Transcript Lecture 5 and 6

Regional Economics
Lecture 5 and 6
Sedef Akgüngör
Regional Growth
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Processes of growth (or more broadly, change)
in the economies of regions is measured by:
Relative Regional Growth in Population
 A substantial variation among major regions in per
capita income
 Regional Structural Changes
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Some Basic Questions on Regional
Development
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1. Causes of growth. Why do some regions grow
faster than others? What are the primary
initiating factors responsible, and through what
processes do these causes operate? What is the
role of interregional trade, migration, and
investment in the spread of development from
one region to another?
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2. Structure. How does regional economic
structure relate to growth? What kinds of
structure are conducive to growth, or the
reverse? What structural changes are associated
with growth?
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3. Convergence. Why is convergence so much in
evidence? Is it universal and inevitable, or is it
subject to reversals?
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4. Control over regional development. Can regional
development be substantially guided by policy?
If so, what are defensible objectives and
appropriate policies?
WHAT CAUSES REGIONAL
GROWTH?
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Self-Reinforcing and Self-Limiting Effects
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Demand and Supply as Determinants of
Regional Development
THE ROLE OF DEMAND
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Economic Base Theory and Studies
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Some activities in a region are peculiarly basic in
the sense that their growth leads and determines the
region’s overall development.
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Explanation of regional growth consists of two
parts:
(1) explaining the location of basic activities and
(2) tracing the processes by which basic activities
in any region give rise to an accompanying
development of non-basic activities.
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The usual economic base theory identifies basic
activities as those that bring in money from the
outside world, generally by producing goods or
services for export
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The argument advanced for this approach is that
a region, like a household or a business firm,
must earn its livelihood by producing something
that others will pay for.

A household, a neighborhood, a firm, or a
region cannot get richer by simply "taking in its
own washing"; it must sell something to others
in order to get more income. Consequently,
exports are viewed as providing the economic
base of a region’s growth.
Keynesian Model
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Keynesian income-expenditure model…
The only difference being that all the
expenditure variables refer to the regional or
local economy instead of to nation.
The model begins with the familiar incomeexpenditure identity:
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Y=C+I+G+X-M
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Y : Regional income
C : Regional consumption
I : Regional investment
G : Government
expenditure
X : Regional exports
M : Regional imports
I = I0 , G = G0 , X = X0
C = C0 + cDY
 M = M0 + mDY
 Where DY is disposable
income and given by
 DY = Y-tY
 Where t is the rate of income
tax
 Y = k (C0 +I0+X0+M0)
Where,
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k is the Keynesian regional multiplier and is
given by:
k=1/ 1-(c-m)(1-t)
(c-m) =the marginal propensity to consume locally
produced goods.
t= tax rate
The multiplier is clearly sensitive to changes
in c - m, rising quite rapidly as it increases.
 Since the marginal propensity to consume
locally produced goods (c - m) has a crucial
effect on the magnitude of the regional
multiplier.
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This model says that the regional income can be
magnified by the Keynesian regional multiplier.
To obtain higher regional income, we wish to
have a bigger multiplier.
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The strategical implications from this model are
to lower the income tax rate and promote the
propensity to consume locally produced goods.
This model justifies the demand-side policies
Promoting the demand, consumption of locally
produced goods in this case, can boost the
regional economy.
Export demand and cumulative
growth model
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This model says that if the world income grows,
the region's exports will increase which will lead
to the region's output to increase. The region
will be more productive in production. Thus, the
region's competitiveness will increase which will
decrease the region's price and increase the
exports. Another round of productivity increase
and competitiveness increase begin.
Example: Label for Geographic
Origin may help increase the value
of local products and products to
become world class brands….
Projection of the region’s prospective
growth and structural change
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1) to identify the region’s export activities, (2) to
forecast in some way the probable growth in those
activities, and (3) to evaluate the impact of that
additional export activity on the other, or nonbasic,
activities of the region.
The result is not only a projection of the region’s
prospective growth and structural change but also a
model that can be used in evaluating the effects of
alternative trends of export growth.
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A more sophisticated approach is to recognize
that almost all activities in a region produce
partly for export and partly for the regional
market, and to try to estimate how much of
each activity is for export.
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The simplest way to make such estimates is by
using location quotients. For example, in 1970
North Carolina accounted for 2.45 percent of
the national output of men’s and boys’ workclothing factories, while personal income in
North Carolina was estimated at 2.04 percent of
the national total.
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The location quotient is 2.45/2.04=1.20. From
this we could surmise that 20/120 or about onesixth of North Carolina’s output of work
clothing was for export to other areas and the
remainder for consumption within the state.
Regional Input-Output Analysis
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input-output schema
• Intermediate—private business activities, within
the region. The sector is broken down into
individual industries or activities (such as mining,
food processing, construction, and chemical
products). It is sometimes referred to as the
interindustry sector because much of the detail
refers to transactions among the separate
industries within the sector.
THE ROLE OF SUPPLY
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flow of money payments "backward" from
purchaser to seller, or we can follow the flow of
goods and services "forward" from producer to
user.
The scheme is symmetrical with respect to
supply and demand, or input and output.
INTERREGIONAL TRADE AND
FACTOR MOVEMENTS
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A region’s growth involves at least three kinds
of external relationships of the region:
(1) trade, or the import and export of goods and
services;
(2) migration of people, both in their capacity as
consumers and in their capacity as workers; and
(3) interregional "migration" of other
production factors, notably investment capital.
INTERREGIONAL
CONVERGENCE
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convergence of regional income differentials.
Such convergence would seem to be a natural
result of the gradual development and
maturation of areas
Increased interregional trade resulting from
improved transport can also promote
convergence by permitting regions to share to a
greater extent the benefits of the production
economies of other regions.
EXTERNAL AND INTERNAL FACTORS
IN REGIONAL DEVELOPMENT
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We have seen that the development of a region—in
terms of its size, income level, and structure—is
affected by external conditions of two types:
(1) demand for the region’s outputs, or more broadly,
external sources of income for the region, and
(2) supply of inputs to the region’s productive activity.
We have also seen that the impact of these external
factors is conditioned by the size and maturity of the
region and by the internal relationships of its various
activities in the form of vertical, horizontal, and
complementary linkages.
Porter’s Diamond Model
Regional development agencies
Objectives:
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to further economic
development and regeneration;
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to promote business efficiency
and competitiveness;
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to promote employment;
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to enhance the development and
application of skills relevant to
employment, and
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to contribute to sustainable
development.
Examples of Regional Development Agencies
(some websites for your interest)
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http://www.southwestrda.org.uk/
http://www.englandsrdas.com/home.aspx
http://www.rdaova.cz/arr_onas_e.php
http://www.nsarda.ca/
www.mersin-ka.org/