Economic Activity and Development
This domain examines economic sectors, location decisions and measures of development. Expect questions that compare countries and ask you to evaluate a model or indicator.
Core rules and concepts
- Economic activity is classified as primary (extraction), secondary (manufacturing), tertiary (services) and quaternary (knowledge-based). The informal sector is unregistered and often unregulated.
- Location factors include raw materials, power, labour, transport, market, agglomeration and government policy. Different activities weight these differently.
- Development is broader than economic growth. Indicators include GDP/GNI per capita, life expectancy, literacy, HDI and the Gini coefficient. GDP measures output within a country; GNI measures income earned by residents, including remittances.
- HDI combines health (life expectancy), education (mean and expected years of schooling) and income (GNI per capita PPP).
- Rostow's stages model and core–periphery/dependency models offer contrasting explanations of development. Globalisation and trade can bring growth but also inequality.
Worked example
A country has life expectancy 65 years. The HDI life-expectancy index uses a minimum of 20 and maximum of 85: (65 − 20)/(85 − 20) = 45/65 = 0.692. Reasoning: the index scales the value between the fixed minimum and maximum; it is one component, not the final HDI.
Traps
Do not equate a rising GDP with development. Do not compare GDP per capita without noting PPP or currency differences. Do not confuse GDP with GNI. In models, do not assume every country follows the same path or that stages are inevitable.