Urban Development and GDP

The Relationship between Urban Development and Gross Domestic Product

The expansion of most nations is fueled by the development of cities and urban areas. To get better services or to make money using their abilities, many move to the cities. The state focuses on these urban areas to make sure they have a sound plan for utilizing trade networks and accelerating development (OECD Organization, 2017).

Cities and Economic Expansion

Cities and metropolitan centers play a significant role in the economic expansion of the majority of nations, along with the concentration of industrial activity. More significantly, the city’s soaring economy boosts a nation’s gross domestic product (OECD Organization, 2017). The focus of this paper is to analyze the relationship between the urban development and gross domestic product regarding increased taxes, reliable financial services, employment, industrialization, and infrastructure development.

Increased Taxes

The growth of cities and metropolitan centers raise the taxes a government collects from the citizens. People staying in the towns seek services like housing, retail and wholesale services. In turn, they increase the amount gained by these people. Business people working in the town centers have to pay rents and rates, plus taxes to the municipal governments. The municipal government then adds to the state government and increase the national GDP for a country (World Bank, 2017). Increased number of urban centers has a direct proportion to the GDP of a country. With such relationships between GDP and urban development, governments improve the services that aid urban development and make a considerable amount from these centers.

Reliable Financial Services

The World Bank (2017) reported that the growth of cities and the spiraling population is of the highest scale ever experienced in the old days. One concern to the city dwellers is affordable services, which are reliable and can guarantee their stay in the towns. Other than the social amenities like housing, people living in the towns have an increased demand for other services (OECD Organization, 2017). Banks and financial institutions grow in these areas. Improved financial service to the people means the production of more goods and services will rise, and cause an increased growth in the services the people need. Some people take borrow from banks and use for their development (World Bank, 2017). Some use banks as safety stores for their business money. Banks, in turn, earn from the people and increase the amount of money they contribute to the economic growth. It is important to note the increase in capital and the additional rise in the gross domestic product.

Employment

Informal and formal sectors are the greatest employers in urban centers. White-collar jobs are majorly concentrated in these urban regions, and make generate significant amount in the GDP. As Buckley, Annez, and Spence (2008) reported, constructions increase rapidly in these areas and add to the income generated by the people. The increased income by individuals and employers raises the gross domestic product of a country. Government ensures enough conditions that are suitable for the growth of these urban areas to reduce the stress in unemployment sector.

Industrialization

Industrialization increases in urban areas due to the availability of raw materials and other products needed in for factory development. Most manufacturers believe in finding all the materials they need from urban areas to increase the rate of growth in most places. Apart from the raw materials, manufacturers are near services like transport, which enhance their access to other markets (Buckley, Annez & Spence, 2008). After manufacturing, the distribution of most services to other markets in the local and international scene increase. Buckley, Annez & Spence (2008) adds that additionally, they have a rising number of labor in these centers. The gross domestic product increases when people increase the amount they generate. With industrialization and other forms of sales from industries and factories, the trade by companies increases and raises the values of exports and inland incomes.

Infrastructure Development

Infrastructure development increases with the access to services and other avenues of economic growth. People in urban centers have an increasing demand for proper infrastructural development to meet their agenda for development (Banister, 2010). One of the systems of infrastructure is transport. Large urban centers have active connections to other places around the world, through air transport, sea, and land. These ease the access to other parts of the world and raise the gross domestic product in the country.

Factors above collectively increase the contributions of urban development to economic growth. Gross domestic product from these increase by the amount people get from their incomes. Most people have employments and pay taxes to the state (Banister, 2010). Governments have the interest in the growth of these urban centers and increase the chances of their development to gain from the people.

Phillip’s Curve of Economic Development

Different models explain the development of economies by the growth of towns and urban centers. Some of these theories include Phillips model and the Extended AD/AS curves. AW Philip developed an economic development curve to explain the relationship between economic development and the rates of inflation (Temple, 2002). Most people experience inflation of primary services and products in the urban centers and change the entire country’s style of pricing and values of goods and services. In his formulation, Philip considered the changes in inflation and unemployment have an inverse proportion. Urban growth relates to this.

Housing Demand and Pricing

The growth of cities causes a strain in most amenities and services people need. One of them is housing. Increasing number of individuals in need houses lead to a rise in the prices (Temple, 2002). According to the laws of demand and supply, when demands increase, the prices and other forms of needs rise. It takes a consideration of the other factors remaining constant, like the construction of houses and social amenities that people need in urban centers (Temple, 2002). When people have a continuous economic growth system, it becomes easy to understand the changes that steer prices in the development sector.

According to Phillips model, people strive for amenities and other forms services for their growth. Most people need to understand the roles these services play for their development and increase the access they have to the same (Temple, 2002). Retail pricing and other products increase in prices when the people who demand them increase. Land rates are examples of economic activities growing in all the areas with people resorting to getting most products at wholesale prices. When more people rise in urban centers, the inflation rates led to the creation of more income generations by citizens to cater for the extra needs and enhance their earnings. It is important to note these improvements and make a constant economic decision and other forms of development.

Conclusion

Growth and increase in urban centers in a country lead to increase in GDP of a country. Most of the contributions of urban growth include the growing development in amenities that attract social demands like housing. People rent houses and increase incomes to the real estate investors. The government gains by receiving some contributions from these people regarding taxes and rents. Infrastructure, employment creation, industrialization and financial improvements increase the generation of money by people. Including the propositions by Phillip about the inflation in urban increases when the people increase in number. Considering these issues leads to an understanding of economic situations and changes that prices have in different places in the economy.

Corporate Analysis: Saudi Arabian Oil Company

Saudi Oil Company accounts for the largest share of oil to the world. The state-owned company produces around 26 million barrels of oil and several natural gas deposits (D & B Hoovers, 2017). The company’s major activity is to operate the oil deposits and refineries, to sell and distribute to the local and international companies, and to manage new acquisitions throughout the Arab country (D & B Hoovers, 2017). The company eyes to be the largest IPO in the world in 2017. Analysis of the oil company presents information about the revenues of the company in the latest years with explanations of the sources of success, opportunities, threats and the future of its growth.

Revenues

The revenues of the company as listed in the Hoovers Online indicate an increase from the previous years. In addition to information at Hoover, the company lists the increase in barrels of oil exported and that sold in the local markets. The tables below show the two situations, simultaneously.

Table 1: Revenues of Saudi Oil Company from 2009-2012 (Source: (D & B Hoovers, 2017).

The table indicates an increase in the company’s sales from 2007 to 2012, with a few lapses in between. Evidence shows drop in 2009 and a steady rise in all the years.

Table 2: The value of Exports of Saudi Oil Company in 2014 and 2015 (Source: Saudi Armco. 2015).

From the tables, the company had a proper strategy to increase the sales and influence in the oil industry. In oil production, competition increases in the market as different players want a share of the market. Some of the competitors of the global market in the oil industry include the National Iranian Oil Company. Iranian Oil produces more than 158 million barrels in a year, a figure more than half what Saudi Oil company does (D & B Hoovers, 2017). It could be that the corporation did a proper marketing strategy and management of is operations. Through management, the Saudi oil company can manage more productions and greater investment.

Opportunities and Threats

The goals of Saudi Oil Company won in the world market. The company must remain alerted to avoid failure because of the marketing weaknesses. It is proper that the management considers the changes the company takes to uplift itself along the gap lines. One of the weaknesses the company faces is the constant use of the same production and selling methods. Saudi Oil Company has not branched in other parts of the world. Such inability to expand points to the adamant considerations the management has taken with the company. The spread of their branches to other parts of the world will increase their efficiency and lower their logistics costs. The same increase in industry expansion adds to the international market shares in the different countries of investments.

The industrial revolution is happening in most countries around the world. It is a significant boost to economies and an increase in the demand for fuels. An important sector of the economy is the transport sector that sees an increase in the number of automobiles. These increases lead to a rising demand for fuels. Saudi Oil Company can invest in this opportunity and increase the sale of fuels in different countries. Their chances of reaping are high as people are acquiring automobiles globally.

One threat exists on the company. The concerns about the environment are raising issues to different companies whose residual release to the environment affects the climatic conditions. This form of pollution increases the campaigns on the different sectors of the economy to utilize environmentally friendly products in the running of their industries (Moer, 2016). Petroleum fuels are environmental, pollutants and demand a change to green energy. As a result, biomass, hydropower, wind power and solar energy are taking an important place in the running of most industries. An intensive campaign to change to green energy threatens to reduce the consumption of fuel from the oil company (Moer, 2016). This continuous campaign is likely to lessen the demand for oil and lead to reduced earnings.

Finally, the declining oil deposits around the world are a threat to the sustenance of the company. Most of the deposits of oil the company depends on are old time discoveries. The number of explorations in the current world is not increasing. With time, the deposits will be depleted, and the willing company will have little to mine. When the crude oil deposits decrease, the country will have nothing to work on and is likely to close.

In conclusion, Saudi Oil Company is the largest oil company in the world. It accounts for 10 percent of world oil and sells to several countries in the world. In the last few years, the company’s earnings increased. Most of these increments were because of the rising production of oil to the international markets. Amidst the rise in market value, the company faces threats from other companies like Saudi Oil Company. Competition reduces their market shares in different countries. Opportunities exist in the rising number of people who need fuels and demand an increase from time to time. However, the concerns on environmental preservation encourage the use of green energy to reduce the toxins released into the environment.

References

Banister, D. (2010). Sustainable urban development and transport -a Eurovision for 2020. Journal of Transport Reviews, 20(1), 113-130.

Buckley, R., Annez P., & Spence, M. (2008). Urbanization and Growth. New York, NY: World Bank Publications.

D & B Hoovers. (2017). Saudi Arabia Oil Company. Retrieved from http://www.hoovers.com/company-information/cs/company- profile.national_iranian_oil_company.99a981f10599bd0d.html

OECD Organization. (2017). Urban Development. Retrieved from http://www.oecd.org/gov/regional-policy/urbandevelopment.htm

Moer E. (2016). Renewable energy transformation or fossil fuel backlash: Vested interests in the political economy. Berlin, Germany: Springer.

Saudi Armco. (2015). Energy in opportunity: Facts and figures 2015. Retrieved from http://www.saudiaramco.com/content/dam/Publications/facts-and-figures/FF-2015- SaudiAramco-English.pdf

Temple, J. (2002). Openness, Inflation, and the Phillips Curve: A Puzzle. Journal of money, credit and banking, 34(2), 450-468.

The World Bank. (2017, March 29). Understanding Poverty: Overview. Retrieved from http://www.worldbank.org/en/topic/urbandevelopment/overview