Some of the
most important problems to which regional economists and planners address
themselves involve processes of growth (or more broadly, change) in the
economies of regions. Such changes concern, of course, the people dwelling in
the region; they concern also business firms and individuals who are choosing a
region for their future activities; and they concern administrators and policy
makers on the national level.
objectives and tools of public policy will be examined in
Chapter 12; the present chapter inquires why
and how regional growth and other major changes occur.
11.1 SOME BASIC TRENDS AND QUESTIONS
growth of population is sometimes thought to be a measure of progress.
More relevant to the idea of developmental advance is, of course, rising
income levels. Finally, major changes in regional economic structure
seem to accompany development. We shall look briefly at some regional
trends in population, per capita income, and activity-mix in the United States
in order to identify the most meaningful aspects and issues of regional
11.1.1 Relative Regional Growth in
Figure 11-1 shows the differences in the population
growth rates of the Census divisions of the United States over the past
century or so. We are concerned here not with the absolute sizes of the
divisions1 populations but only with the
question of which areas have shown faster growth than others in each period.
Accordingly, the chart is plotted on a logarithmic or ratio scale, so that the
slope of a line on it represents the percentage rate of population growth per
annum, and the lines for the different Census divisions (see Figure 11-2) are simply stacked in convenient order
on the chart for comparison. We are interested not in the vertical position of
these lines but only in their relative slopes.
immediately apparent that although all divisions have increased in population
throughout the period, the rates of growth have been quite different for
various divisions at various times. The earliest settled Eastern areas have
grown more slowly than the others in the period shown. The West North Central
division displayed above-average growth until 1890 but has since lagged, while
the West South Central had a rapid growth phase lasting until 1910, and since
then has just about kept pace with the rest of the country. The Far Western
divisions, especially the Pacific, have grown faster than the national average
throughout the period. The 1940s, the decade of World War II, brought sudden
surges of population to the Pacific and South Atlantic, and further slackening
of growth rates in the Middle Atlantic and West North Central.
apparent also that there has been a gradual tendency for the growth rates to
become more alike as the pioneer stages of development have passed and the
country has become more fully settled and more evenly industrialized. The
fastest-growing parts of the country in recent years have been the Pacific
Coast, the Southwest, and the Mountain states, while the East North Central and
Middle Atlantic regions have tended to lose ground.
Regional Trends in Per Capita Income
earlier (see Table 10-2) a substantial variation
among major regions in per capita income, especially in money terms before any
adjustment for relative living costs. Is the pattern of differentials
historically well established?
Figure 11-3 portrays the changes in the relative
levels of regional per capita income that have occurred since 1920. Each
regions per capita income is shown as a percentage of the national per
capita income of the same date. The regional breakdown used here is not the
same as in Figures 11-1 and 11-2 but is as shown in Figure
here again the persistently lower income level of the South. However, after
1929 there is also a general trend toward equalization, or convergence.
The regional disparities become narrower.
Table 11-1 gives more detail on income differentials
for the period 1929-1980, focusing on Standard Metropolitan Statistical Areas
(SMSAs). The trends over this 51-year period are rather striking.
observe that in the United States as a whole, per capita income levels have
been consistently higher in metropolitan than in non-metropolitan areas, though
the gap has considerably narrowed in recent years. In 1929, people in
nonmetropolitan areas had incomes that were only 43 percent of those in
metropolitan areas. That ratio has increased steadily, so that in 1980
nonmetropolitan per capita incomes were 74 percent of metropolitan per capita
the data for various regions shown in Table 11-1,
we see once again the familiar differentials against the South and also marked
convergence of the interregional differentials. Metropolitan per capita income
in every region, without exception, was closer to the national average in 1980
than in 1929.
region, we see a wide range of per capita incomes for individual SMSAs. In
1929, there was more than a 2-to-1 spread among individual SMSA income levels
in six of the eight regions. Here too, convergence is evident. In 1962, 1971,
and 1980 only two of the regions showed that much spread.
is observable that as a rule the highest-income SMSA in a region was much
larger in size than the lowest-income one. There is still a positive
association of per capita income with size among metropolitan areas, though the
differentials seem to be narrowing. More sophisticated analysis of trends in
U.S. per capita income differentials, as reported by Irving Hoch in 1972, also
showed incomes to be positively related to city size, and higher in the North
and West than in the South, with both the interregional and the urban-size
differentials converging between 1929 and 1962.2
protracted controversy among statisticians and economists, which has produced a
voluminous literature dating back at least to the 1930s, concerns the
North-South differential in wages and incomes. From time to time someone has
proclaimed the differentials demise, whereupon someone else has reported
finding it alive and well.3
Some of the
apparent confusion results from the fact that there is more than one
differential involved. There is little basis for dispute about continuing
(though shrinking) differentials between the South and other regions in terms
of per capita and per family incomes. Also, when looking at aggregate wage and
earnings rates in most occupations and industries, North-South differentials
persist. However, even in these respects it has been claimed that certain
high-wage or high-income cities south of the Mason-Dixon Line should be counted
out because they are not "really Southern."
But none of
the differentials cited really implies that employers labor costs are
lower in the South or that the Southern worker or resident is worse off than
his or her Northern or Western compatriot. These basic questions involve some
factors that are difficult to measure quantitatively. Productivity,
dependability, trainability, and attitudes of employees are as important to
employers as pay scales. On the earners side, relative costs of living
need to be taken into account, and they are clearly lower in the South; but
even the most elaborate consumer price index leaves out many intangibles that
affect the desirability of a place to live, such as climate, recreational
opportunity, or air quality. Finally, there are differences between large
cities and small towns that are even more substantial than interregional
differences, and therefore any legitimate comparison among regions has to be
made in terms of individual size classes of places or with some other allowance
for the interregional differences in degree of urbanization and average
on which there is universal agreement is that there has been a great deal of
convergence of wage and income differentials, both interregionally and among
cities of different size classes since the 1930s. Indeed, for the period after
about 1962 it has been argued that such differentials as remain can be almost
wholly explained away in terms of differences in occupational and population
composition, differences in the measured cost of living, and equalizing
differences compensating for such factors as air quality and congestion, which
are not embraced in the cost-of-living measures. For example, Irving Hoch found
that New Yorkers in 1967 had an average income 35 percent above the national
average; he explained 9 percentage points of this on the basis of the
cost-of-living index, 18 more points as equalizing other preference factors,
and the remaining 8 points on the basis of population compositionleaving
no differential attributable to disequilibrium of labor supply and
aggregative nature of the data usually employed in analyzing interregional
differentials has contributed to the difficulty associated with making valid
comparisons. A recent study by Shelby Gerking and William Weirick has made use
of data on individual household heads in order to eliminate the confounding
influence of aggregation.5 For each
individual, detailed measures of education, work experience and occupation, as
well as information on work place and job characteristics were available.
Controlling statistically for these and other factors, Gerking and Weirick find
that real-wage or earnings differences for broadly defined geographic areas in
the United States are not significant.
in terms of the absence of real differentials, however, does not necessarily
imply any net migration; as we saw in the previous chapter, migration from an
area depends to a very large extent on population structure rather than on the
areas relative income level.
Regional Structural Changes
changes in the activity-mix and other structural features of regions have
accompanied increases in population density already indicated. For present
purposes, we can focus on the trends in just one major aspect of development:
"industrialization," as crudely measured by the relative importance of
manufacturing employment for each region.
Table 11-2 we have a series of location quotients
in which each regions relative industrialization is measured by comparing
the percentage of population employed in manufacturing in that region to the
corresponding national percentage in the same year.
example, in 1899 in the United States as a whole, 6.49 percent of the
population was employed in manufacturing industries, while in New England the
percentage was 15.6, or 241 percent of the national average. This location
quotient of 241 percent tells us that New England had 2.41 times as much
manufacturing employment as it would have had on a pro rata basis if
manufacturing were distributed in the same geographical pattern as was
population among the regions. Referring again to Table
11-2, we see that in the same year, 1899, the West South Central region had
a location quotient of only 28 percent, indicating a marked underrepresentation
of manufacturing in that region.
As we read
across to the later years, New Englands coefficient drops. The
regions specialization in manufacturing was diminishing, and New England
was becoming more like the rest of the country in its degree of
industrialization (or rather, the rest of the country was becoming more like
New England). The Middle Atlantic region, another area of relatively early
industrial development, showed a similar trend, while the East North Central
region became more specialized in manufacturing until around 1950, and then
less so. Most of the regions that were far less industrialized than the rest of
the country in the earlier period had rising location quotients for
manufacturing, so that the overall trend is strongly convergent. Manufacturing
has come to be distributed among regions in a pattern more and more similar to
the pattern of population distribution. This convergence is brought out by the
bottom row of figures in Table 11-2, which shows
the range of variation of the location quotients steadily narrowing.
Some Basic Questions on Regional Development
thumbnail survey of population growth, income levels, and industrialization, we
gather that more recently settled regions have tended to show relatively fast
growth for a considerable period, followed by a slowdownsuggesting a
pattern of successive phases in a development sequence in which migration plays
a prominent role. We see also that interregional differences in income level
have been quite persistent but seem to have narrowed a great deal, especially
in certain periods such as 1930 to 1970. Indeed, convergence in the sense of a
growing similarity among regions is observable in respect to all three of the
indicators examined: rate of population growth, level of per capita income, and
relative importance of manufacturing employment.
Accordingly, some key
questions suggest themselves:
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?
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
3. Convergence. Why
is convergence so much in evidence? Is it universal and inevitable, or is it
subject to reversals?
4. Control over regional
development. Can regional development be substantially guided by policy? If
so, what are defensible objectives and appropriate policies?
The questions on policy
will come up in Chapter 12; the other questions
are examined later in the present chapter.
WHAT CAUSES REGIONAL GROWTH?
growth and change entail complex interactions among activities within the
regional economy, so it is not reasonable to expect that any single cause of
such change can be identified. Useful explanations consist mainly of analyses
of the ways in which an impetus of change is passed from one region or one
regional activity to another, and we have in fact sorted out the various
intraregional linkages in some detail already in Chapter 9. Some theories of development, however,
emphasize certain kinds of change as especially independent, exogenous,
primary, or causal. (All these terms mean much the same.) In particular, we
shall see that the external demand for a regions exports and its supply
of labor and other production factors have been stressed as prime movers in
some widely accepted theories of regional development.
Self-Reinforcing and Self-Limiting Effects
examination of the various kinds of linkages among firms and activities in a
region brought to light some effects of a cumulative or chain-reaction
character. Both vertical and complementary linkages are generally of this type.
Thus external economies of agglomeration (the expression of complementary
linkages) attract firms and activities of a similar nature, and this further
enhances the agglomeration economies, so that still more firms and activities
are attracted, which leads to still more agglomeration economies.
linkages per se have cumulative effects. If Detroit can increase its automobile
sales to other areas, Detroits automobile manufacturers will buy larger
quantities of inputs locally. Each of the supplying activities will then
increase its own local purchases of inputs (for example, automobile workers
will spend some of the increased payroll on housing, consumer goods, and
services, and Detroit public utilities will need more labor and other inputs).
Some of the additional spending in Detroit will take the form of increased
purchases of automobiles, which will further contribute to the repercussions of
the initial stimulus.
then, that vertical linkages of activities in a region and also complementary
linkages (which are really combinations of vertical linkages) have
self-reinforcing effects. An initial change in the level of activity in the
region leads to still further change in the same direction and affects a
broader range of activities. This applies to decline as well as to
the case, how does it happen that regions do not normally expand in an
explosive chain-reaction fashion, or wither away to the vanishing point? What
are the forces that provide some constraint and stability, by setting up
counterreactions to an initial change and thus limiting its total
Part of the
answer lies in the horizontal linkages among activities, which as we have seen
are characteristically negative, or locationally repulsive, in their effects.
In other words, activities in a region are always competing for some scarce
local inputs (land, labor, and others); and, particularly in the short run,
increased demand raises the cost of these inputs. Other constraints on
explosive growth or decline will appear, as we look further into the mechanics
of regional adjustment.
Demand and Supply as Determinants of Regional Development
kinds of linkages represent ways in which some impetus to regional change is
transmitted from one activity to another within the regional economy, leading
to overall growth or decline. The next question, then, is where can such
impetus originate? What really initiates change?
Here as in
almost every economic problem, the dichotomy of supply and demand appears.
Regional activity requires both inputs and a market for outputs, and it does
not make sense to argue that either supply or demand is the sole determinant of
If we look
to demand for the explanation of regional growth, we first inquire where
the demand comes from and then trace its impact through the regional economic
system. This approach will emphasize backward linkages among regional
activities, since such linkages are the way in which a demand for one regional
output (say, automobiles) gives rise to demand for other regional activity
(say, the making of automobile parts or paint, the generation of electricity,
or the employment of labor).
If we look
to supply for the explanation of regional growth, we inquire where
inputs come from and in what way the supply of, say, mineral resources,
capital, or labor in a region leads to regional activity generating a regional
supply of, say, coal, electricity, automobile parts, or automobiles. The
approach from the supply side will emphasize forward linkages.
both approaches are relevant and necessary parts of an adequate theory of
regional change and development. Complementary linkages and external economies
of agglomeration, as we have seen, involve both backward and forward vertical
linkages; and in evaluating the factor of competition for scarce local inputs,
both demand and supply have to be considered.
11.3 THE ROLE OF DEMAND
Economic Base Theory and Studies
approach to an explanation of regional growth is that of the so-called
economic base. The essential idea is that some activities in a region
are peculiarly basic in the sense that their growth leads and
determines the regions overall development; while other (non
basic) activities are simply consequences of the regions
overall development. If such an identification of basic activities can really
be made, then an 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 nonbasic activities. 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.6
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. Activities that simply serve the regional market are there as a
result of whatever level of income and demand the region may have achieved:
They are passive participants in growth but not prime movers. 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
economic base study7 generally seeks (1) to
identify the regions 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 regions prospective growth and
structural change but also a model that can be used in evaluating the effects
of alternative trends of export growth.
regions export activities can be determined with various degrees of
precision.8 The simplest and crudest
procedure is simply to assign whole industries or activity groups to the export
or nonexport category without making a specific local investigation. Thus
retail trade, utilities, local government, and services may be classed en
bloc as nonexport, while manufacturing is considered wholly an export
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. 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 mens and boys
work-clothing factories, while personal income in North Carolina was estimated
at 2.04 percent of the national total. The location quotient is 2.45/2.04=1.20.
From this we could surmise that 20/120 or about one-sixth of North
Carolinas output of work clothing was for export to other areas and the
remainder for consumption within the state.
surmise, however, rests on the rather tenuous assumption that a regions
personal income is a good measure of its purchases of work clothing. If we
wanted to use the location quotient approach to estimate how much of the Toledo
SMSAs output of metalworking machinery is for export, we would do better
to base the location quotient not on personal income or population but on some
statistic presumably more indicative of the demand for such machinery: for
example, value added by manufacture in metalworking industries.
quotients are likely to lead to an underestimate of a regions exports,
since they are necessarily applied to whole industries or even industry groups.
Within any industry classification (or for that matter, within any single firm
or establishment), there are different specific products, and the region may be
importing some and exporting others. Since the quotient estimates only the
net surplus of output over regional consumption, it may seriously
understate the gross exports of products of that industry.9
location quotient method, however, does have the advantage of taking account of
indirect as well as direct exports:
A community with a
large number of packing plants is also likely to have a large number of tin can
manufacturers. Even though the cans are locally sold, they are indirectly tied
to exports. Location quotients will show them as exports.10
painstaking procedure is to get information on actual shipments of goods and
services out of the region. In recent years, progress has been made by the
Census in collecting and organizing data on manufacturers shipments
between large regions. For some time, however, there will continue to be a
dearth of information on exports from smaller regions such as individual
metropolitan areas or counties; and exports of some services pose additional
data problems. Many economic base studies have canvassed at least a sample of
the firms that are believed to be involved in exporting, in order to get a
reasonably accurate measure of the regions external trade.
of the future trend of exports from a region involves a series of studies of
the prospective national growth and interregional location trends of each of
the activities concerned, and an evaluation of whether the regions
competitive position is likely to get better or worse. The kinds of location
factors to be taken into account in such studies have already been discussed in
prospective change in the level of export or basic activity in the region, how
much overall regional growth in income and employment is implied? This
determination requires the tracing of linkage effects. Specifically, it
involves the estimation of a regional multiplier, which tells us how
much increase in total regional income (or sales, or employment) to expect as a
result of each additional dollar of export sales or income, or each additional
person employed in producing for export.
stage too, there are alternative procedures of varying degrees of
sophistication. The simplest method is to derive the multiplier from the "basic
ratio." If, for example, one-third of the regions employment is in basic
activities, we simply assume that that proportion will be maintained.
Accordingly, every worker added to basic employment will directly lead to the
employment of two additional workers in nonbasic activities: the multiplier is
procedure is too easy to be convincing. There is really no reason to assume
that the ratio will remain unaffected by export growth, and such ratios vary
rather widely. There is a discernible tendency for export multipliers (whether
derived by this or by more sophisticated analysis) to be larger with increasing
regional size and diversity.11
The view of
export demand as the prime mover in regional growth raises some interesting
questions that indicate the need for a more adequate explanation. Consider, for
example, a large area, such as a whole country, that comprises several economic
regions. Let us assume that these regions trade with one another, but the
country as a whole is self-sufficient. We might explain the growth of each of
these regions on the basis of its exports to the others and the resulting
multiplier effects upon activities serving the internal demand of the region.
But if all the regions grow, then the whole country or "superregion" must also
be growing, despite the fact that it does not export at all. The world economy
has been growing for a long time, though our exports to outer space have just
begun and we have yet to locate a paying customer for them. It appears, then,
that internal trade and demand can generate regional growth: A region
really can get richer by taking in its own washing.
Let us next
look at the role of imports. In the mechanism of the regional export
multiplier, expenditures for imports represent demand leakage from the
regional income stream. The greater the proportion of any increase in regional
income that is spent outside the region, the smaller is the
that if a region can develop local production to meet a demand previously
satisfied by imports, this "import substitution" would have precisely the same
impact on the regional economy as an equivalent increase in exports. In either
case, there is an increase in sales by producers within the region.
It is quite
incorrect, then, to identify a regions export activities
exclusively as the basic sector. It would be more appropriate to identify as
basic activities those that are interregionally footloose (in the sense
of not being tightly oriented to the local market). This definition would admit
all activities engaging in any substantial amount of interregional trade,
regardless of whether the region we are considering happens to be a net
exporter or a net importer. Truly basic industries would be those for which
regional location quotients are either much greater than 1 or much less than
necessary amendment to the export base theory, however, exposes a more
fundamental flaw. We are still left with the implication that a region will
grow faster if it can manage to import less, and that growth promotion efforts
should be directed toward creating a "favorable balance of trade," or excess of
exports over imports. Let us examine this notion.
regions earnings from exports exceed its outlays for imports, on net
there is an exodus of productive resources from the region (as embodied in
goods and services traded). In this sense the region is loaning its resources
to other areas,12 and its people and
businesses are building up equities and credits in those areas. Thus the region
is a net investor, or exporter of capital. By the same token, if imports exceed
exports, the region is receiving a net inflow of capital from
patently absurd to argue that the way to make a region grow is to invest the
regions savings somewhere else, and that an influx of investment from
outside is inimical to growth. If anything, it would seem more plausible to
infer that a regions growth is enhanced if its capital stock is augmented
by investment from outsidewhich means that the regions imports
exceed its exports.
event, regional development is normally associated in practice with increases
in both exports and imports. There was, in fact, a tendency among United States
regions between 1929 and 1959 for increases in both per capita and total income
to be greater in capital-importing (import-excess) regions,13 though there is no reason why this need always be
come back to this relationship later. The important point here is that
explanations of regional growth based exclusively on demand lead to absurd
implications, so that a broader approach is called for, along lines to be
indicated later in this chapter.
11.3.2 Regional Input-Output Analysis
economic base approach has been described in its simplest terms. Actually,
various types of models of regional economic interaction have been developed to
trace the impact of demand on a regions income and employment. They all
involve some framework of "regional accounts" describing transactions between
the region and the outside world and among activities within the region; and
nearly all include some type of multiplier ratio that sums up the relation
between an initial increase in demand and the ultimate effect on regional
income or employment. Some of these procedures are primarily relevant to
short-term variations, while others are more relevant to long-term regional
growth trends. We shall confine attention here to models using an input-output
or interindustry framework.
of the input-output schema is a set of accounts representing transactions among
the following major economic sectors:14
Intermediateprivate 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.
Householdsindividuals and families residing or employed in the region,
considered both as buyers of consumer goods and services and as sellers
(primarily of their own labor).
Governmentstate, local, and national public authorities, both within
and outside the region.
Outside Worldactivities (other than government) and individuals
located outside the region.
Capitalthe regions stock of private capital, including both
fixed capital and inventories.15
of course, transactions both among sectors and among the activities within each
sector (for example, among households, or among different processing activities
and regions in the "outside world"). But not all categories of transactions are
of equal interest to us in analyzing a given region. The form of account
illustrated in Table 11-3 represents a usual
abridgment, where the lower right-hand portion is not filled in. What we have,
then, is simply an itemization of the inputs and the outputs of each of the
designated activities in the intermediate sector.
In order to
express all these transaction flows in a common unit, they are stated in terms
of money payments for the goods or services transferred. Thus the purchase of
labor services from the household sector is shown as wages and other payroll
outlays; inputs from the government sector are represented by taxes and fees
paid to public authorities; and inputs from the capital sector are represented
by depreciation accruals plus inventory reductions.
accompanying schematic chart, Figure 11-4, may help
in understanding the mechanics of the input-output model. The flows shown there
are goods and services passing from one sector to another; money payments for
those goods and services go in the opposite direction. The gray line represents
the regional boundary; as noted earlier, the government and capital sectors are
partly inside and partly outside the region.
within the intermediate sector engage in interindustry transactions with one
another (and also each with itself, since each activity includes a variety of
firms with somewhat different kinds of output). Sales by the intermediate
sector to other sectors are called sales to "final demand." At this
point, the outputs are considered to be in their final form, not destined for
further processing, and ready for their final stage of use as far as the region
is concernednamely, export, delivery to household consumers or the public
sector, or incorporation into the stock of capital. They are leaving the
regions stream of current processing activity. The input-side counterpart
to final demand is "primary supply": Imports and the services of labor,
capital, and public authorities are entering the regions
processing system for the first time.
abridged set of accounts in Table 11-3 shows total
receipts and payments for only the activities in the intermediate sector, since
transactions among all the other sectors are ignored. Thus we cannot read total
regional personal income from a table such as this, since it omits the incomes
that individuals receive from government jobs, pensions, property ownership, or
sources outside the region. Nor does this table show total regional exports or
imports of goods and services, since interregional transactions by the
household, government, and capital sectors are omitted.
of input-output table is particularly useful, however, in tracing and
evaluating certain cumulative effects of vertical linkages in the region. It is
easy to construct a set of "input coefficients" (see Table 11-4) showing that for each dollars worth
of output of industry A in the region, that industry buys 1.2 cents
worth of industry Bs output, 23.3 cents worth of industry
Cs output, and so on.
Now let us
suppose that industry A increases its sales outside the region by $1000.
To furnish this added output, industry A will (according to
Table 11-4) need to spend $12 more on inputs from
industry B, $233 more on inputs from industry C, $442 more on
labor payrolls, and so on. But industry Cs sales have now
increased by $233, so it will have to spend $233 x .032 for additional inputs
from A, $233 x .323 for additional inputs from B, $233 x .097
more for imported inputs, and so on. As each of the activities in the
intermediate sector feels the impact of the increase in demand for its outputs,
its own purchases in the region will increase. The chain of repercussions, or
"indirect effects," is in principle endless; but this does not mean that the
initial $1000 increase in As sales will snowball into an
infinitely large growth in the regions activities. The total effect, in
fact, will be at most only a few times the size of the initial final demand
increase. The ratio in this case is called the regional "export
that the multiplier is not infinitely large is that there are so-called
demand leakages from the regional economy. Each time one of the
intermediate activities experiences an increase in sales, it has to allocate
part of the extra revenue to purchasing inputs not from other intermediate
activities but from primary supply sectors. Money paid for additional imports
leaves the region, and its stimulus to regional demand is ended. Similarly (in
the simplified model portrayed by our input-output accounts), disbursements for
payroll, taxes, and depreciation simply drop out of the stream of "new money"
that is being circulated among the processing activities. The stream gets
smaller at each round and finally peters out altogether.
We can, in
fact, gauge exactly what the total stimulus will be, on the basis of our
hypothetical input coefficients. Table 11-5 shows
the amount by which each processing activitys sales are increased as the
ultimate result of a dollars increase in the final demand sales of
any intermediate activity, including the whole sequence of multiplier effects
described earlier.16 These effects are
naturally largest for the activity experiencing the initial final demand
increase, since that increase is part of the total increment. This explains why
the figures on the diagonal of the table are especially large. In the case we
assumed (an initial $1000 increase in export sales by industry A), we
see that as a result A gets a total direct and indirect increase of
sales amounting to $1118, while B, C, and D come out with smaller
increments: $126, $297, and $68 respectively.
increase in sales for the whole intermediate sector is $1609. Since all this
resulted from an assumed initial $1000 increase in As sales to
final demand, we could identify here a multiplier of 1.609. This is a specific
multiplier ratio, evaluating the effects of an initial increase of final
demand sales by industry A.17
estimate of the multiplier, however, is almost certainly too small. Our
evaluation of indirect effects took into account only the vertical linkages
implied by transaction relationships among activities within the intermediate
sector. A more sophisticated estimate would have to allow for vertical linkages
involving other sectors, as well as for the positive effects of complementary
linkages and the negative effects of horizontal linkages.
most obvious omission involves the household sector. With all this increase of
intermediate sector output, payrolls must also increase, and it would be
unrealistic to assume that all the added pay will be saved, taxed away, or
spent outside the region. Instead, we should expect a roughly proportional
increase in consumer demand for the outputs of the regions intermediate
sector, and this in turn would be magnified in its ultimate effect by the
workings of the multiplier.
somewhat less certain that increased purchases from government and increased
use of the regions fixed capital and inventories would automatically
induce either increased purchases in the region by government or a step-up in
investment activity. And it seems rather unlikely that increased imports would
lead (through raising incomes in other regions) to any significant increase in
the demand for the regions exports.
of these considerations is that final demand (except perhaps for the export
component) is not really independent of primary supply, as our abridged set of
input-output accounts assumed. The modifications or adjustments that might be
called for would depend on the particular regional situation. But we might well
decide that it would be more realistic to assume an automatic feedback from
household supply to household demand than to assume no feedback at all. To
incorporate this new assumption, we could simply take households out of final
demand and primary supply and put them into the intermediate sector as an
additional, fully interacting activity. Referring to Table 11-3, this would mean supplying numbers to fill
out the presently incomplete "households" row and column.18
The successive steps and results are set forth in
possibility of shifting households out of the final demand category makes it
clear that the decision about what activities to include to final demand (and
primary supply) is not preordained or arbitrary but reflects our judgment about
what relationships are important and relevant to the question at hand. Final
demand in the input-output accounts framework really has the same implications
as basic in the simple economic base model, and an input-output model
with export demand as the only final demand category can be thought of as a
more detailed description of an export-determined regional economy.
inclusion of government in final demand does not represent any major departure
from economic base principles. Government is a basic source of income if public
expenditures in the region vary independently from total regional income. This
is true of most federal and state government expenditures; perhaps a case could
be made for putting local government in the intermediate
The role of
investment in regional economic change is not really spelled out in the simple
form of input-output model that we have been considering; since by convention,
sales to the capital sector of final demand include all sales of capital goods,
whether within the region or outside or to governments. There are other, more
complex, varieties of input-output tables, as well as more general systems of
regional income and product accounts, that do lend themselves to analysis of
the mechanisms of saving, investment, and interregional capital flow. These
will not be discussed here,19 but it is
appropriate to ask whether investment in a region should more logically be
considered (1) an exogenous factor initiating growth of regional income and
output or (2) a response to other changes in the regional economy.
depends on whether we are concerned with the short run or the long run. In the
short run, rates of investment can vary widely and suddenly relative to levels
of output, and decisions by major firms in the region to make extensive
additions to their facilities can almost immediately convert a depressed region
into a prosperous one. The question in the short run is the degree to which
existing regional labor and productive facilities are fully employed, and
changes in investment outlays can be a major determining factor. Thus a
short-run regional model should certainly treat investment as primarily an
exogenous or basic element.
long-run development of a region, however, it is reasonable to regard
investment at least partly as a reflection of regional size and growth,
rather than as a sufficient explanation in itself.
Input-output clearly represents a big advance over the simple
economic base approach to regional growth; not only because it traces
repercussions in a more sophisticated and detailed fashion, but also because it
recognizes possible initiation of growth from various elements of final demand
other than export sales.
simplicitys sake, we looked at the elementary single-region set of
input-output accounts. More comprehensive and impressive models can be made if
the "outside world" is broken down by areas and activities; and progress has
been made in various countries toward complete multiregional accounts systems
tracing flows among economic sectors and activities within each region and
among regions as well.20
accounts lend themselves to a wide array of useful impact analyses. Starting
almost anywhere in the system, we can make a change "on paper" and see what
happens. We can hypothesize, say, that the sales by some activity in some
region increase; or the regional incidence of government expenditures and taxes
is shifted; or some major investment project is executed; or consumer
expenditures are changed in one or more regions by virtue of demographic change
or shifts in spending habits; or new technology alters some of the input
coefficients of individual activities. Starting from any such change, we can
with an interregional impact model trace the initial and subsequent economic
repercussions through the various economic sectors and regions
11.4 THE ROLE OF SUPPLY
accounts shown in Table 11-3, the intermediate
sector is shown delivering outputs to the various final demand sectors and
receiving inputs from those same sectors in their capacity as primary
suppliers. Money payments for these goods and services flow in the reverse
direction, from final demand sectors to the intermediate sector and then to
changes, we can follow the 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. It does not indicate whether we should look for the initiating
causes of regional growth and change in final demand, in primary supply, or
within the intermediate sector; and we might reasonably infer that change can
originate in any of these three areas.
In view of
this basic symmetry, it is striking that the techniques of input-output and
multiplier analysis have nearly always been applied in just the backward
direction, tracing the effects of changes from final demand to the intermediate
and primary supply sectors.21 The
implication in locational terms is that market orientation and backward linkage
are all-important, with no attention being paid to input orientation or to
forward and complementary linkage effects.
input-output table is a reasonably comprehensive and neutral image of a
regional economy, we can use it as a point of departure for the consideration
of supply factors as well as demand factors. The demand-driven model
discussed above emphasizes final demand, backward linkage, and output
orientation of activities. Now let us reverse the emphasis to focus on the
roles of primary supply, forward linkage, and input orientation.
considering the effects of demand on regional activity, we implicitly assumed
that supplies of inputs would automatically be forthcoming, at no increase in
per-unit cost, to support any additional activity responding to increased
demand. In other words, supplies of inputs, such as labor, capital, imports,
and public services, were taken to be perfectly elastic and consequently
imposing no constraint on regional growth. If export demand for a regions
steel output increased, the region could freely import as much additional fuel
or iron ore as might be needed; if the demand for labor exceeded the
regions labor force, more workers would join the labor force or move in
from other areas.
a supply-driven model of regional growth takes demand for granted
(that is, it assumes that there is a perfectly elastic demand for the
regions products) and thus makes regional activity depend on the
availability of resources to put into production. Accordingly, the starting
point in the process of change now becomes primary supply rather than final
demand. Availability of labor, capital, imported inputs, and government
services (infrastructure) makes possible, through forward linkage, certain
intermediate activities oriented to such primary inputs. Increase in output by
an activity that sells in the region can encourage, through further forward
linkages, increases by other activities, giving rise to what may be called a
"supply multiplier" effect. This effect is limited by the existence of
supply leakages. At each stage, some of the increase in regional outputs
is drained off into exports, investment, deliveries to governments, and
household consumptionin other words, to the final demand
supply-driven process sounds very much like the converse of the demand-driven
process discussed earlier, whereby an initial increase in final demand gives
rise to indirect growth of income and employment in the region and increased
drafts upon primary supply. Conceptually, the symmetry is complete.
however, an important operational difference. In practice it would not
be feasible, save perhaps under quite special circumstances, to calibrate a
supply-driven regional model simply on technical coefficients derived from the
basic input-output table. The reason seems to lie in technology itself. Goods
normally become more specialized in character as they pass through successive
stages of processing and handling. We can legitimately use such input
coefficients as, say, the amount of steel needed to make a pound of nails,
because there is not much flexibility in the nature and amount of input
required for a given output. By contrast, if we have an extra pound of steel,
we cannot say whether it will be used to produce more nails or more steel
sheets or automobile parts or whatever. Output coefficients are a weaker reed
than input coefficients. Consequently, the forward-linkage and multiplier
impacts of supply increase, though quite genuine, cannot normally be spelled
out in terms of specific products and activities by input-output analysis, and
with presently available techniques they can be estimated only in relatively
demand-driven and supply-driven models should be viewed as complementary rather
than as conflicting or rival hypotheses about regional economic change.22 Each of the two model types in itself is
one-sided and can be seriously misleading; for full insight into real
processes, both need to be combined. As yet, however, there is no analytical
model that adequately incorporates this union of the two complementary
11.5 INTERREGIONAL TRADE AND FACTOR MOVEMENTS
accounts do not in themselves tell us anything about where growth starts; they
merely help us to trace impacts. But we can see already that a regions
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. A fourth external influence, to which some attention will
be paid in the next chapter, is the national governments revenue
collection and expenditure in the region.
regions has, as David Ricardo noted a long time ago with respect to nations,
the beneficent effect of allowing each region to specialize in those activities
for which it is best fitted by its endowments of resources and other fixed
local input factors, with all regions sharing to some extent in the economies
of such specialization. Recognition of this effect helps to place the value and
limitations of the export base theory in better perspective. When the local
market is so small as to limit seriously the productivity gains that can be
realized by specialization, exports may be necessary for growth. Thus the
weakness of the export base theory lies not in recognizing exports as being
important for growth, but rather in focusing on exports exclusively and failing
to recognize that it is trade (imports as well as exports) that permits the
realization of economies due to specialization.
specialization of regions is limited, of course, by interregional transfer
costs as well as by ignorance, inertia, and the like, and the simplified model
implied here fails to take into account the economies of scale and regional
agglomeration. But so far as it goes, the effect of freer interregional trade
is likely to be in the direction of equalizing not only commodity prices among
regions but also wages, incomes, and the rates of return to capital. The reason
for this is that a region in which capital is scarce relative to labor can,
with interregional trade, specialize in "labor-intensive" lines of production
requiring much labor and little capital while importing the products of
"capital-intensive" activities from regions better endowed with capital or less
well endowed with manpower.
substitution of trade for production-factor mobility is of course only
partially effective. Considerable differentials persist in the rewards of labor
and the returns on capital among the regions, leaving an incentive to further
equalization by migration of those factors of production.24
Mobility of Labor and Capital Among Regions
Determinants of labor mobility have already been explored at
considerable length in Chapter 10. The rate of return to labor (real wages) is
indeed a major determinant; but migration and regional manpower supplies depend
also on the handicaps to movement imposed by uncertainty, ignorance, cost of
moving, and social distance. Moreover, a persons mobility varies widely
according to his age, marital and dependency status, education, skills, and
recent migration experience; and migration flows between places depend on such
additional factors as previous flows (the beaten-path effect), the size and
diversity of labor markets, and the effectiveness of interregional
job-information and placement systems.
mobility of capital is affected by a quite similar array of considerations. The
prospective rate of return is, again, a major determinant; inertia, ignorance
of opportunities, and social distance act as limiting factors in much the same
way as they do for manpower mobility. The effectiveness of organization of the
national financial system (including clearing arrangements, facilities for
transferring funds from one region to another, securities exchanges, and
interregional markets for still other types of investments and obligations)
tends to set a limit on how much interest rates and other rates of return on
capital can vary geographically within a county. Increased effectiveness of the
national financial system in most countries has been evidenced by a trend of
interregional convergence in money rates, though such rates still tend to be
somewhat higher in places more remote from the chief national financial
centers25 and in smaller urban places.
Something analogous to the beaten-path effect on labor mobility appears to
affect capital mobility as well. Funds flow more readily and in response to a
smaller rate-of-return differential from one point to another if there has been
a great deal of previous investment following the same path.
another similarity appears in the effect of regional or community
characteristics on the outward mobility of both labor and capital. A young area
with a previous experience of inward migration and rapid growth shows more
outward mobility of both factors than does a more settled and ingrown
most important difference between the processes of capital and labor migration
lies in the fact that most capital has to be "sunk" or invested in durable
forms such as site improvements, buildings, and production equipment before
becoming useful. This major portion of the capital stock has virtually no
spatial mobility. Movements of capital are thus confined to (1) newly created
capital awaiting selection of a fixed-investment opportunity, and (2) working
capital and other floating funds that remain in the form of paper assets or
fairly easily movable types of commodities and thus retain interregional
phenomenon of sunk capital would be roughly matched in terms of labor mobility
if a high proportion of workers signed up for life on their first job. In Japan
this is characteristic of employment practices, at least as they pertain to
male workers in major corporations. There, the normal course is for the tenure
of employment to extend over ones entire working life as a matter of
informal contract between employer and employee. More generally, however,
people do lose mobility rather suddenly once they become established in an
occupation, a community, and a family; and mobility thereafter declines further
with increased age. In part this is due to the fact that information and skills
relevant to a particular line of work, company, or community may be very
specific, in the sense that they are not of comparable value elsewhere. So the
contrast in this regard between the mobility of people and the mobility of
capital is not as absolute as it might appear.
agglomeration economies affect the migration of both labor and capital, and in
not too dissimilar fashion. A location that might be highly advantageous if
enough manpower and/or enough capital could be concentrated there may never get
over the threshold imposed by the higher costs of an initial small-scale
operation or an insufficiently developed production cluster.
can be observed that the migration of people from one place to another
facilitates the movement of capital along the same route, and conversely. Each
factor helps beat a path for the other. To some extent this reflects the fact
that migrants normally bring some personal capital with them and often some
business capital as well. A further explanation is that the increased
familiarity with the other area, which comes from the movement of either labor
or capital, enhances the mobility of the other factor along the same path,
eroding the barriers of uncertainty and social distance.
basically, the relation between labor and capital flows is affected by the way
in which these factors combine to produce goods and services. Labor and capital
can substitute for one another in production if it is possible to choose
between a labor-intensive and a capital-intensive technique, depending on which
factor is relatively cheap. The substitution relationship in itself would imply
that a larger supply of capital in a region would lessen the demand for
labor, since there could be a shift to more labor-saving production methods and
more capital-intensive activities. Similarly a larger labor supply would lessen
the regions capital requirements.
picture is clearly unrealistic in many cases, because the factors of production
are at the same time complementary. Using more of one may lead to using
more of the other as well. The complementary relationship in itself would imply
that a larger supply of capital in a region would augment the demand for
labor, since production would expand in response to the enhanced competitive
position of the regions activities. Similarly, a greater supply of labor
in a region would create a demand for additional investment in production
capacity to take advantage of this more ample and perhaps cheaper
In terms of
regional growth, the effect of the substitution relationship may be viewed as
equilibratory, whereas the effect of the complementary relationship may be
viewed as equilibratory. To the extent that the complementary relationship
between labor and capital predominates, interregional capital and labor flows
can lend themselves to long spells of continued self-sustaining regional growth
(or, on the other side of the coin, cumulative decline).
of trade and of factor movements on regional structural differences can often
be opposite. Trade in itself permits more intensive regional specialization and
thus a widening of regional structural differences.26
Interregional movements of labor and capital, on the other
hand, would seem in general to weaken one of the main bases for specialization
(that is, relative regional supplies of labor and capital) and thus promote
convergence of regional structural differences.
surmise is subject to qualification, however, since it ignores the effect of
regional differences in endowment of really immobile factors (land or natural
resources). To the extent that such resources are complementary to labor
and capital in production processes, regional specialization and structural
differentiation based on fixed-resource endowments will be enhanced by
greater interregional mobility of labor, capital, or both. This is likely to be
true of mineral resources when they occur in regions with few other natural
advantagesmovement of capital and labor into such regions helps them to
develop exploitation of their mineral resources as a regional specialty.
11.6 INTERREGIONAL CONVERGENCE
It is not
difficult to find plausible explanations for the convergence of regional income
differentials. Such convergence would seem to be a natural result of the
gradual development and maturation of areas once on the frontiers of
settlement, the greatly reduced relative importance of farming as a means of
livelihood, the improvement of transport and communications and the enhanced
mobility of both capital and labor, and the rise of more activities not closely
oriented to natural resources and consequently enjoying a wider choice of
possible locations. 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
is not quite this simple, however, and we cannot infer that convergence will
always be the order of the day. There seem, in fact, to have been two periods
in United States history in which interregional income differentials either
widened or remained about the same: from 1840 to 1880, and from 1920 till
sometime in the 1930s. In the earlier period, the development of railroads
brought rapid concentration of industrial activity in larger plants and larger
industrial centers, and an increase in regional specialization. This raised
incomes in the Northeast, where the bulk of the industrial activity was
concentrated, compared to the basically agricultural and undeveloped parts of
the country. In the period 1860-1880, the disruption of the Southern economy by
the Civil War dramatically widened the gap between Southern and Northern
incomes. Between World Wars I and II, there were at least two special reasons
for divergent regional income levels. One was the low level of farm product
prices and the consequently depressed condition of agriculture.27 A major part of the regional income
differentials, especially in that period, simply reflected differences in the
relative importance of agriculture in the various regions. In addition, the
virtual cutting off of the influx of cheap immigrant labor after World War I
removed a constraint on rising wage levels in the industrial areas that had
previously been employing the bulk of that labor.
inevitability of convergence can be questioned on more general grounds. To be
sure, migration flows predominantly in the direction of higher income levels,
and at least in the United States it seems to be, on balance, an equalizing
factor. It is not always true, however, that in-migration from a region tends
to lower income levels, and it is even less sure that out-migration tends to
Interregional capital flows may also be destabilizing. Actually,
shifts of employing activities are an equalizing factor only to the extent that
the activities are primarily oriented to labor supply, so that capital is drawn
to low-wage regions. Consequently, changes in production and transfer
technology, availability and use of resources, economies of agglomeration, and
other location factors can either narrow or widen income differentials
according to circumstances. For example, if agglomeration economies assert a
powerful influence on capital movements, regions realizing these economies
would grow most rapidly, thus creating more agglomeration economies and
promoting continued growth (see the related discussion concerning vertical
potential for movements of capital and labor to be stabilizing or destabilizing
as circumstances dictate is brought out clearly in research related to a model
developed by Moheb A. Ghali and his colleagues.28 They describe economic growth for U.S. regions as
being explained by the growth of capital and labor inputs. In this model,
interregional movements of factors of production are determined by regional
earnings differentials and differentials in the rate of growth of output, which
they use as a proxy for employment opportunities. These researchers are able to
determine empirically that factor movements tend to be equalizing for U.S.
regions. Applying the same model for an analysis of regional growth in
Indonesia, Soeroso finds that interregional factor movements encourage income
divergence.29 In both cases the response to
larger earnings differentials is positive. Although this response is much
weaker in Indonesia than in the United States (perhaps reflecting different
stages in the development of a well-integrated market economy), it has a
stabilizing influence in each. In Indonesia, however, differentials in the rate
of growth of output are a much more powerful influence on factor movements and
contribute to widening earnings differentials; the more prosperous areas grow
fastest and attract productive resources, in a cumulative and destabilizing
the make-up of demand for goods and services may also affect income
differentials in either direction. For example, the practically universal
tendency of demand for agricultural products to grow more slowly than demand
for manufactured products and services in a progressive economy seems more
likely than not to widen the differential between incomes in farming
areas and those in industrialized and urban areas.
is the lure of employment opportunities and job-search behavior,30 agglomeration economies,31 or some other cause at the root of this process,
this much is apparent: We cannot take the experience of the United States in
the last 50 years as being representative of a general tendency toward the
convergence of regional incomes.
summarize by quoting Richard Easterlin:
It is by no means
certain that convergence of regional income levels is an inevitable outcome of
the process of development. For, while migration and trade do appear to exert
significant pressure towards convergence, they operate within such a rapidly
changing environment that dynamic factors may possibly offset their influence.
One may argue, of course, that migration and trade may become progressively
more important during growth, as a result, for example, of improvements in
transportation, and hence that the pressures towards convergence will tend
increasingly to predominate. But whether this is generally the case cannot be
settled on a priori grounds.32
Consideration of all the factors influencing regional income
inequalities leads to an interesting hypothesis relating convergence and
divergence systematically to the stages of the development process.
Specifically, the early stages of national economic development are associated
with increasing regional income disparities, while regional income levels tend
to converge in a more maturely developed national economy.
present age, the crux of what we call development and attainment of
self-sustaining progress is the transition from an agrarian economic basis to a
basis of secondary and tertiary activities, with accompanying urbanization. A
wide gap exists between the new and the old in terms of income levels, ways of
life, and location factors.
industrialization is in its early stages, most of the rise in overall
productivity and per capita income comes from the change of mixthat is,
the increasing importance of the nonagricultural sector relative to the
agricultural. The new activities cannot take root everywhere at once but are
highly concentrated at first in a few key citiesgenerally the places with
the most active contact with more advanced countries and the largest and most
diverse populations. At this stage of development, most regions still lack the
necessary local market potential and the necessary local inputs to engage in
the new and unfamiliar types of activity. Migration is likely to be heavy from
the backward areas to the industrializing cities. This migration is highly
selective (see the discussion of migration selectivity in Chapter 10), and on
the whole this selectivity is prejudicial to the areas of out-migration. The
result is the next stage: progressive agglomeration of modern industry in the
principal urban areas and an accentuation of regional differences in economic
structure, productivity, and income. Such conditions appear to have prevailed
in the United States during the divergence period 1840-1880, which was
lengthened by the destructive effects of the Civil War upon the economy of the
South; and they prevail today in many Third World countries of Asia, Africa,
and South America.
development proceeds, more and more regions acquire the market potential,
attitudes, and access to capital and know-how required to surmount the
threshold of industrialization. A stage of interregional convergence in
economic structure, productivity, and income sets in. This convergence may be
made cumulative because migration is likely to become less selective, and
national government policies will be less preoccupied with the objective of
getting industrialization started in the country as a whole and more sensitive
to the political pressures arising from regional inequality.33
11.7 THE ROLE OF CITIES IN REGIONAL
Chapter 8 we were able to account for the rise
of cities on the basis of the internal and external economies of agglomeration,
discussed in Chapter 5, and the transfer
advantages of location at major multimodal transfer nodes, discussed in
Chapter 3. But this does not tell us why cities
are so important in a dynamic way. The existence of sizable urban centers seems
to be a necessary (though not always sufficient) condition for the transition
from a basically agrarian economy to an advanced economy with high productivity
and a wide range of productive activities. The question now is not why cities
exist, but why they lead the way in regional and national development.
all, there is the relatively cosmopolitan aspect of large cities. They are a
regions eyes and ears perceiving the outside world. "Foreign" ideas,
goods, and procedures have much to contribute to the development of even the
most advanced region; and cities, as entrepôts for interregional
transfer, are the main points where these vitalizing inputs gain admittance.
This aspect of cities is most abundantly evident in the less developed
countries, where the principal cities impressively resemble their counterparts
in advanced countries, even though a few miles away we can step back centuries
from their interregional contact function, cities serve an important role in
the development process simply by being places in which people from other parts
of the same region or country are brought together in densities and living
conditions sharply contrasting with those of the rural areas. Conservative
traditions and outlooks that persist in the hinterland tend to dissolve rather
quickly in the urban melting pot; the results are always conducive to more
rapid social and economic change, though they are often painful and destructive
in terms of personal satisfaction and orderly social and political adjustment.
Social effects of urbanization that can be of major importance in overpopulated
countries are the mutually reinforcing tendencies toward smaller families and
toward greater labor force participation of women. For the working population
as a whole, urbanization represents exposure to a way of life in which work is
more scheduled and organized, monetized transactions and impersonal
relationships play a larger part, literacy and adaptability to change are more
valuable personal assets, and the choice of occupations and lines of individual
development is widened.
considerations as these go far to explain why cities (especially large ones
with far-reaching external contacts) have been the main seedbeds of innovation;
in economic terms, this involves the genesis of new techniques, new products,
and new firms. Such places provide the exposure to a wide range of ideas and
problems from which solutions emerge. They represent large concentrations of
customers and suppliers most receptive to new products and requirements. They
provide the diversified supply of skills and supporting services that enable a
producer to start small and concentrate on a narrowly specialized function (see
the discussion of external economies in Chapter
5). They provide a social and business climate in which impediments of
tradition and personal inertia are minimized, and initiative and innovation
carry prestige; and in which the innovator can learn much from day-to-day
contacts with competitors and can most easily tap the stock of accumulated
know-how, exploiting inventions arising not only in his or her own city but
cities are the locations at which the newest types of activities can most
easily get a foothold within any region or country, and the advent of
industrialization in an undeveloped country is generally accompanied by
explosive growth of the largest centers and a heightening of economic and
social contrasts between those centers and the rural backwaters.35 But as development proceeds, two things happen.
Some of the sensitive infant industries of yesterday attain maturity: Their
techniques become less experimental and their products more familiar to a wider
market. As a result, these activities are no longer so dependent on the special
advantages that large cities provide. The fledglings are ready to leave the
nest. At the same time, the positive incentives to decentralize out of the
initial large city concentration tend to increase. With a larger and wider
market for the product, a location pattern involving a number of regional
production centers offers economies in distribution costs without undue
sacrifice of the economies of scale. The external economies of cluster become
less important with the increase in financial and technical resources of firms
and the greater standardization of process and product. Costs of labor and
other local inputs in the initial large-city location now appear unnecessarily
high in relation to what these inputs cost in smaller places. And in the
original centers where the industry developed, maturity may well have meant
some development of rigidities and loss of initiative because of the aging of
both business leaders and the labor force and the growth of defensive practices
to protect seniority rights, painfully acquired but obsolescent skills,
positions of power, and other accumulated perquisites. Thus the city that
hatched the industry and saw it through its infancy may lose it altogether when
it grows up.
evolutionary process sketched here in terms of locational change accompanying
the birth, infancy, and maturing of an activity is a strikingly familiar one.
Wilbur Thompson has referred to it in terms of "a filter-down theory of
industrial location" and "the urban-regional growth loop."36
As he points out, "New York has lost nearly every industry it
has ever hadflour mills, foundries, meat-packing plants, textile mills
and tanneries." Pittsburgh pioneered and then lost preeminence in a long series
of major industries including oil refining, aluminum, electrical machinery, and
Historically, large cities have been characterized by a
disproportionate component of new and small "growth industries" in their mix of
activities, but they generally fail to maintain their share of activities that
are past the early stages. Smaller cities and towns, and less-advanced regions,
have been more likely to show competitive gains in the sense of increasing
their share of the national total of employment in the activities represented
there; but growth in these areas has historically been held down by the fact
that their mix of activities is often weighted with slow-growth and low-wage
there are some signs of change in this historical pattern. In Chapter 8, we
found that there had been substantial growth in smaller cities and towns
relative to the growth in metropolitan areas, at least since 1970. Previously,
the nations population growth had been characterized by rapid growth of
metropolitan-area populations (see Table
turnaround has an additional spatial dimension. Table
11-6 shows that during the 1970s, population growth in the United States
was dominated by growth in the South and West. The figures indicate that the
decline of areas in the nations industrial "core" (represented in
Table 11-6 by the Northeast and North Central
regions) and the gains of areas once characterized as the nations
"periphery" are closely linked to changes in the pattern of urban growth.
Smaller cities, towns, and unincorporated places have had strong growth in the
South and West. Additionally, in the Northeast and North Central regions,
unincorporated places and smaller incorporated places have shown stronger
growth (or less decline) than metropolitan areas.
Norton and J. Bees have undertaken an extensive analysis of changes in the
spatial patterns of growth in the manufacturing sector.38 Their research indicates that the core
regions long-standing relative decline gave place to an absolute decline
in manufacturing jobs after 1969.39 They
attribute this trend to two factors: (1) an acceleration in the rate at which
production processes that have become rather standardized have moved from the
core to the periphery and (2) decentralization of the nations innovative
capacity, so that some new and rapidly growing industries have become less
highly concentrated in the core.40
evolutionary process we have described, whereby growth is transmitted down the
urban hierarchy, has itself evolved. The relative rates of growth of major
cities versus smaller places depends to an important extent on how rapidly the
filter-down or dispersion of maturing urban activities proceeds compared to the
initiation of new urban activities. In Thompsons words, faster
development of the smaller, less developed urban area "would seem to require
that it receive each successive industry a little earlier in its life cycle, to
acquire the industry at a point in time when it still has both substantial
job-forming potential and high-skill work."41 Additionally, it now seems that the filter-down
process is less important overall, as innovation and high concentrations of
fast-growing activities are less exclusively characteristic of growth in the
nations largest metropolitan areas.
implications will be explored in Chapter 12, in
connection with growth-promotion policies and the focusing of development
promotion efforts on urban growth centers.
11.8 EXTERNAL AND INTERNAL FACTORS IN REGIONAL
seen that the development of a regionin terms of its size, income level,
and structureis affected by external conditions of two types: (1) demand
for the regions outputs, or more broadly, external sources of income for
the region, and (2) supply of inputs to the regions 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
regions contain a variety of activities, it is to be expected that some of
these activities will be determined mainly by external conditions based on
demand (such as export markets), while others will be particularly sensitive to
supply conditions. The regional economy as a whole, then, is always subject to
a variety of growth determinants. Although there may be one principal factor
affecting its overall level of activity (as, for example, the nationwide demand
for automobiles is the principal factor affecting the prosperity and growth of
Flint, Michigan), there is never just a single determinant.
influence on a regions development can be exercised from within the
region itself? This question is basic to the discussion of regional objectives
and policies in the next chapter. As far as growth determinants in the form of
final demand are concerned, the latitude for regional initiative is ordinarily
limited. But perhaps export demand in some lines can be stimulated by sales
promotion campaigns, or the region can better its access to external markets by
lobbying or other pressure to get more favorable freight rates or transport
services for its exports, improved waterways, or high-speed highways.
Improvement of the regions own terminal and port facilities may also have
some effect on export demand and thus on regional growth. Houston, with its
ship channel to the sea, is a dramatic illustration of a successful effort of
has some leverage also on primary supply inputs. By persuasion, pressure, and
subsidy, it may secure better and cheaper inbound transport for its imported
materials and may be able to attract activities with strong forward linkages
that will have a supply multiplier effect. Governmental and private research
centers and universities are increasingly valued as local suppliers of
services, people, and ideas providing the basis for new growth industries.
Regions where demand for labor tends to exceed supply can stimulate immigration
by campaigns of advertising and recruitment, publicizing both job opportunities
and whatever amenities the region has to offer.
regional growth can be significantly affected through changes in intraregional
input supplies and interactivity relationships, which are more immediately
subject to local choice and action. The quality of the labor supply can be
enhanced by a variety of education and training programs and by removal of
barriers to occupational mobility and technical change (including racial and
sex discrimination, restrictive work rules, and job entry requirements). The
regions limited land and other natural resources can be managed so as to
increase their contribution to productivity. Local public services, an
important input to almost all activities, can be made more efficient and
conducive to productivity and amenity. The regions economies of
agglomeration can be enhanced by appropriate action involving both public and
private sectors (for example, in the planned development of new and improved
office centers, regional shopping centers, produce markets, health centers,
research parks, and the like).
In the next
chapter, we turn to a consideration of how these and other ways of influencing
regional development are used in the pursuit of objectives involving regional
structure and growth.
chapter addresses itself to such basic questions about regional growth and
change as the causes of growth, the roles of trade and of the movement of labor
and capital, the relation of regional economic structure to growth, and the
convergence of regional differentials in incomes and structure.
of regional economic change work through the various types of linkage examined
in Chapter 9. In general, vertical linkages are
involved in self-reinforcing growth or decline tendencies, whereas horizontal
linkages have a stabilizing influence. Various theories about the generation of
regional growth have emphasized either demand for the regions outputs and
backward linkage, or supply of inputs and forward linkage.
economic base approach identifies exports as the generator of growth in a
region; nonbasic, or local market-serving, activities are assumed to grow only
in response to the local demand generated by the export sector and to maintain
a more or less fixed ratio to the latter.
input-output analysis, it is possible to trace the impact of an increase in
business receipts from exports or other components of "final demand" on
payments and incomes in the region through local spending for payrolls and
purchases from other businesses in the region. The total increase in regional
income generated per dollar of initial increase in final demand receipts is the
regional income multiplier.
input-output model treats final demand as the initiator of growth and change.
Exports are always part of final demand, but the household, government, and
investment sectors are sometimes taken at least partially out of the final
demand category and treated as responding to regional demands.
economic model in which all growth and change must come from demand and be
transmitted through backward linkage is one-sided. A more adequate model would
assign major roles to supply factors and forward linkage as well, but
input-output analysis is less well adapted to deal with changes originating on
the supply side.
broader multiregional view of the development process focuses on the roles of
interregional trade and factor movements. The migration of capital is subject
to determinants closely analogous to those affecting labor migration, though
the patterns of interest and wage differentials are quite dissimilar, as are
the patterns of capital and labor flow.
Interregional trade can serve as a partial substitute for labor and
capital flows in equalizing returns to those factors. Flows of labor and
capital can either substitute for or complement one another; the substitutive
relation exerts an influence toward stability in relative regional growth,
while the complementary relationship can be the basis of self-reinforcing and
The observed convergence in
regional income levels and structures in recent decades is not a universal
trend. Interregional trade as well as labor and capital movements, though
commonly promoting convergence, can in some situations have the opposite
effect; and technological dynamics can just as well promote divergence as
convergence. According to one plausible hypothesis of development stages,
divergence is likely to characterize the youthful stages of a countrys
industrial development, and convergence the more mature stages.
cities have played a crucial role in regional and national economic
development, in their capacity as transmitters of ideas and practices from the
outside world and also as places where people from diverse parts of the home
region or country are brought into close contact and exposed to new
institutions and challenges and a wider variety of opportunities. Innovation
has flourished in such a germinating ground. New industries and other
activities that started in large cities have historically tended to
decentralize at a later stage to play a role in the development of other
regions or parts of the region. Evidence suggests that decentralization is
occurring more rapidly in recent years and that the capacity of smaller places
to support innovative industries has increased.
TECHNICAL TERMS INTRODUCED IN THIS
|Regional economic base
Demand and supply
Basic and nonbasic
Borts and J. L. Stein, Economic Growth in a Free Market (New York:
Columbia University Press, 1964).
Friedmann and William Alonso, Regional Policy. Readings in Theory and
Applications (Cambridge, Mass.: MIT Press, 1975).
Norton, City Lift-Cycles and American Urban Policy (New York: Academic
Perloff et al., Regions, Resources, and Economic Growth (Baltimore:
Johns Hopkins University Press, 1960).
Pred, The Spatial Dynamics of U.S. Urban-Industrial Growth, 1800-1914
(Cambridge, Mass.: MIT Press, 1966).
Richardson, In put-Output and Regional Economics (New York: Wiley,
Richardson, Regional Economics (Urbana: University of Illinois Press,
1978), Chapters 4-7.
Siebert, Regional Economic Growth: Theory and Policy (Scranton, Pa.:
International Textbook Co., 1969).
Explanation of Basic Steps in Input-Output Analysis
coefficients (Table 11-4) are derived from the
information on interactivity purchases and sales in Table 11-3 as follows: The total output of activity
A is 4300 (dollars per month, or other appropriate money/time unit).
A purchased 50 units of output from B. Therefore, for each unit
of As output, 50/4300 or .012 units of B output is called for. In
similar fashion, we find that each unit of As output involves the
following further purchases of A:
A itself (that is, sales from one A firm to another):
every unit of output by B involves purchases by B from A
amounting to 400/2850=.140 units, and so on. In this fashion, we can derive
the rest of the coefficients in Table
in Table 11-5 (total direct and indirect effects)
are derived as follows from the input coefficients in Table 11-4. Let us denote the outputs of activities
A, B, C, and D simply by those letters. Then we can write the
entire distribution of As output as follows:
A =.070A +
.140B + .032C + .192D +
FA represents As sales to final demand sectors. The
foregoing equation can be restated more simply as:
.930A .140B .032C
applying the same procedure to the other three intermediate activities, we
.930B .012A .323C
.233A .070B .269D
.281B .065C ED
We now have
four simultaneous equations, (1)(4), which can be solved for the output
levels A, B, C, and D in terms of the final demand sales levels
FA, FB, FC, and FD.
This solution ("matrix inversion") of the simultaneous equations is
laborious (for even as few as four equations) if done by hand, but it can be
done quickly and cheaply on a computer. The solution is as follows:
A =1.118FA +
.289FB + .157FC +
1.234FB + .439FC +
=.297FA + .284FB + 1.171FC
=.O68FA + .452FB+
.247FC + 1.400FD
coefficients are entered in the upper part of Table
in the lower part of Table 11-5 are obtained as
follows, taking the first figure (.6 14) as an illustration. From the table of
input coefficients (Table 11-4), we see that
households sell .442 units to A for every unit of As output. From
equation (5) (or from the first figure in Table
11-5), we see that A must produce 1.118 units for each unit that
A sells to final demand. Consequently, each unit that A sells to
final demand will require purchases by A from households amounting to
.442 X 1.118 units. But as we see from (6), (7), and (8) (or from Table 11-5),
each unit of As sales to final demand calls for the following further
purchases by A:
unit that B produces, B buys .105 units (Table 11-4) from
households; there is thus an additional indirect demand via B for .126 X
.105 units. Similarly for C and D. The total additional
sales by households resulting from a one-unit increase of final demand sales by
A is therefore
1.1118 X .442) +
(.126 X .105) + (.297 X .323) + (.068 X .154)=.614 units,
entered as the first figure in the lower part of Table
of an Input-Output Table with Households Included as an Endogenous
indicated in the text (households may be included as another activity in the
intermediate sector if we care to assume that household expenditures are
linearly related to household receipts. This first requires filling in some
additional cells in Table 11-3, and we shall use
the following figures:
Table 11-3 will now appear
as follows, using H to denote households, and with all new figures in
figures in the foregoing table, the input coefficients can be calculated in the
same fashion as was done for Table 11-4. The
revised version of Table 11-4 (with headings abbreviated and with all new
figures in italics) will look like this:
total direct and indirect effects of an increase in final demand are derived in
the same way as for Table 11-5. The revised table follows. In it all the
figures are new. All the ratios are much larger than in the original version of
Table 11-5, since the new calculation includes a large additional multiplier
effect involving feedback through the household sector (additional employment
induces additional household expenditure for local products, imports, capital,
and taxes). No such effect was allowed for in the original version of Table
11-5, in which households were a final demand sector.
in this column show the impact of an added dollar of aggregate final demand
sales by all intermediate activities, apportioned in the same proportions as
those activities shared in the final demand sales shown in the second table
above. Specifically, this means added final demand sales of 26¢ by A,
22¢ by B, 19¢ by C, 7¢ by D, and 26¢ by H, totaling
It may be
noticed that in each column of this last table, the sum of the figures in the
primary-sector rows (government, outside, and capital) comes to 1 (ignoring
some trivial rounding-off discrepancies). The same holds true in
Table 11-5. The reader will find it a useful
exercise to explain this fact.
1. The areas involved are mapped in Figure
11-2. We shall sometimes in this chapter refer to the individual Census
divisions as "regions," despite the fact that the Census Bureau (as shown in
Figure 11-2) groups them into still larger areas, which it calls "Census
2. Irving Hoch, "Income and City Size," Urban Studies, 9, 3
(October 1972), 314.
3. Contributions to the discussion include Phillip R. P. Coelho
and Moheb A. Ghali, "The End of the North-South Wage Differential," American
Economic Review, 61, .9 (December 1971), 932-937; and a critical comment by
Mark L. Ladenson and a rebuttal by Coelho and Ghali in American Economic
Review, 63, 4 (September 1973), 754-762.
4. Hoch, "Income and City Size," p. 315.
5. Shelby Gerking and William Weirick, "Compensating Differences and
Interregional Wage Differentials," Review of Economics and Statistics,
65, 3 (August 1983), 483-487.
6. Exporting in this sense does not necessarily imply that the goods
or services are sent out of the region by their producers. They may instead be
consumed in the region by outsiders who occasionally come for that purpose.
Selling of recreational and other services to tourists from outside is a major
"export" activity in some regions. What is relevant for the regions
development is the income, rather than the movement of the output.
7. For a careful and readable description of the purposes and
techniques of such studies, see Charles M. Tiebout, The Community Economic
Base Study, Supplementary Paper No. 16 (New York: Committee for Economic
Development, December 1962).
8. For a comprehensive discussion of the methods used to estimate the
exports of a region, see Andrew M. lsserman, "Estimating Export Activity in a
Regional Economy: A Theoretical and Empirical Analysis of Alternative
Methods," International Regional Science Review, 5, 2 (Winter 1980),
9. See Tiebout, Community Economic Base Study, Table 10, P.
49, for a series of examples of such understatement, involving eight different
industry groups and six different community economic base studies. In each
case, a questionnaire survey of business firms provided the more accurate data
against which the location quotient estimate was checked.
generally, there is an aggregation effect involving the offsetting of
"surpluses" and "deficits" that restricts the comparability of location
quotients. As a rule, the use of a finer activity classification or a smaller
region will make quotients larger, whereas a coarser classification or larger
region permits more offsetting and reduces the quotients.
10. Ibid, pp. 48-49.
11. For a series of estimated export multipliers for a
dozen cities of assorted sizes, see Charles L. Leven, "Regional Income and
Product Accounts: Construction and Applications," in Werner Hochwald (ed),
Design of Regional Accounts (Baltimore: Johns Hopkins University Press,
1961), Table 1, p. 179.
12. If the regions net exports are always
positive, the loan is, in effect, permanent!
13. See J. Thomas Romans, Capital Exports and Growth
Among U.S. Regions (Middletown, Conn.: Wesleyan University Press, 1965), p.
14. The example to be given here is the simplest
input-output table applicable to a region. For many years input-output tables
constructed for the country as a whole were of identical form. With the
completion of the 1972 U.S. input-Output tables, a more general accounting
framework was adopted, which includes the schema presented here as a special
case. See Bureau of Economic Analysis, U.S. Department of Commerce, Survey
of Current Business, 59, 2 (February 1979), 34-72.
15. In practice, the entries involving this sector
comprise sales to and purchases from firms (both inside and outside the region)
on capital account. The "outside world" entries refer to export or
import transactions with nongovernmental parties on current
16. For an explanation of the calculations, see
Appendix 11-1 or any general reference on input-output
analysis, such as William H. Miernyk, The Elements of Input-Output Analysis
(New York: Random House, 1965). For any table of substantial size, such
calculation is best done on a computer.
17. So far, we have a whole set of specific
regional multipliers, since the assumed initial impact that gets multiplied can
be taken as an increase in final demand sales of any of the several
intermediate sector activities. Sometimes it is desirable to settle on a single
overall regional multiplier figure. Such a figure can be derived by starting
from an "across-the-board" unit increase in final demand; that is, each
intermediate activitys final demand sales rise by the same proportion.
The last column in Table 11-5 illustrates this
calculation, giving an overall multiplier of 1.977.
other types of regional multipliers have been estimated at different times for
many regions. Although, as we might expect, there is considerable variation,
there is a rather consistent tendency for multipliers to be greater for larger
and more fully diversified regions. This is logical: Such a region "takes in
more of its own washing," and the sequence of indirect and induced effects is
subject to less demand leakage than would be the case in a smaller or more
narrowly specialized region. Presumably, the minimum multiplier (1) would be
most closely approached in a community, such as a mining camp, devoted to a
single exporting activity.
comparative study of export employment multipliers in American cities, it was
found that the following characteristics were associated with higher
multipliers: city size, growth rate, female labor force participation, income
per capita, ratio of nonlabor to labor income, and diversity of activities.
Andrew S. Harvey, "Spatial Variation of Export Employment Multiplier: A
Cross-Section Analysis," Land Economics, 49, 4 (November 1973),
18. There are alternative ways of allowing for the
multiplier effect via household income and expenditure. In any case, it is
customary to refer to this effect as "induced" to distinguish it from the
indirect effects resulting from interindustry transactions in the narrower
19. There is a large literature on systems of regional
accounts and models for analysis and policy guidance; for a well-rounded
treatment, see Harry W. Richardson, Regional Economics (Urbana:
University of Illinois Press, 1978).
for example, Karen R. Polenske, The US. Multiregional Input-Output Accounts
and Model (Lexington, Mass.: Lexington Books, D. C. Heath, 1980); and Jan
Oosterhaven, interregional input-Output Analysis and Dutch Regional Policy
Problems (Hampshire, England: Gower, 1981).
21. Probably one reason for this overemphasis on the
role of demand in regional growth is that modern regional growth theory,
input-output analysis, and multiplier analysis were influenced by the
contemporary development of Keynesian theories of what determines the degree of
utilization of given resources in the short run. A more balanced approach,
taking into account long-term growth factors on both the supply and the demand
sides, has appeared in some theoretical work; notably in Horst Siebert,
Regional Economic Growth: Theory and Policy (Scranton, Pa.:
International Textbook Co., 1969); Romans, Capital Exports; and G. W.
Borts and J. L. Stein, Economic Growth in a Free Market (New York:
Columbia University Press, 1964).
One of the
first regional economists to question the primacy of exports and call for a
balanced theory was Charles M. Tiebout, "Exports and Regional Economic Growth,"
Journal of Political Economy, 64, 1 (February 1956), 160-164. His
article was prompted by a forceful statement of the export doctrine by Douglass
C. North, "Location Theory and Regional Economic Growth," Journal of
Political Economy, 63, 3 (June 1955), 243-258. The whole North-Tiebout
controversy, including both these articles, Norths subsequent reply, and
Tiebouts final rejoinder, is reprinted in John Friedmann and William
Alonso (eds.), Regional Policy: Readings in Theory and Application
(Cambridge, Mass.: MIT Press, 1975), pp. 332-357. Another good statement
emphasizing supply factors is Richard T. Pratt, "Regional Production Inputs and
Regional Income Generation," Journal of Regional Science, 7, 2 (Winter
22. See, for example, Richard F. Muth, "Migration:
Chicken or Egg?" Southern Economic Journal, 37, 3 (January 1971),
23. Readers interested in a more detailed presentation
and critique of supply-driven input-output analysis are referred to Frank
Giarratani, "The Scientific Basis for Explanation in Regional Analysis,"
Papers and Proceedings of the Regional Science Association, 45 (1980),
185-196; and Oosterhaven, Interregional Input-Output Analysis, Chapter
24. Ricardos theory and much subsequent theorizing
on international trade assumed immobility of production factorsan
assumption clearly inappropriate in reference to relations among regions within
a single country.
25. Such a differential is suggested, though without
empirical evidence, in Richardsons discussion of interregional capital
mobility; see Harry W. Richardson, Regional Economics (New York:
Praeger, 1969), p. 305. Lösch found a marked regional differential pattern
in money rates in the United States in the 1920s and 1930s, long after the
Federal Reserve System had been put into operation. See August Lösch,
The Economics of Location (New Haven, Conn.: Yale University Press), pp.
461-476. Additional material on changes in the geographic structure of the U.S.
financial system may be found in Beverly Duncan and Stanley Lieberson,
Metropolis and Region in Transition (Beverly Hills, Calif.: Sage
Publications, 1970), Chapters 11-12.
26. For an excellent discussion of the effects of
transport changes on industry location and regional concentration in the United
States, see Benjamin Chinitz, "The Effect of Transportation Forms on Regional
Economic Growth," Traffic Quarterly, 14,2 (April 1960), 129-142; and
Chinitz, Freight and the Metropolis (Cambridge, Mass.: Harvard
University Press, 1960).
27. The farm price parity ratio (index of prices
received by farmers to prices paid by farmers, on the base 1910=100) averaged
104 in 1911-1920; 88 in 1921-1930; 76 in 1936-1940; and 107 in 1941-1950. U.S.
Bureau of the Census, Historical Statistics of the United States, Colonial
Times to 1957 (Washington, D.C.: Government Printing Office, 1960), p.
28. Moheb A. Ghali, Masayuki Akiyama, and Junichi
Fujiwara, "Factor Mobility and Regional Growth," Review of Economics and
Statistics, 90, 1 (February 1978), 78-84.
29. Soeroso, The Distribution of Economic Activity
over Space and Economic Growth in Indonesia, (Ph.D. dissertation,
University of Pittsburgh, 1982).
30. See Michael P. Todaro, "A Model of Labor Migration
and Urban Development in Less Developed Countries," American Economic
Review, 59, 1 (March 1969), 138-148.
31. See Harry W. Richardson, Regional Growth Theory
(London: Macmillan, 1973), Chapter 7; and Richardson, Regional
Economics, (Urbana: University of Illinois Press, 1978), Chapters
32. Richard A. Easterlin, "Long Term Regional Income
Changes: Some Suggested Factors," Papers and Proceedings of the Regional
Science Association, 4 (1958), 325. See also Easterlin, "Interregional
Differences in Per Capita Income, Population and Total Income, United States,
1840-1950," Trends in the American Economy in the Nineteenth Century,
vol. 24, Conference on Research in Income and Wealth, Studies in Income and
Wealth (New York: National Bureau of Economic Research, 1960); and Easterlin,
"Regional Income Trends, 1840-1950," in Seymour Harris (ed.), American
Economic history (New York: McGraw-Hill, 1961), pp. 525-547.
33. See Jeffrey G. Williamson, "Regional Inequality and
the Process of National Development: A Description of the Patterns," Economic
Development and Cultural Change, 13, 4(2) (July 1965), 3-45; reprinted
in L. Needleman (ed.), Regional Analysis (Baltimore: Penguin, 1968).
Williamson presented and substantiated the hypothesis described here, using
nineteenth-and twentieth-century data for a number of countries both
cross-sectionally and in terms of changes over time. He also investigated the
degree of income inequality among counties within states in the United States
and established that its changes have been closely correlated with changes in
interstate income inequality.
34. For a penetrating and well-documented analysis of
the interaction between industrial innovation and urban concentration in
the United States, see Allen R. Pred, The Spatial Dynamics of US.
Urban-Industrial Growth, 1800-1914 (Cambridge, Mass.: MIT Press, 1966),
analysis covers the period up to 1914, and as he suggests, the nature and
strength of some of the cumulative forces of urban-industrial agglomeration
have subsequently changed. His study is noteworthy in its stress on the
interaction between concentration and innovation: That is, technological
advance and innovation flourish in the large urban-industrial center, and give
rise to new industries that are established in those same centers, and
stimulate their further growth. There are many examples of this process in the
nineteenth century: the inception of the electrical equipment manufacturing
industry in New York, Boston, and Pittsburgh, the making of scientific
instruments and optical equipment in Rochester, N.Y., and so on. But (as Pred
points out) under more recent conditions, innovation at one location can as
easily give rise to new industry in other locations. This is true
because technical knowledge is much more diffused and transferable now, and
also because large multiplant and multi-industry corporations now play a
commanding role in the research and development that give rise to new processes
and industries. Such a corporation is perfectly free to choose locations for
the new industry quite remote from the headquarters or research-center
other changes help to explain why specific manufacturing industries are no
longer as strongly or persistently concentrated in their "parent cities" as
they used to be; and perhaps also, why the fastest-growing metropolitan areas
today are not the very largest but those in the intermediate and smaller size
classes. (See Section 8.5.)
35. As a sobering touch of historical realism, we must
note here that leading cities in which wealth, power, and foreign influence are
concentrated have not always been an unmixed blessing to their regions and
countries. In some situations of old-style colonialism in particular, the
dominant externally oriented metropolis has been parasitic on its hinterland.
Preexisting native industries, economic and social institutions, and cultures
have been damaged to an extent that, for a considerable period at least, is not
compensated by the growth-generative effects. See Bert Hoselitz,
Generative and Parasitic Cities," Economic Development and Cultural
Change, 3 (1955), 278-294.
36. Wilbur R. Thompson, "The Economic Base of Urban
Problems," in Neil W. Chamberlain (ed.), Contemporary Economic Issues
(Homewood, Ill.: Irwin, 1969), pp. 6-9.
37. See Appendix
12-1 for some discussion of measures of regional economic growth in terms
of components reflecting activity-mix and competitive gain or loss.
38. See R. D. Norton and J. Rees, "The Product Cycle and
the Spatial Decentralization of American Manufacturing," Regional Studies,
13, 2 (1979), 141-151; and R. D. Norton, City Life-Cycles and American
Urban Policy (New York: Academic Press, 1979).
39. Norton and Rees. "The Product Cycle," p. 142.
40. Ibid., p. 147.
41. Thompson, "Economic Base of Urban Problems," p.
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