Transcript The Economics of Urban Growth

The Economics of
Urban Growth
Dr. Adnan A. Alshiha
Determinants of the
Growth process
• The distribution of resources.
• Relative mode of production.
• Level of demand.
• The efficiency of price system.
The Principles of
Location Analysis
• People want to locate where they can maximize their
satisfaction.
• Producers desire to locate where their profit are
expected to be maximize.
• Producers motives are more important than worker
motives. Why? Because:
 Businessman has more to lose.
 More change in the pattern that determine firm
preferences than the pattern that determine
consumers preferences.
The Principles of
Location Analysis
• We begin with producers decision.
• Production process is consist of three stages:
Procurement.
Processing.
Distribution.
• Procurement and Distribution have a
common determinant: transportation cost
Transfer Cost and Firm Location
• The reduction of transfer costs is a strong incentive
to concentrate the three stages of production at a
single point in space.
• Transfer cost must be consider in relation to
distance.
• For given modes of transportation, transfer cost per
unit of product increase with distance.
• But at longer distance , the increase begin to tail
off.
• In other word, as distance increases , the marginal
cost of shipping a good anther kilometer decline.
Transfer Cost –Distance Relationship
Truck
Transfer cost
Rail
Barge
Distance
How Do Transfer Cost Affect
Individual Producer?
• Consider a producer (bakery) in single linear
market, where neither the volume of business nor
his processing cost varies with his location.
• The bakery hires a boy for deliveries and the boy
can carry only one customer’s order at a time.
• Where the firm locate to minimize the boy trips?
• The mean or Average distance?
• The mode?
Single Materials and
Market site Location Problem
• If the marginal procurement cost exceeds the
marginal distribution costs, it will pay to
locate at the material site.
• When firm’s market are cities and the
marginal procurement cost relatively low, we
would expect firms to locate in cities
Single Materials and
Market site Location Problem
Material
Site
Distance
Market
Site
Single Materials and Market site with
Terminal Cost and Transfer Economies
Total Cost
Distance
Single Materials and Market site with
Terminal Cost and Transfer Economies
• It will pay producer to locate at the material site or
the market site. For at these points the firm could
save terminal cost on materials or the final product.
• In general , producers will be oriented toward
markets when the product:
• 1- is weight – gaining manufacturing, as beer.
• 2- has higher transfer costs on distribution , than
on procurement
• 3- is perishable, as are ice , baked goods, and fresh
agricultural product.
The Location Decision of Persons
• Firms motives are more important in determining
the location of economic activities than person’s
motive.
• It follows, that people will tend to be “pulled” to the
center or areas of rising economic activity.
• People will be “pushed” away from areas having low
levels of income per capita or wage rate and high
unemployment level.
• “pull” and “push” factors diminish as distance
between the two cities increases (people have lee
information).
• These ideas can be expressed in simple gravity
model.
Models of Urban Growth
• A short – Run Model Income Determination.
• Urban Economic Base Models.
• Central – Place Models.
• Input-Output Models.
A short – Run Model Income
Determination
• The Keynesian multiplier: reciprocal of the
quantity (1 minus the marginal propensity to
consume).
• When any given change in spending is multiplied
by the multiplier , one get the final change in
income.
• Example:
• If people spend ¾ of any given change in their
income, the multiplier will have a value of
• 1/(1-3/4)
A short – Run Model Income
Determination
• Aggregate income or production (Y) =the
sum of consumption (C), Investment (I),
Government expenditure (G), and net export
(X).
Urban Economic Base Models
• The economy of the city may be divided into
two sectors:
1- The exporting or basic sectors.
2- The service or non-basic sector.
• The basic sector is the key to growth
Basic and non-basic
• 1- The exporting or basic sectors:
• bring income into the city by selling goods
and services outside the city
• 2- The service or non-basic sector whose
output sold within the city
Economic-Base Studies
• Base studies were done by estimating the
amount of employment that was used to
produce goods and services sold outside the
city.
Methods of estimating
“export employment”
• The location quotient
• The minimum-requirement
The location quotient
• For any sector is found by comparing that sector’s
share of the total employment in the city with the
share of employment for that sector in benchmark
area.
• Example:
• If the chemical sector in a given city has 20% of the
city’s total employment
• While chemical share of total employment in Saudi
Arabia is only 10%
• This method allocate ½ of the chemicals
employment in the city to export.
The minimum-requirement
• Involve arraying the Percentage
of total
employment of industry for number of cities.
• Cities are grouped according to population size
class
• The percentages are arrayed from smallest to
largest.
• The lowest percentage is considered that share of
employment rquired to service local needs.
• The remaining employment is said to be basic.
Change
S
S”
S
W
a
g
e
D”
D
Employment
Basic
Employment
Non - Basic
Central – Place Models
• Explain the size , number, and distribution
of towns across space.
• The word central comes from the relatively
efficient location of the city with respect to
its hinterland.
Degree of Centrality
• Is measured by its order.
• High-order cities offer high-order goods, have many
establishment , large population, and a vast
hinterland.
• High-order good: are shopping goods the consumer
would travel a sizable distance to purchase (mink
coats, diamond, professional sport).
• Lower-order places: provide lower-order good to
small surrounding areas.
• Lower-order goods are primary necessities,
such as groceries and gasoline, which require
frequent purchase with minimal travel
Origin and Size of Central Places
•
Are explained by two concepts:
•
Threshold: is the minimum level of demand required to support the
production of good by (at least) a single establishment.
•
Once production is originated for any good , how far does the market
extend? This is determined by the range.
•
The range: delineates the zone around any central place from which a
person travel to obtain the good.
•
Since the price of any good rises with distance the range is limited by
the relevant transportation cost.
•
Technically, the boundary of the range is that point in space where a
person is indifferent in choosing between two central places that offer
the same good.
Input-Output Models
• Describe the interrelationships among industries
and final users of products for any economy.
• Industries are defined on product basis, each
industry produce a single homogeneous product.
• Final
users
(final
demand):
consumer,
government, investors and export.
• The model shows how the output of each industry is
distributed to all of its users.
• The model also show the purchases of inputs from
all other industries or sectors.
The Input-Output Table
Sector 1
sector2
Final
demand
Total
Gross
output
SR.20
SR.40
SR.40
SR.100
sector2
30
80
90
200
Value added
50
80
100
200
Sale to
Purchase from
Sector 1
TGO
300
Direct coefficient
per Riyal of Output
Sector 1
Sector 2
Sector 1
0.2
0.2
Sector 2
0.3
0.4
Value added 0.5
0.4
Direct and indirect requirements per
Rial of delivery of Final Demand
Sector 1
Sector 2
Sector 1
1.43
0.48
Sector 2
0.71
1.90
Impact
Multiplier
2.14
2.38
Distributional Impact
of Urban Growth
• How income is distributed?
• The importance of This issue to contemporary
urban poverty and other problem is selfevidence
• In general, the distribution of income is
determined by how things are produced and
the taste of consumers.
Is urban Growth Immutable?
• The urban size ratchet: the rate growth never
fall bellow zero.
• This is a reasonable explanation why big
cities continue to grow
Is There an Optimum Sized City?
•
Demand and comparative advantage act as limits on the size of cities.
•
The problems of pollution, congestion, and interjurisdictional spillover
could be classified as possible symptoms of excessive urban size.
•
Optimal city size is reached when the additional social benefits of
adding anther person to the city are exactly equal to the additional
social cost.
•
That is , when the marginal social utility of adding anther person is
zero