What this lesson teaches
I can explain how uneven flows of trade, capital and labour have changed since the 1950s and how they link to development.
Syllabus 9173, Topic 1.2, 1. Development. How are global patterns of trade, capital and labour flows related to variations in levels of development across space?
Make a guess
Wages are lowest in the poorest countries. Does most foreign investment go there?
- No, because poor countries ban foreign investment.
- Yes, because rich countries rarely invest in each other.
- Yes, because firms chase the lowest wages.
- No. Investors also look for skills and infrastructure.
Show the answer
No. Investors also look for skills and infrastructure.
Much investment stays between developed economies. Skills, infrastructure and reliable institutions attract firms, so the poorest places may attract the least.
Trade and investment have grown and shifted since the 1950s, but their benefits and destinations remain uneven.
Trade is the exchange of goods and services between countries. Capital is money invested to earn a return. Foreign direct investment (FDI) is a lasting investment with some control over a business abroad. Paying for imports and building a factory overseas are linked, but they are different flows.
After the Second World War, most industry, trade and investment was in North America and Western Europe, with Japan growing fast. Later, export factories grew in East Asia's newly industrialising economies, then in China and elsewhere. Production was split across borders, and trade in services grew.
Capital did not simply flow from rich to poor countries. Much investment stayed between developed economies. Emerging economies also began investing abroad. Some places stayed poorly connected or relied on a few raw material exports.
Flows shape development. They bring jobs, supplier demand, technology and tax revenue, but also risk and profits flowing out. Development also shapes flows. Skills, infrastructure and reliable institutions attract investors. So the poorest places may need investment most but attract it least.
- Trade
- Exchange of goods and services between countries.
- Capital
- Money invested to earn a return.
- FDI
- Lasting investment with control over a foreign business.
Step by step
Describe the pattern
Where flows concentrate and how they shifted.
Explain the attraction
Markets, skills or infrastructure.
Follow the feedback
How new jobs and skills attract more flows.
Worked example: An investment feedback
In a made-up port region, better transport attracts factories. Their demand supports local logistics and training, attracting more investors. A remote district without these links misses out, so gaps within the country grow.
Watch out for this
Investment always goes to the poorest country because wages are lowest.
Firms also need skills, markets, infrastructure and low risk. The lowest wage is not always the lowest total cost.
Check your understanding
Which statement best explains the two-way link between investment and development?
- Investment shapes development, but local conditions cannot affect investment.
- Investment builds jobs and skills, and skills and infrastructure attract it.
- Money entering a country becomes household income, which builds skills.
Show the answer
Investment builds jobs and skills, and skills and infrastructure attract it.
Yes. Each shapes the other.