Introduction
Being one of the largest Earth’s geographic continents, North America is composed of 23 countries along with the largest ones of this region, including the United States of America, Canada, and Mexico. North American continent is situated in the northern hemisphere and is surrounded by the Arctic Ocean on the north, the Atlantic Ocean on the east and the south and the west by the Pacific Ocean. It also borders on another continent known as South America. Both of these continents were named after the famous European traveler and explorer Amerigo Vespucci. The area of North America is approximately 24,490 thousand square kilometers, and the population is about 514,600,000 people. The significance of this continent is not only in its geographic dimensions (it is the third largest continent on the Earth) but also in it’s economic, political and cultural impact on the rest of the world as it has the three countries in its composition, which are among the world leaders. Economic activities of the continent are high; however, the speed of economic development inside the continent has been different within different countries. Several economic and trade agreement has been concluded between the countries of North America to promote their further economic interaction. NAFTA is considered to be the most important agreement favoring the development of free trade between the USA, Canada, and Mexico. The impact of this agreement is considered to be positive in general. However, it affected different layers of the population and economic agents in a different way. A very important aspect of NAFTA is its geographic aspect as it allows the countries not only economize on import tariffs and duties but also on transportation costs as they do not involve transporting goods over long distances. Economic development of North America has been widely influenced by the presence of extensive agricultural lands, which can be especially noticed in Canada and the United States; by the abundance of natural resources (iron ore, natural gas, coal, oil, copper and others); by the presence of a great number of manufacturing companies and corporations, including multinational ones, which offer jobs to millions of people and thus increase the rate of employment; by the availability of high technologies, which continue to advance the production in this region and others. All of the factors mentioned above have resulted in the high standard of living of people, which is one of the main indices of the economic bonanza.
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The primary purpose of designing the current study is to speak about and analyze economic development across North America. The paper will focus on the factors shaping geographic distribution of economic opportunities within different industrial regions of North America, which have better or poorer outlook of economic development. Development and modern state of some of the major industries in North America will also be discussed further in the study.
General Outlook on Economic Development and Economic Integration of countries belonging to North American Continent
“North America is a premier region in a world of regions” [9] state the authors of the book “Inventing North America: Canada, Mexico, and the United States” Guy Poitras and Lynne Rienner. More often the region of North America is referred as the region of three countries (the USA, Canada, and Mexico) rather than all 23 countries. That is why in the current study we will speak mainly about these three countries. There are two characteristic features of the North American region, which make it different from other regions. First of all, it is the location of the states. It appears so that the three countries are located sort of apart from the rest of the world, which predetermines in some way the patterns of its economic development. Secondly, historic, economic and political background influences the countries desire to unite. As it is said in the book “Inventing North America: Canada, Mexico, and the United States”: “they have enough in common upon which to invent a region” [9]. A special feature of North America is that it is composed of the largest countries in the world (2nd and 3rd place according to the territory are given to Canada and the USA agreeably), and the third country – Mexico is among the largest world’s countries as well. All of the three countries are transcontinental. They are neighbors regarding their location, which also had its impact on economic development: “their leaders and peoples have appreciated this situation and even made the most of it” [9]. Another important feature is that all three countries coexist peacefully. Like any neighboring countries, they sometimes have experienced certain misunderstandings. However, these misunderstandings have never led to military conflicts. The main reason for it is that peace is in everyone’s interest in North America.
Economic development of the North American region is being characterized by the economic integration of the countries. The first agreement concerning free trade was concluded by the USA and Canada in January 1989 and had a name CUSFTA, which stood for Canada – USA Free Trade Agreement. Five years later in 1994, another agreement was concluded between the USA, Canada, and Mexico with the sole goal to bring the latter to the already existing union of USA and Canada. The authors of the article “The Prospects for Deeper North American Economic Integration: A U.S. Perspective” argue that both agreements CUSFTA and NAFTA “have been commercial successes – through the aggregate gains mask adjustment problems besetting some workers and companies in each of the three countries” [4]. NAFTA played the major role in the economic development of North America as a separate economic region. It has helped to surmount certain obstacle preventing the countries from free regional trade. Indeed, the singing of NAFTA has led the three countries into the period of many opportunities for trade and investment across North America. The trade agreement with Canada has been a cornerstone of subsequent agreement of the three countries, as it provided them with the main concepts and framework. The main benefits of NAFTA are the following. Firstly, it eliminated tariffs on almost all industrial goods. Secondly, NAFTA guaranteed “unrestricted agricultural trade within fifteen years between Mexico and the United States—the first trade agreement to remove all such barriers” [5]. Thirdly, this agreement created open trade conditions for exchanging goods and services between the countries and secured the protection of intellectual property, which is considered to be the highest in the world so far. Fourthly, it created strict rules and regulations protecting the rights and opportunities of investors and developed “a framework that encourages transparency, respect for property, and adherence to the rule of law” [5]. The results of the agreement are outstanding. The volume of trade has increased significantly, and the value of it is now twice as much as it used to be before the agreement has been concluded. Investment flow has also grown. NAFTA affected the economy of Mexico greatly as the exports of it have increased by 150 percent, while Canadian exports have grown by 50 percent. Being the largest free trade area in the world, North America through NAFTA has established duty-free excess to any goods and services within the region. However, only goods from North American countries can qualify for NAFTA access, which created certain difficulties for the foreign shippers. Nowadays, the USA, Canada, and Mexico are so interrelated that “Canada, by itself, has become the largest customer of thirty-nine American states, while Mexico is the first or second largest customer of twenty-two states, and the second largest overall” [5].
Despite all benefits that it brought to the countries participating in the agreement, NAFTA has ignored some crucial issues, touching all of the participants of the contract. When NAFTA was concluded the participating countries agreed on special terms of providing environmental protection, however, it only remained a promise. NAFTA’s negotiators failed to notice some of the problems, including: “obstacles to U.S.-Canada agricultural trade, problems related to migration from Mexico, barriers to energy trade and investment, and strong disciplines on contingent protection measures — specifically, antidumping and countervailing duties, and safeguard actions responding to rapid increases in imports” [4]. Another burning issue that hasn’t been addressed in NAFTA is security. This issue became especially acute after 9/11 in the USA and did bring new obstacles to the free trade between the countries. Strict security measures that were taken to prevent terrorists from possible attacks in future have affected the trade by imposing new burdens. Due to intense surveillance, it became “more costly and cumbersome to move goods and people across borders” [4].
The relationship between the three nations is really strong, as all of them have realized the necessity and importance of further cooperation. As the author of the article “North American Economic Integration: Policy Options” Earl H. Fry noticed: “these trade, investment, and human linkages in North America are stronger and more numerous than ever before, and all three nations have benefited in the aggregate from the economic integration spawned by NAFTA and globalization in general” [2]. It is clear that Canada and Mexico prefer to have even closer economic interrelation with the USA; however, they would not want to lose either their sovereignty or national identity. Both Canada and Mexico are depended on the access to the US market concerning their economic prosperity; there is no other country in the world whose economy is so dependent on the foreign market. This dependence is conditioned by the huge US market, which consumes Canadian and Mexican petroleum and electricity. Despite the fact that both Canada and Mexico “rank among the ten largest economies in the world their GDP is, respectively, only one-fourteenth and one-sixteenth the size of the U.S. economy” [2]. Still, the United States of America has also derived considerable benefit from the relationship with Canada and Mexico. Such benefits can be especially seen in the energy sector of the US as, for example, Canada is the largest foreign exporter of petroleum to the United States, while Mexico is among the leading exporters along with Saudi Arabia and Venezuela. Mexico is also a leading exporter of natural gas and electricity to the US. Shortly Mexico plans “to generate much-needed electricity for California and may eventually build liquefied natural gas receiving terminals to provide gas for California and states in the U.S. southwest” [2].
After NAFTA was concluded new jobs were created in all of the three countries cutting back the level unemployment, which was primarily significant in Mexico. It is also possible to state that NAFTA has benefited US states that lie closer to Mexico more than those which lie further to the north.
Regional Variations regarding Economic Development across North America
Overall economic development of North America, which certainly has a positive impact on all participating countries, is accompanied by the unequal development of certain regions in North America. Well-developed economic regions have certainly positively impacted the other regions due to the economic growth and growth of productivity. It is essential to improve the performance of certain industrial regions integrated into North America as it will assist improving the performance and stimulate economic growth not only in Mexico but also in some provinces in Canada and some states in the USA. All of the factors that influence this “distribution of opportunity” among the regions of North America are interrelated; however, it is possible to distinguish the major ones. Such factors cause the formation of certain clusters, which are “geographic concentrations of final products industries, their supply chains, other sectors that share technological or human capital affinities, and various supporting institutions (e.g., universities, research and development facilities, and venture capitalists)” [6].
The first factor, which favors the formation of economic regions in North America as well as the rest of the world, is industrialization and urbanization. For the majority of countries these are “concurrent events” [3] stated the author of the article “North American Economic Integration and Industry Location” Gordon H. Hanson, who underlined that “industrial development in Canada, Mexico, and the United States brought with it the geographic concentration of economic activity” [3]. Thus, geographic concentration of economic activity is the main factor, which influences the uneven development of certain regions. Localization of industries requires higher rates of innovations used in the industry; more efficient mechanism of sharing and distributing information; high technology and knowledge. And at this point “geographic proximity is of increasing importance in technological innovation” [6]. Economic integration influences the competition between firms producing and selling similar goods on local markets. Usually, competition is influenced by integration towards its increase, making the firms deal with it by implementing new innovating technologies into production.
Economic integration in North America has resulted in the relocation of some of the main industries of the USA to the south and west of the country. Gordon Hanson states that “with the relocation of industry, traditional manufacturing centers, such as Cleveland, Detroit, and Pittsburgh, have declined, but new manufacturing centers, such Atlanta, Los Angeles, and San Jose, have been created” [3]. Thus, in the USA industry is still concentrated around several large cities. However, economic integration and international trade within the participants of NAFTA had a more significant impact on Canada and Mexico. For example in Canada major industries are located near industrial centers of the US, which means that southern regions of Canada are more industrially developed as they are situated closer to the US border. This resulted in the formation of so-called “an extension of US industry agglomerations” [3]. A good example to prove the statement mentioned above would make the concentration of automobile industry in Michigan-Ontario region as a result of the geographic concentration of economic activity within the two countries-participants of NAFTA [3].
The second factor, which influences the formation of certain economic regions and their uneven development, is the level of employment and remuneration of labor. Indeed, Canadian and US corporations have fully used NAFTA to their advantage and moved their production and agreeably jobs to the south to benefit from the cheap labor offered by Mexico. For this reason, large agricultural corporations, belonging to the USA and Canada, “have blown small-scale Mexican farmers out of their local markets for corn, wheat and other commodities” [1]. Mexican banking system was also much influenced by the neighboring countries because 85 percent of it now belongs to foreign owners. All of this made Mexican production move “to even lower-wage countries” [1]. Foreign trade and excess to the US market has influenced the relocation of industries in Mexico and stimulated the formation of Mexico City manufacturing belt. Labour earnings in Mexico were also affected by the foreign trade along with investment flow coming from the USA. These investments are mainly concentrated near the Mexican border with the US, and they resulted in more specialized products in the given area. However, the same happened in the USA. Not only Mexico–US integration influenced industry location and employment in Mexico, but it also influenced industry location in the USA, whose corporations moved their production closer to the Mexican border in search of cheaper labor. Thus, it is possible to state that relocation of important industries in the US is directed from the north to the south.
Another important factor influencing the performance of regions is “the increasing tendency of firms to reorganize and locate different parts of their activities (e.g., production, finance, and marketing) in different regions specializing in these different activities” [6]. Close interaction conditioned by geographical proximity between regions and cities also affect the development of economic regions positively as it reduces the transportation costs to the minimum.
As it has been mentioned above the development of certain regions is being influenced by the level of employment, which in its turn is being influenced by economic integration within the countries of North America. For example, in the Southwest region employment has increased by 43.09 %, in Rocky Mountain region – by 42.97%, in Southeast – by 25.10%, in British Columbia – by 24.89% and in Far West – by 20.01% [6]. Scientific analysis has proven that “state economies were, on average, more concentrated in specific traded clusters in 2000 than in 1990, a confirmation that specialization is a growing phenomenon in North America” [6] due to the agreement between the countries.
In conclusion to this point, the existence of certain factors influencing the development of economic regions across North America has been argued by many scientists, who came to the conclusion that it is necessary for local governments to somewhat change their approaches to economic development and consider such factors as innovation, high technology, skilled labour force and others while planning further economic development of any region.
Major Industries of North America
While speaking about the economic development of any city, country, the region of the world as a whole, it is impossible not to mention major industries, which very much affect the productivity and economic prosperity of any financial entity or region. Two major industries of North America that will be discussed further in the study include energy and automobile industry.
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Energy
Energy infrastructure and flows of energy, which includes oil, coal, natural gas, and electricity, are very much interrelated in North America. Oil flows in North America have a cross-border pattern and are directed to the United States from Mexico and Canada as these countries are ones of the key crude oil suppliers to the USA. Such inflows of oil to the US are done utilizing pipelines, vehicles (trucks) and ships. Also, Canada is a major supplier of natural gas to the United States, which is done with the help of pipeline connections as the cheapest way of transportation. Electricity and coal are also transported across national borders to satisfy the needs of the three countries. Oil infrastructure of North America is considered to be modern and efficient as compared with oil structures in other regions of the world. However, there is a specific requirement for further improvement and upgrading the infrastructure. Major requirements include the improvement of the “physical characteristics of crude oils” as they “play an important role in cross-border cooperation and infrastructure development in North America” [7]; the improvement of the quality of transportation; and cross-border cooperation. Speaking about the infrastructure of natural gas, it is necessary to note that it is also well-developed and continues to develop using the expansion of “natural gas pipelines and storage capabilities for central national operating centers or “hubs” [7]. Nowadays, pipeline infrastructure of gas is better developed between Canada and the USA, than between the USA and Mexico. Trade of natural gas is done between Canada and the USA and between Alaska (USA) and Asia. Another important or even vital element of the energy industry is electricity, which is especially important for North America where there is a growing demand for electricity to satisfy the needs of North America’s growing economy. The main concern for each country in North America is reliability, which has “important implications for future development of infrastructure” [7]. The major issue of electricity infrastructure of North America is “interconnectivity of transmission” [7]. North America has been adopting new technology of electricity generation through wind energy, which has brought significant benefits to the USA and Canada. Such benefits include economic benefits and environmental benefits. -
Automobile Industry
Automobile Industry. Speaking about key industries of North America it is impossible not to mention automobile industry, which is one of the key industries of the region. Automobile industry requires a considerable amount of capital investment, labor, and high technologies; all of the requirements mentioned above are present in North America. Manufacturing of automobiles and their parts appears to be a very profitable business, which involves automated labor (machines, robots), usage of wide range of raw materials (steel, aluminum, rubber, plastic and etc) and well-though advertising campaigns requiring large amounts of money to be spent on market research and on advertising campaign itself. Key representatives of the automobile industry in North America are General Motors, Daimler Chrysler, and Ford Motor Corporation. All of the three automobile manufacturers are known as the “Big Three”. General Motors is a famous producer of such auto brands as Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac. Daimler Chrysler produces Chrysler, Mercedes, Jeep, and Dodge. And Ford Motor Co. produces Ford, Lincoln, Volvo, and Jaguar. Being very successful in the past these companies are losing their favorable position in the global market, as they are slowly being outstripped by Japanese producers of automobiles, who offer their autos at more acceptable prices for the consumers. In 1998 “the combined market share of the Big Three in both Canada and the U.S. was 70 percent” [8], however, in 2005 market share was “50 percent in Canada and 54 percent in the US [8]. Thus, it is necessary to reconsider the patterns of further development of automobile industry in North America as it might lose its position in the market in future as compared to the competitors from other countries.
Conclusion
Having spoken about economic development across North America, it is necessary to conclude. Geographic position, free trade, and economic integration had a positive impact on the economic development of three major countries of North America. The United States, Canada, and Mexico are all interrelated now regarding commercial activities, which were much influenced by specific significant factors, which include the relocation of industries, cutting back import and export tariffs, increasing level of employment and others. North America is considered to be a highly developed economic region of the world as it has three world leaders in its composition. After concluding NAFTA the USA, Canada, and Mexico have received certain benefits. For example, Canada and Mexico export a lot of their natural resources, goods, and services to the USA, while the USA using free trade receives much needed crude oil, petroleum products, natural gas, and electricity. It also uses Canadian and Mexican markets for exporting its goods and services. US investment flows to Mexico have helped the latter to improve certain industries, which have been moved closer to the border with the USA. In its turn, the USA also preferred to move its main industries to the border with Mexico as it could get access to cheap labor. There is no doubt for the need of further integration and cooperation of the three countries; however, Canada and Mexico are concerned with the possibility of losing their sovereignty and national identity in case of further integration. Instead, it is necessary to pay more attention to the development of industries, for example, automobile industry, which faces competition from the side of Asian auto-makers.
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