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Economic Development Theories - Developmental Economics - Lecture Notes, Study notes of Development Economics

Cochin University of Science and TechnologyDevelopment Economics

This is Developmental Economics lecture notes. Key points for the lecture are: Economic Development Theories, Economic Units, Geography of Economic Development, National Economic Development, Massachusetts Metropolitan Area, Map of Labor Market Areas, Census Map, Largest Sectors, Major Economic Theories, Economic Base Theory

Typology: Study notes

2011/2012

Uploaded on 12/24/2012

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Springfield Studio
Economic Development Theories: Neighborhoods as Economic Units
Overview
To provide a theoretical foundation for our work, this class will review literature
on regions as economic units, the relationship between regional and
neighborhood economic development and theories that seek to explain why and
how economies develop.
Introduction
This class should be more of a discussion/exploration than a full lecture. The
issue of what is regional economic development is and what are the forces that
drive it is a huge subject. We are not going to do the issue justice here, but it is
valuable to think about some of these theories and how they might be helpful to
us as we try to understand what it means to do neighborhood economic
development. It is also important to think about how these ideas might help us
accomplish some of the goals in Springfield more specifically. One of the
advantages we are bringing to the neighborhood through this course is the
opportunity to consider more theoretical content. They have good ideas that are
rooted to the neighborhood context and a theoretical perspective can help them
develop those thoughts. We want to get to the core ideas of these theories and
think about what they imply about economic development strategies. Ultimately
we will come back to these issues again.
Slides
I. Geography of Economic Development (Larry Ledebur’s book The New
Regional Economies)
a. The book is a polemic against national economic development
policy.
b. Current economists’ thinking is that metropolitan areas are the
primary basis for economic regions.
i. 95% of economic activity is organized around metropolitan
areas, typically around a central city (though its role is
getting smaller).
ii. Looking at economic performance, metropolitan areas differ,
i.e. they are distinct economic units.
iii. Whatever we do in the North End, Springfield is in the
context of this metropolitan economy.
II. Springfield, MA Economic Geography
a. Massachusetts Metropolitan Area Map
i. Map of metro areas in MA.
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Springfield Studio

Economic Development Theories: Neighborhoods as Economic Units

Overview To provide a theoretical foundation for our work, this class will review literature on regions as economic units, the relationship between regional and neighborhood economic development and theories that seek to explain why and how economies develop.

Introduction This class should be more of a discussion/exploration than a full lecture. The issue of what is regional economic development is and what are the forces that drive it is a huge subject. We are not going to do the issue justice here, but it is valuable to think about some of these theories and how they might be helpful to us as we try to understand what it means to do neighborhood economic development. It is also important to think about how these ideas might help us accomplish some of the goals in Springfield more specifically. One of the advantages we are bringing to the neighborhood through this course is the opportunity to consider more theoretical content. They have good ideas that are rooted to the neighborhood context and a theoretical perspective can help them develop those thoughts. We want to get to the core ideas of these theories and think about what they imply about economic development strategies. Ultimately we will come back to these issues again.

Slides I. Geography of Economic Development (Larry Ledebur’s book The New Regional Economies ) a. The book is a polemic against national economic development policy. b. Current economists’ thinking is that metropolitan areas are the primary basis for economic regions. i. 95% of economic activity is organized around metropolitan areas, typically around a central city (though its role is getting smaller). ii. Looking at economic performance, metropolitan areas differ, i.e. they are distinct economic units. iii. Whatever we do in the North End, Springfield is in the context of this metropolitan economy. II. Springfield, MA Economic Geography a. Massachusetts Metropolitan Area Map i. Map of metro areas in MA.

ii. Different federal bureaucracies define them differently. This once comes out of NECMA. iii. The Springfield Metro Area is geographically the second- largest in the state. iv. Springfield is the central city of a large metropolitan area that extends far. b. Map of Labor Market Areas i. Focused on commuting patterns, primary metropolitan areas where residents get jobs. ii. Almost the entire state is broken into labor market areas. iii. The Springfield metropolitan area and labor market areas are pretty much the same. c. Census Map i. Springfield is at the southern end of the region. ii. The Connecticut River Valley is the defining geographic feature of area.

  1. The first major industry that developed was firearms, and you see that all along the River Valley.
  2. That river as a transportation corridor has been replaced by I-91, which is the major regional transportation route. iii. Even though this is a large area, most of the economic activity is centered in Springfield and surrounding areas.
  3. The only other centers are Amherst – center of UMass, educational institutions – and Northampton, which has become a regional destination around entertainment, dining, and has sort of displaced Springfield as the place to go. III. Employment a. Springfield had 254,000 jobs in 2004. b. The largest sectors are Health Care, Education (UMass is probably included), Retail, and Manufacturing. IV. Major Economic Theories: a. Economic Base Theory i. 2 Major Ideas:
  4. That neighborhoods have “export” (base) industry is an underlying assumption of many economic development practitioners.
  5. The Multiplier Process: a. Income flows through and supports economic development in the region through supplier relationships; b. People in local industries are earning/spending income that can either be invested back into the local economy or go outside of it.

a. Develop a specialized workforce b. Exchange of knowledge among workers, owners, l c. Local institutions develop to support the industry iii. Benefiting from base industries:

  1. Locate them in the neighborhood
  2. Ensure residents have access to employment opportunities in regionally located industries. iv. Relevance to Springfield, MA:
  3. Massachusetts is the only state that lost population in the last census;
  4. The growth in labor was entirely due to immigration, so
  5. There are labor force constraints.
  6. Human development should be more focused on the labor market than on the residents. v. Relevance to the North End?
  7. You might be more successful at filling gaps at supply chain by working collectively with firms rather than by looking at individual firms. Might be able to bid collectively, share knowledge, a. North End has focused on getting businesses to work together – form an association – not from a supply-chain perspective, but rather in terms of serving the local market.
  8. Organizational implications: a. There is important organizing work in getting firms to understand and invest in that strategy.
  9. Opportunities relate to: do the businesses have the skills, resources, access to credit to take advantage of these opportunities.
  10. Challenge: Theories assume that businesses can respond to the market. c. Product Life Cycle i. Basic notion:
  11. Economic activity follows the process of development of new products through a life cycle: a. Innovation b. Product diffusion and maturity c. Standardization – relocation to low-cost regions d. Decline/Obsolescence – loss of production/employment

ii. Raises 2 issues:

  1. Where the North End should be trying to place itself in the product life cycle: innovator vs. producer, etc.
  2. Should we be thinking about a set of industries that diversify the income of the neighborhood since every product will eventually move toward obsolescence? a. Right now the area is overly dependent on government support b. Healthcare may be an obvious sector to focus on, but are there any others? d. Entrepreneurship i. Someone who sees opportunities where others don’t and has the drive to act on it.
  3. Is it something that can be learned?
  4. Entrepreneurs don’t just succeed from their own efforts: a. It is a social process supported by social relationships: i. Access to lawyers to help form the firm, ii. Access to consultants to help develop it, etc. ii. Innovation: growth is a creative/destructive process and entrepreneurs are driving that process. iii. Entrepreneurship is a developmental strategy:
  5. How can we develop business opportunities and manage business opportunities? a. This aspect of economic development is lost in supply-side theory.
  6. Although only about 5% of people developed through an entrepreneurship strategy might become business owners, that 5% might become very important to the economic development and sustainability of a community.
  7. Lyons: Entrepreneurship can be taught: If you invest in the skill set over time, you would come out with a set of entrepreneurs. iv. Relevance to the North End:
  8. Even if some of what we do is to identify gaps, it is important to identify people in the North End who are willing to act on that information as entrepreneurs
  9. It takes skill to develop and sustain a firm.
  10. Is this a useful way to think about the North End? a. What skills/infrastructure exists to help people develop into entrepreneurs?

ii. Are you on a growth path?

  1. Economic development encompasses the conditions that produce economic and social well-being. a. How does the strategy enhance developmental resources of the neighborhood? b. Income: improving immediate economic well being; vs. c. Assets: improving long term ability to improve community economic and social well-being over time. i. Physical assets ii. Human assets iii. Capital assets VI. Linking Neighborhoods to Regions: Practice a. Novak, “Neighborhood Initiative and the Regional Economy”: i. The North End is very close to the economic/employment center of the region
  2. You could draw a 5 mile radius circle around the North End, and that would encompass almost the entire employment center. ii. Issues:
  3. Who are the employers being targeted? (by industry/occupation)
  4. Which of those are accessible? a. An important task of the class will be to get a good picture of the demand side.
  5. What skill sets to people need to access the jobs in the region?
  6. How do you get people to the jobs?
  7. What institutional connections allow you to develop that type of relationship? a. A big piece of implementing this type of practice is those institutional relationships. i. Who is out there now? ii. How can we connect them to the North End? b. The assumption of normal operations of the market might not always hold true in lower- income neighborhoods. b. Economic Roles of Urban Neighborhoods i. Labor market connections ii. Neighborhood as a location for businesses
  8. Community-oriented retail/services
  9. Is the neighborhood part of a regional center destination?

a. Much of what is going on in Springfield is regional tourism rather than a regional center destination. b. The health center is the biggest anchor.

  1. Producers and suppliers in key export industries. iii. Source of developmental assets
  2. What are the capacities and needs of the neighborhood? c. We will be prioritizing which strategies/set of economic relationships that we want to focus on. VII. Public Safety: a. Matter of perception and reality – there is a high perception of crime, but not a lot of crime in the neighborhood. The public safety issue may apply to the neighborhood as a retail district for the region because there is that negative perception of the neighborhood. i. Drag-racing. Can get up to 1,000 – 1,500 people watching drag racing on the street.
  3. Vendors present, ii. The North End is comparatively safer than other neighborhoods in Springfield.