from imports from non-members in domestic product (GDP) was introduced. During those times, we
other geographical regions, and who look to trade mostly relied on personal experience in determining past
more freely with each other. Regional trading blocs performances. Though personal observations contributed
increasingly shape the pattern of world trade – a information, such as information may not have accurately reflected
phenomenon often referred to as regionalism. the state of economy as a whole. Although nobody patented the
discovery of GDP, the name of Simon Kuznets comes into view for
his path-breaking work on the accounting of the national product.
Levels of Economic Integration The concept of GDP opened the door to a systematic understanding
of how the economy performs on a macro level. Since then, it has
Economic integration can be classified into become the most basic tool in describing the performance of the
five additive levels, each present in the global economy.
landscape:
● Free trade. Tariffs (a tax imposed on imported
GROSS DOMESTIC PRODUCT
goods) between member countries are significantly
reduced, some abolished altogether. Each member Gross Domestic Product refers to the market value of all final goods
country keeps its own tariffs in regard to third and services produced domestically in a given period of time. In
countries. The general goal of free trade defining the GDP, the "value" is in monetary terms, which in our
agreements is to develop economies of scale and case, the market price in Philippine peso (P). However, it does not
comparative advantages, which promotes economic include the value of intermediate products used in the production of
efficiency. final products in order to avoid double or multiple counting. It also
● Custom union. Sets common external tariffs
does not include the non-productive transactions such as purely
among member countries, implying that the same
tariffs are applied to third countries; a common financial transactions. In addition, the computation of GDP exclude
trade regime is achieved. Custom unions are second- hand sale and existing assets or properties that were solo or
particularly useful to level the competitive playing transferred, the presence of underground economy and unpaid
field and address the problem of re-exports (using productive services.
preferential tariffs in one country to enter another
country). NOMINAL GDP AND REAL GDP
● Common market. Services and capital are free to
Nominal GDP is the value (at current price) of final goods and
move within member countries, expanding scale
economies and comparative advantages. However, services produced within a country for a specific period of time. It is
each national market has its own regulations such given by the following formula:
as product standards. Nominal GDP = Price x Quantity
● Economic union (single market). All tariffs are
removed for trade between member countries, Real GDP is the value (at constant price) of final goods and
creating a uniform (single) market. There are also services produced within a country for a specific period of time. Real
free movements of labor, enabling workers in a
member country is able to move and work in GDP is computed as follows:
another member country. Monetary and fiscal
policies between member countries are Real GDP = Nominal GDP x 100
harmonized, which implies a level of political GDP Deflator
integration. A further step concerns a monetary
union where a common currency is used, such as
with the European Union (Euro).
Where the denominator, GDP deflator, is also called the price
● Political union. Represents the potentially most
advanced form of integration with a common index. It is given by the following formula:
government and were the sovereignty of a member GDP Deflator or Price Index =
country is significantly reduced. Only found within Price of the Current Year x 100
nation-states, such as federations where there are a Price of the Base Year
central government and regions (provinces, states,
etc.) having a level of autonomy.
Real GDP reflects only the changes on the quantity of goods and Sums up all the expenses of the institutional sectors: households,
services holding the price at a constant level. Considering the variety businesses, government and the rest of the world. The GDP using
of products produced in an economy, it is necessary to have one price this approach is calculated as follows:
index that will be used to divide the total current value of production. GDP = C +I + G+ (X-M)
By keeping the price at a constant level, it is now more accurate to Where C stands for consumption, I for investment, G for government
compare economic performance from different years' perspective in spending, X for exports and M for imports.
terms of the actual quantity of production of goods and services
rather than the market value of all goods and services. The expression (X-M) gives what we call Balance of Trade or net
exports. The value of net exports can either be positive or negative. It
computations for nominal and real GDP is positive whenever exports exceed imports (which is also called as
a trade surplus) and it is negative when imports exceed exports
(which is also known as a trade deficit)

Ideally speaking, the value of the GDP using the two approaches
must come up with the same value. But in reality, where data
gathering is very complex, resulting to a hundred percent accuracy in
year price quantity nominal price real
values is somehow difficult. Whenever the values of GDP differ, the
GDP index GDP
value of the GDP using the first approach is followed. Whatever the
2010 15 150 2250 100 2250 value of the difference between the two approaches will be called as
Statistical Discrepancy. This value will be added or deducted to the
2011 35 130 4550 233 1953 value of GDP using the expenditure approach. It will be added if the
value of the GDP using the industrial approach is greater than the
2012 50 125 6250 333 1877 value from (C + I +G+ (X-M). Otherwise, it should be deducted.

2013 60 120 7200 400 1800

GROSS NATIONAL INCOME (GNI)
2014 75 110 8250 500 1650 GDP is one of the ways in measuring the performance of an
economy. It represents the value of final goods and services produced
domestically. But if we are going to consider the value of goods and
services produced by Filipino citizens abroad, then we are dealing
with gross national income (GNI)

APPROACHES TO GDP
Gross National Income is defined as the value of final goods and
1. Industrial - Origin or Production
services produced domestically and abroad by Filipino citizens.
This approach sums up the market value of the gross value added of
GNI was previously known as gross national product (GNP).
all sectors and its sub-sectors of the economy.
To compute:
GNI = GDP +- Net Primary Income from the rest of the world
To illustrate:
Gross Domestic Product Using Industrial-Origin Approach
NET PRIMARY INCOME (NPI)
1. AGRICULTURE, HUNTING, FORESTRY AND FISHING
Net primary income (NPI) is the difference between inflows and
a. Agriculture
outflows of income. Inflows of income refer to the value of
b. Fishing
compensation and property income that the Philippines receives from
2. INDUSTRY SECTOR
the rest of the world.
a. Mining and Quarrying
Outflows of income, on the other hand, represent the value of
b. Manufacturing
compensation and property income that is sent abroad.
c. Construction
d. Electricity, Gas and Water Supply
The formula of GNI as shown is derived after adding or deducting
NPI to or from the value of GDP. But when we are going to add or
3. SERVICE SECTOR
deduct the value of NPI to GDP in order to derive GNI? When NPI is
a. Transport, Storage and Communication
positive, meaning, inflows of income are greater than outflows: NPI
b. Trade and Repair of Motor Vehicles, Motorcycles,
will be added to the value of GDP.
Personal and Household Goods
And when NPI is negative, meaning, outflows of income are greater
c. Financial Intermediation
than inflows, NPI must be deducted from the value of GDP.
d. Real Estate, Renting and Business Activities
e. Public Administration and Defense; Compulsory Social
Security
PROBLEMS WITH MEASUREMENT OF GDP AND GDP
f. Other Services
PER CAPITA

2. EXPENDITURE APPROACHES
Changes in GDP does not necessarily indicate the changes in the Demand deficit unemployment is the biggest cause of unemployment
quality of life because in the measurement of GDP there are some that typically happens during a recession. When companies
activities that are unreported and therefore not included in the experience a reduction in the demand for their products or services,
they respond by cutting back on their production, making it
computation. For instance, transactions without money such as
necessary to reduce their workforce within the organization. In effect,
subsistence farming and home-making are left out too. In this regard, workers are laid off.
there is a more better gauge in measuring the quality of life, which is
called as GDP per capita. It is given by the following formula:
2. Frictional unemployment
GDP per capita = GDP
Total Population
Frictional unemployment refers to those workers who are in between
jobs. An example is a worker who recently quit or was fired and is
looking for a job in an economy that is not experiencing a recession.
GDP per capita is literally an economy's average productivity per It is not an unhealthy thing because it is usually caused by workers
person, which is only one aspect of the quality of life. GDP can give trying to find a job that is most suitable for their skills.
us an idea of the quality of life, but it does not reveal everything.
GDP does not include important non-market activities, such as home
3. Structural unemployment
making.
Also, externalities (or spillovers) are not accounted for by GDP. In Structural unemployment happens when the skills set of a worker
other words, GDP counts the final goods, like new cars, but it does does not match the skills demanded by the jobs available, or
not count everything that is good about an economy. And it does not alternatively when workers are available but are unable to reach the
geographical location of the jobs.
count "the bads" like greenhouse gas emissions. If we compare
nations solely on the basis of GDP per capita, developing nations
An example is a teaching job that requires relocation to China, but
appear to be further behind and industrialized nations, further ahead. the worker cannot secure a work visa due to certain visa restrictions.
A scale called Purchasing Power parity (PPP) helps measure GDP It can also happen when there is a technological change in the
organization, such as workflow automation that displaces the need
adjusted for the lifestyle it can afford in a given country.
for human labor.

Understanding Unemployment 4. Voluntary unemployment

The term “unemployment” is often misunderstood, it as it includes Voluntary unemployment happens when a worker decides to leave a
people who are waiting to return to a job after being discharged, yet job because it is no longer financially compelling. An example is a
it does not include individuals who have stopped looking for work in worker whose take-home pay is less than his or her cost of living.
the past four weeks due to various reasons such as leaving work to
pursue higher education, retirement, disability, and personal issues.
Also people who are not actively seeking a job but do want to work
are not classified as unemployed.

Interestingly, people who have not looked for a job in the past four
weeks but have been actively seeking one in the last 12 months are
put into a category called the “marginally attached to the labor
force.” Within this category is another category called “discouraged
workers,” which refers to people who have given up looking for a
job.

The categories mentioned above sometimes cause confusion and

debate as to whether the unemployment rate fully represents the
actual number of people who are unemployed. For a full
understanding, one should juxtapose “unemployment” with the term
“employment,” which the Bureau of Labor describes as individuals
aged 16 and above who have recently put hours into work in the past
week, paid or otherwise, because of self-employment.

Types of Unemployment

There are basically four types of unemployment: (1) demand

deficient, (2) frictional, (3) structural, and (4) voluntary
unemployment.

1. Demand deficient unemployment