Transcript Urban Dynamics - Sergio Arboleda University

Reading the metropolitan
economy: spatial interdependence,
land use and growth
Geoffrey J.D. Hewings
Regional Economics Applications Laboratory
Institute of Government & Public Affairs
University of illinois
607 S. Mathews, Urbana, Il 61801-3671
[email protected]
www.real.illinois.edu
Outline
 Organization of research – REAL
 The Context
 Stylized Facts
 General Perspectives
 Regeneration Economies
 Structural Changes in Urban Economies
 Challenge of Supply Chain Analysis
 What is happening inside City Regions?
 Final Thoughts
Introduction to the Regional Economics
Applications Laboratory (REAL)
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Formed in 1989
Goal: enhance quality of public policy decision-making through creation of strategic
analysis of state and local economies
Move from theory to formal analysis to public policy presentation
Train next generation of economic analysts to be “schizophrenic”
 Present analysis in one form for academic audience
 Present modification in form suitable for policy analysts
Provide monthly employment analysis Illinois; monthly index leading indicators for
Chicago economy and each Illinois MSA; housing market analysis and forecasts
Annual forecasts for Illinois, Chicago and other Midwest state economies through 2040
Developed models for states and regions in EU, Brazil, Colombia, Chile, Japan, Korea,
Indonesia.
Participants in 2012 from: Colombia, Chile, Brazil, Peru, Argentina, China, Indonesia,
Bangladesh, Korea, Japan, Italy, Turkey, Spain, Puerto Rico, India, Guatemala
Provided support (2 years or more) for >40 doctoral dissertations in economics,
agricultural economics, urban and regional planning and geography
“bolsa sanduiche” program with University of São Paulo
REAL’s Role in Economic Development
 Too many decisions and certainly too many public
policy initiatives have been predicated on little or
no information about how the economy works
 REAL’s competitive advantage is in providing
insights into
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how economies work,
how and in what direction they are likely to change,
“what if…?” and forecasts 1 month to 30 years ahead
Evaluation of alternative strategies
The Context
 World-wide, over 50% of the population is located in
urban areas
 Forecasts 50, 40, 30, 20, 10 years ago all suggested
that there was an upper bound to the size of
metropolitan areas – but the larger ones continue to
grow notwithstanding the presence of significant
negative externalities (congestion, pollution,
inefficiencies)
The Intellectual Legacy
 Systems of cities: concept initially rested on
propositions of central place theory now posited
within the context of the New Economic Geography
 Internal organization of cities: initially von Thunen
(regarded by Samuelson as a greater contributor to
economic theory than Ricardo) then Muth-MillsAlonso, new urban economics etc.
 Challenge has always been to link the two
Stylized Facts
 Cities in the developed world transformed in the last half
century from dominance by manufacturing to service
production of physical goods replaced by production of
ideas
 Cities at one and the same time becoming more
competitive and more complementary as a result of:
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Hollowing out
Fragmentation
 Exchange of self-contained to interdependence
 Exploitation of scale economies/cheap transport/love of
variety/greater exchange
 Intercity trade growing faster than>>City Gross Product
 What can we learn from each other?
 How do our economies function?
 What is the role of
 Infrastructure
 Labor force development
 Smart specialization/diversification
 Public-private partnerships
 Enhancing trade Midwest-West Midlands (do we even know
the volume?)
 Location advantages as Chinese wage rates accelerate
 Seizing the opportunity for 3-D printing; can these regions
create new manufacturing jobs?
General Perspectives
 Policy makers rarely take the time to discover how their city
works
 How and in what direction it is likely to change
 Formal evaluation of expected outcomes of alternative
development strategies
 Policy without formal analytical support is just speculation
 REAL is part of a consortium operating under the umbrella
Regeneration Economies, A Civic-Market Collaborative
Leveraging its Assets to Revitalize Great Lakes Economies
We cannot solve today’s economic
development problems with the same
thinking that got us here
[with apologies to Albert Einstein]
General Perspectives
 New business recruitment and relocation initiatives
and incentive programs must be combined with
programs that stimulate growth of existing and
emerging enterprises to benefit a community or
region.
 Growing viable firms must be linked with
sustainable workforce demand and development
 Unmeasured economic development is resource
expenditure, not investment; meaningful and visible
measurement of outcomes supports wise
management of economic development resources.
Regenerative Urban Economies
Diagnosis and
Analysis
• Regional occupational
and business cluster
identification and
assessment against a
portfolio of metrics
(REAL)
• Diagnose practices
and performances to
assess competitive
position (e.g., PROBE,
TBM)
Output: Full
assessment of trends,
opportunities and
barriers
Collaborative
Innovation
• Strategic Doing
Workshops and
Training for
developing strategy to
establish networks
• Workshops in regional
strategy, workforce
development
collaborations,
sustainable
development, and
business clusters
Output: Collaborative
strategies with clear
owners and metrics
Delivering
Outcomes
• Action plan
development to
accelerate the journey
to competitive
leadership
• Strategy and
marketing leadership
for individual firms
and local and regional
initiatives
Output: multigenerational solutions to
support short-term
viability and long-term
sustainability.
Regenerative Urban Economies
 Analysis requires consideration of the MACRO
regional economy
 Then, evaluation of the MICRO (firm-level)
economy especially in the context of key VALUE
CHAINS
 Development of a strategic DEVELOPMENT
STRATEGY
 Cycle back to evaluation of options at the MACRO
level (impacts on production, income, employment,
growth rates, population, migration….)
Initiating Our Understanding of the Metropolitan
Economy
 How are the activities linked together?
Directly and indirectly
 How has this structure of interdependence changed over time
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 What drives the metropolitan economy?
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Dependence on local, domestic and international markets
 Where are the major trading partners?
 What is the balance of trade?
 How diversified is the export portfolio – both sectorally and
spatially?
How has this changed over time?
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Growth accounting – role of technology and demand in
generating changes in production levels
Initiating Our Understanding of the Metropolitan
Economy (2)
 How does the trade in people (migration) compare
to the trade in goods?
Is the metro economy dominated by net in- or out-migration?
 What is the age and occupational capital composition of
migration?
 How is the age profile changing – what is the role of ageing?
 How is the ethnic composition changing
 How is the dependency ration changing (number of non labor
force participants “supported” by each member of the labor
force)?
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Initiating Our Understanding of the Metropolitan
Economy (3)
 Short- and Long-run Forecasts
 What are the expected growth rates of aggregate indicators
like GRP, population, income and employment?
 How will different national and international scenarios
affect the metro region’s economy?
 What are the expected changes in sector, income and
employment compositions over the next 10, 20 and 30
years?
 How will the occupational structure change?
Supply-demand dynamics of the labor market
 Role of skill migration in enhancing/detracting from the labor
market’s competitiveness
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Initiating Our Understanding of the Metropolitan
Economy (4)
 What REAL provides
 Regional macro models of Midwest states and metro
economies
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Growth rates vis a vis nation
What are sources of stimulus for a state/regional economy
integration with labor markets
Migration analyses
Energy analyses
Short-term indices – leading indicators
Specific analyses - examples
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Impact of ageing
Impact analysis e.g. high speed rail
Role of trade – foreign and domestic on specific economies
Initiating Our Understanding of the Metropolitan
Economy (5)
 For Chicago, provided forecasts through 2040
 Most dramatic change is increase in Latino population share
from 13% (2010) to 37 (2040)
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Evaluated the impacts of ageing and immigration (more later)
 Examined impacts of structural change
 Identified processes of fragmentation and hollowing out – decreasing
intra- and increasing inter-regional dependencies
 Identified importance of interstate trade and its concentration in intraindustry trade
 Estimated impacts of structural change on pollution generation in
Chicago and Midwest (using a continuous time version of the models)
Initiating Our Understanding of the Metropolitan
Economy (6)
 Over the past three decades important structural changes in the
US economy
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Decreasing relative contribution of manufacturing to GNP
Changes in location of economic activity
Changes in the spatial organization of production
 Midwest has experienced greater absolute impacts from these
changes
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Impacts have not always been uniform across Midwest states
For example, IL became a non-manufacturing dominated state 2-3
years ahead of the US as a whole
States within the region becoming more complementary at the
same time as more competitive
Initiating Our Understanding of the Metropolitan
Economy (7)
 Midwest characterized by
 Significant interdependence
 Both internal markets (i.e. within Midwest)
 International markets – international trade dominated by exports to
Canada and Mexico
 Structural problems
 Labor force issues
 Net out-migration of highly endowed human capital (Chicago
loses $1.5 billion/year ≈ 20,000 jobs [50% good year’s growth])
 underinvestment in high-skill blue-collar human capital
 Governance issues – failure to appreciate and exploit spatial
(interurban) economic interdependencies (OECD study)
Two Major Structural Changes in Urban
Economies
1. Each state is hollowing out – typical establishment is now
less dependent on sources of inputs within the state and on
markets within the state ---- ripple effects of change within the state
are now smaller than 20 years ago
2. Structure of production is changing – fragmentation is now
a characteristic of production
 The value chain is now longer
 Firms are organizing production to exploit economies of
scale in individual plants in specialized component
production and shipping to other plants to add further
components
inputs
Production
Block 1
Service
Link
Production
Block 2
markets
Changes in the Structure of Production
Spatial Interdependence: Job Losses in the
Recession
Change in
Metro
Area
Impacts in
Chicago Indianap. Detroit
C
I
D
C
M
9.36%
5.78%
4.54%
7.91%
5.98%
5.73%
6.47%
3.64%
Columbus Madison
4.70% 5.13% 3.85%
6.19% 12.00% 2.33%
13.10% 5.06%
8.24%
1.98%
8.35% 5.00%
-
Rest of
Midwest Total
19.66%
29.88%
29.66%
21.24%
24.91%
Rest of
US
80.34%
70.12%
70.34%
78.76%
75.09%
Urban Regions as Competitors & Complements
 As urban regions become both more competitive and
interdependent at the same time, it will be even more
important to know:
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The nature and importance of external trade
The geography of this trade – important trading partners
Sustainability of trade and the nature of economic vulnerability (e.g.
supply chain disruptions)
Policy instrument that a single region can employ to enhances its
competitiveness
 Without access to formal models, none of this will be
possible
Challenge of Supply Chain Analysis
 Work at the country level (e.g. Kukasaku, Meng and
Yamano, 2011) has revealed greater country integration in
Asia as a result of fragmentation of production
 Expectations:
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Decrease in intra-region elements as production value chains involve
more establishment to establishment flows
More interregional and international flows
But process may not be homogenous – trade-off between increase in
complexity and increase in spatial fragmentation
Challenge of Supply Chain Analysis
 In analysis of Chicago economy, two dimensions are
differentiated within the fragmentation process:
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Spatial: decrease in the complexity of production systems inside any
given economy
Functional: outsourcing may increase the density of transactions and
linkages within a given economy
 Implications for the Chicago region were studied from a set
of input-output tables estimated for the period 1978-2014
using Average Propagation Lengths (APLs).
Challenge of Supply Chain Analysis
 (1) The Chicago economy has experienced a process of
hollowing out due to spatial fragmentation, causing an overall
reduction in intermediation – multipliers are decreasing
 (2) A decrease in the variety of goods and services produced in
any one sector (i.e. secondary product production has decreased).
 (3) An increase in the specialization of production in each sector.
 This latter observation is consistent with the NEG ideas of the
dominance of scale economies and the ability of an individual
establishment to serve more extensive geographic markets.
Challenge of Supply Chain Analysis: Vulnerability
and the 3-D printing
 Fukushima tsunami revealed dangers of excessive
fragmentation+consolidation
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DENSO encouraged to concentrate production of chip controlling use
of battery/gas engine in hybrid cars
Factor destroyed in tsunami – loss of 9 months’ production
 3-D printing offers prospect of further agglomeration of
supply chains around sites of final production
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Saving of logistics/coordination costs
Increased flexibility – easier to solve problems
Findings of Romero et al in Chicago may be first indication
Supply Chains
 NOW: Dispersed-------Concentrated--------Dispersed
 3-D:
Concentrated….Concentrated……….. Dispersed.
What is happening Inside Metro Regions?
 Krugman has argued that patterns and impacts of trade
have similar impacts
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Between countries
Between regions inside countries
 What about within large metropolitan regions?
 Detailed analysis of the Chicago economy provides some
insights into the nature and strength of trading relationships
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Goods and services
Flows of people (commuting)
Flows of expenditures by households
Spatial Division of Chicago
Chicago Intra Metropolitan Flows
Goods and Services
Flows
Wages and salaries
Flows of commuters
and their incomes by
zone
Household expenditures
Flows of expenditures by
zone
Interindustry Interdependence
 Limited connections across regions
100%
5.63%
1.44%
2.97%
5.25%
5.81%
1.49%
90%
80%
70%
60%
93.58%
50%
90.30%
89.96%
89.81%
40%
30%
20%
10%
2.40%
1.38%
2.83%
2.21%
2.77%
2.17%
0%
CBD
R of Chicago
CBD
Suburbs
R of Chicago
Suburbs
Outer Suburbs
Outer Suburbs
Total Spatial Interdependence
 Substantial interdependence when all interactions considered
100%
90%
26.15%
29.67%
26.96%
80%
64.89%
70%
11.57%
18.98%
60%
5.97%
49.87%
50%
40%
47.47%
14.69%
30%
48.90%
5.69%
6.60%
20%
17.48%
10%
13.82%
11.29%
0%
CBD
R of Chicago
CBD
R of Chicago
Suburbs
Suburbs
Outer Suburbs
Outer Suburbs
Changes in the Nature of Dependence as
Complication Increases
 Layer 1
 Intrazonal
flows dominate the production relationships in
the assembly of $479 billion worth of goods and services.
 Somewhere between 90% and 94% of the direct and
indirect effects of trade remain within the zone
 Layer 4
With the exception of zone 4, less than 50% of the total
production impacts can be traced, directly and indirectly, to
activity that is generated within the zone
 Almost 14% of the impact in zone 4 (outer suburbs) can be
traced to zone 1 (the central area or CBD) with a further 6%
traced to zone 2 (rest of the City of Chicago)
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Unexpected Result: The Miyazawa Interrelational
Income Multiplier
 Region 2 – least prosperous but generated largest income
multiplier
 Significant asymmetric spillovers – suburbs benefit more from
income growth in other regions than vice versa
The Demographic Tsunami
percentage of population >65
20.0
15.0
10.0
5.0
0.0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
US
Cohort
Under 18
5-17
18-24
25-44
45-64
65+
Change 2000-2030
Number
13,662
-41,976
17,468
-302,690
373,007
912,152
%
0.4
-1.8
1.4
-8.0
14.0
60.8
Chicago
Comparison of Population Structure 2000, 2040
2000
1 million more
retirees
0.7 million
fewer working
age
2040
Dramatic Changes in Ethnic Composition:
Growth Hispanic Population
2010: 13%
Implications
 Variety of goods and services purchased will change
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as the age distribution changes
Significant differences in spending patterns by age
Housing needs will change – more 2-person
households
Senior population will have far greater share of
income that is disposable and flexible (often no
housing costs that can consume 30% of average
household budget)
Ethnic composition will add further significant
change
Beverages and Tobaccos
Food
20%
3.5%
15%
2.5%
10%
1.5%
0.5%
5%
-24
25-34
80s
35-44
90s
45-54
00s
55-64
10s
-24
65-
25-34
80s
20s
35-44
90s
45-54
00s
55-64
10s
65-
20s
Clothing
Housing
45%
8%
40%
6%
35%
4%
30%
2%
0%
25%
-24
25-34
80s
35-44
90s
45-54
00s
55-64
10s
-24
65-
25-34
80s
20s
35-44
90s
45-54
00s
55-64
10s
65-
20s
Health Care
Transportation
25%
15.0%
20%
10.0%
15%
5.0%
0.0%
10%
-24
25-34
80s
35-44
90s
45-54
00s
55-64
10s
20s
65-
-24
25-34
80s
35-44
90s
45-54
00s
55-64
10s
65-
20s
Consumption and Age: Selected Goods
(allocation of a typical dollar by age and product group)
Forecasts Compared: Representative
Household Versus Disaggregated Households
150
140
130
120
110
100
90
80
70
2003
1HH
2006
2009
-24
2012
25-34
2015
35-45
2018
2021
45-54
2024
55-64
2027
2030
65-
Note: 1HH is the single representative household
Growth in Consumption 2003-2030 by Age-Cohort Households, Chicago
Immigration, Aging and the Chicago Economy
 Immigration has a positive impact on GRP
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
Aging only
0.00
0.6% immigration 2005
1.2% immigration
1.5% immigration
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
Land Use Linkage
 REAL has provided a link between
 Regional macro economy (9 m population)
 300 local communities with land use regulatory authority
 Land use development at the 30m square parcel level using a
cellular automata model
 Preliminary results indicate that community-level
decisions may prevent the region from locating the
population and businesses forecast to develop over
the next 25 years
Land Use Linkage
Comparison of Constrained and Unconstrained
Population growth
Comparison of Constrained and Unconstrained
Employment growth
Implications
 Region may accommodate more of the forecasted
employment than population (more vacant land
zoned for business and industry)
 Region’s inability to house additional forecast
population may have serious impacts
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Under utilization of public goods such as schools, water, sewer
and transportation infrastructure
Loss of economic impacts associated with the spending and respending of wages and salaries – additional population will
likely be housed outside the region
Final Thoughts
 World Bank, OECD, IDB, ADB have all discovered that
the internal heterogeneity of countries requires them to
focus on region-region interactions
 Metropolitan areas are similarly heterogeneous and thus
there is a need to focus on
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Nature and strength of the external linkages
The interactions between parts of the internal metropolitan structure
Interactions between the two – role of internal connectivity is as
important as external connectivity
 Known for a long time about inter-urban connectivity
across countries but less about how the internal structure
affects international competitiveness
Final Thoughts (2)
 Urban and regional economies are more complex, and
they are changing more rapidly than in the 1990s or
2000s
 Global challenges, rapidly changing markets, speed of
information flows create different needs for response and
innovation
 Regions are becoming more competitive but more
complementary through spatially extensive supply chains
We cannot solve today’s economic
development problems with the same
thinking that created the problems