Localised conditions for economic growth

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Localised conditions for economic growth

• --Testing the endogenous growth hypothesis
• Wenjuan Li, Einar Holm, Urban Lindgren
• Department of Social and Economic Geography, Umeå
  University,
• SE-901 87 Umeå Sweden

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Background of the research project

• PhD thesis Firms and People in PlaceDriving
  forces for regional growth
• Regional growth? employment? labour market
• Labour marketlabour demand and labour supply
• labour demand workplace

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Literatures related to regional growth (1)

• Neoclassical growth models
• assuming decreasing marginal returns to scale
  predict a convergence of economies in regions and
  countries which does not seem to have been the
  case when comparing growth rates in developing
  and developed countries during the last 50 years.
  
• neoclassical models do not explain why
  technological shifts occur.

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Literatures related to regional growth (2)

• New growth Models
• Endogenously closed economic systems (e.g. a
  region or a country) can become self-sustaining
  and experience dynamically increasing returns
  (Arrow, 1994 Arthur, 1994 Karlsson et al, 2001)
  
• The increasing returns are achieved by
  externalities of knowledge and learning (Arrow,
  1962) and of human capital (Romer, 1986 and 1990
  Lucas, 1988).
• The externalities are often referred to as
  agglomeration economies that can be further
  divided into MAR (Marshall-Arrow-Romer)
  externalities related to specialisation
  (localisation economies) and Jacobs externalities
  (Jacobs, 1969) associated with the diversity of
  local employment (urbanization economies).

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Inconsistent findings from empirical studies

• Glaeser et al (1992) studied 170 US standard
  metropolitan areas and found that diversity
  (Jacobs externalities) contributes more to growth
  than other externalities
• Henderson et al (1995) used similar data and
  studied 224 US cities, reported that new
  industries prosper in large diverse metropolitan
  areas while mature industries decentralize to
  smaller, more specialized cities. Thus increasing
  returns are brought by both MAR externalities and
  Jacobs externalities.
• Wictorin (2007) studied three main industries in
  Swedish LA regions, reported that not significant
  connection between concentration of similar
  enterprises and productivity of labour was found.
• Eriksson et al (2007) studied effects of
  localisation, urbanisation and scale of job
  changes in Swedish LA regions, and suggested that
  the concentration of similar activities may be
  gainful for small regions.
• Engelstoft et al (2005)-- reported that little
  evidence supports the claims concerning the
  existence and performance of frequently
  identified and examined industrial clusters in
  Denmark.
• Therefore, economic growth should incorporate a
  broad set of economic agents and recognize that
  these firms and workplaces are nested in spatial
  hierarchies.

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Workplace, working square, local area, hinterland
(totally 180 000 workplaces and 60 000 working
square)
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Two dimensions of workplace attributes

• four categorieslabour force, business
  environment, local demand, and external demand
  factors
• four spatial scalesworkplace, working square,
  local area, and hinterland

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Data Sources

• Astrid--an individual longitude database that is
  collected by Statistics Sweden (SCB).
• the Swedish Red Map1 250 000 Swedish national
  general maps by Swedish Land Survey
  (Lantmäteriet).

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Indicator of regional growth

• Full model and partial models
• Y the change of workplace working income within
  five years (1998-2003)
• The study period (1998 2003) was almost a small
  economic cycle, including a growth peak (4.5 in
  1999) and a bottom (1.1 in 2001)

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Totally 32 explanatory variables in the four
spatial scales
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• OLS Full model Yi ß0 ß1X1i ß2X2i ßkXki
  ei
• for k independent variables
• Total explained variance is 28.58.
• Using 36 partial OLS models to identify intervals
  of partial explanatory effect of variables in
  each spatial scale and category.

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Partial explanatory effects of the endogenous
factors in spatial scales and categories
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Findings (1)

• Among the four categories, labour force factor is
  the most important condition, business
  environment is the second important one, and
  local demand is more important than external
  demand.
• Among the spatial scales the working-square (km
  square) plays bigger role than the scales of
  workplace, local area and hinterland.

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Findings (2)

• Both endogenous and exogenous growths exist
  
• According to the full model, about one third of
  the growth is achieved by the factors of
  daily-reach area, indicating that endogenous
  growth counts about one third of total regional
  growth.
• Both diversity and localisation contribute to
  economic performance positively only within
  optimum distances.
• Labour force (people) matters. Geography matters!