How can regions change

Basically, regions are formed based on various factors such as those provided above. However, they are mostly defined, determined, and kept together by virtue of a law or statute passed by the legislature branch of a certain government.

People may perceive the characteristics of their own and other cultures and regions differently. A perceptual region is a region based on commonly held human attitudes and feelings about an area. Language, religion, government, land use, education and customs make each cultural region distinctive. Cultural regions are based on one or more aspects of human culture. They are functional regions; that is, they are based on activities of people living in the area. Religion and language are two common cultural characteristics used to determine cultural regions.

At this stage too, there are alternative procedures of varying degrees of sophistication. The simplest method is to derive the multiplier from the "basic ratio. Accordingly, every worker added to basic employment will directly lead to the employment of two additional workers in nonbasic activities: the multiplier is 3.

Such a 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. 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 multiplier. It follows 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 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 1. This 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. 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 outside. In any 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 and 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 the case.

We shall 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. The economic base approach has been described in its simplest terms. 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.

The essence of the input-output schema is a set of accounts representing transactions among the following major economic sectors: 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.

These are, 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 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.

The accompanying schematic chart, Figure , 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. Activities 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. The abridged set of accounts in Table 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.

This kind of input-output table is particularly useful, however, in tracing and evaluating certain cumulative effects of vertical linkages in the region. 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 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 multiplier. The reason 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. This explains why the figures on the diagonal of the table are especially large. This is a specific multiplier ratio, evaluating the effects of an initial increase of final demand sales by industry A. This 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. Perhaps the 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.

The upshot 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 , this would mean supplying numbers to fill out the presently incomplete "households" row and column. The 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.

The 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 sector.

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.

The answer 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. For the 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.

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. Such 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 affected. In the accounts shown in Table , 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 primary supply. In tracing 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.

Because an 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. When 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. 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. This 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. There is, 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 impressionistic terms.

The demand-driven and supply-driven models should be viewed as complementary rather than as conflicting or rival hypotheses about regional economic change. As yet, however, there is no analytical model that adequately incorporates this union of the two complementary approaches. Systems of accounts do not in themselves tell us anything about where growth starts; they merely help us to trace impacts. Trade among 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. This 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.

This 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.

Determinants of labor mobility have already been explored at considerable length in Chapter 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.

The 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 past may therefore be only the most basic of prologues for thinking about future dynamics, whether in developed or developing countries. It would be unrealistic to ask any field of theory and research— especially in an area of such complex human-technical interaction as the spatial economy—to meet all these challenges fully.

But a focus on change and causality, by which I mean on studying cities and regions as forward-moving development processes—should determine what is most relevant in defining the ambitions of the field. Concretely, then, the field should be able to respond to such questions as: why do regions grow? Why do some decline? What differentiates regions that are able to sustain growth from those that are not? What are the forces that cause per capita income to converge or diverge, and under what conditions do they operate?

What are the principal regularities in urban and regional growth, and what are the events and processes that are not temporally- or geographically-regular but that affect pathways of development in durable ways?

Two branches of spatial economics have developed in recent years. The New Economic Geography NEG emanates from the founding paper of Krugman , whereas the New Neoclassical Urban Economics NNUE evolves from the older traditions in urban economics, offering an ambitious and inclusive set of inter-regional spatial equilibrium models. The two are substantially different from one another, but both have significant gaps in their ability to explain certain kinds of spatial-economic dynamics.

The NEG is principally concerned with production. Scale economies induce the concentration of workers and firms, each enjoying closer contact with its markets and access to a greater variety of inputs and products, if trade costs are even mildly positive Krugman, ; Fujita and Thisse, Moreover, trade costs are fully integrated into this way of thinking, something which was not previously possible. Trade costs can also have certain endogenous characteristics, because local interactions can generate further scale economies and increase the gap in trade costs between local and far away economic agents Martin and Ottaviano, These are significant achievements, though most of the underlying insights have been around quite a long time.

Meanwhile, scholars of cities had long described Marshallian processes of economic agglomeration as the basis of city economies Pred, ; Hall, These earlier thinkers emphasized intermediate linkages, home market effects, and local learning, just as does the NEG today; but they did not did not place their insights in a framework with a consistent view of trade costs, open economy relationships, labour mobility, economies of scale and secure microfoundations.

The NEG thus represents a fundamental leap forward. It attempts to bring into a single framework the behaviours of firms in choosing locations, of individuals and households in choosing residence, and of developers in shaping the built environment.

At its heart are how firms seek to raise productivity and individuals to satisfy their preferences for income, paid amenities and non-monetized amenities. Significantly, the NNUE introduces local politics over land and housing as a key sphere in which the possibilities of firms and individuals are defined, unevenly from one place to another.

Migration is made endogenous in this complex geographical force field. The NNUE also represents a sweeping conception of urban and regional dynamics.

The two are substantial rivals with one another. The NEG would explain the rise of Silicon Valley as the effect of a self-reinforcing process of agglomeration stemming from an initial accident; and it would explain high incomes there as the result of massive economies of scale and variety, on one hand, and the skill composition of labour demand in that agglomeration, on the other. Thus, the NEG centres on economies of scale in production and consumption, and spatial development as a vast checkerboard of monopolistic competition; the NNUE makes very conventional assumptions about the structure of production and consumption that it is divisible , and focuses on optimal preference-satisfying behaviour on the part of firms, workers, households and builders, in a perfect-competition world.

In other words, the spatial sorting mechanisms for people and activity are radically different in the two theories. Both the NEG and the NNUE have potentially important insights about certain aspects of the process of spatial-economic development; but both have substantial gaps in explaining causality and change, and many assumptions of both are unrealistic because they are driven by requirements of theoretical consistency rather than from what occurs in the real world.

The first major substantive limitation of the NNUE is that some of the assumptions employed to explain change are highly improbable. In this view, firms can substitute capital and labour to a significant degree as they choose among different possible locations. A firm can locate in a place with higher relative labour costs by substituting more capital, in the proportions dictated by its production function, but at the same time, it can opt for alternative locations with lower relative labour prices by employing a higher proportion of labour.

Linked closely to this indifference of the firm is that of the individual-as-household or individual-as-worker: it is assumed that there are significant elasticities of money wages for such things as housing size or amenities such as climate and culture, and that these affect the choice of location between regions and not just the choice of neighbourhood within a region.

Firms certainly do choose locations according to the relative prices of factors at different locations; but there is scant evidence that they can be truly indifferent among regions in the way required by this assumption. At any given moment, the demand for capital and labour—as it is distributed among different locations—is driven first and foremost by the semi-fixed factor coefficients of the demanding firms.

In the short-run, then, the economy does not work like a simultaneous substitution system across locations.

The NEG takes a different approach. Its big contribution is to place the phenomenon of localization or agglomeration at the centre of the geographical development process. It does this by introducing scale economies, and allowing factors of production especially labour to be mobile, and then specifies the degree of unevenness of development that will emerge as determined by the interaction of these scale economies with trade costs between firms and between firms and their markets.

The NEG allows for multiple agglomerations within the same industry, even with very low trade costs, by allowing for product variety—a key realistic dimension of the modern economy.

The NEG explains cross-hauling intra-industry trade among similarly-developed areas. Gains to trade in NEG come not only from Ricardian specialization, but from the geographically-differentiated productivity gains from agglomeration. Nominal wages can vary due to establishment-level scale, or to the existence of clusters, both of which raise productivity. The economic equilibria that emerge from this kind of thinking usually involve high levels of unevenness of output and, in some versions, of per capita income.

In the long-run, most NEG theorists continue to assume that interregional income convergence will emerge as the result of declining trade costs, allowing greater sorting of production between regions that compete, and due to increasing labour mobility. But in the NEG this is a much more temporally- and geographically-uneven process than in NNUE, because economies of scale—within and between firms—are a fundamental characteristic of the economy.

Moreover, innovation and learning are admitted by some NEG theorists as potential sources of long-run productivity and factor price differences between places, even though they are very difficult to model. In the NEG, scale economies in production lead to higher productivity and wages in certain places; which, in turn lead to concentration of a variety of goods at lower prices consumer amenities , which in turn lead to a win-win choice for individuals of locating in places with high wages, low prices and high consumer variety.

This canonical core-periphery model is appealing because it describes the reality of high-income city-regions. But it does not explain why people and firms would go to places with both lower wages and less variety of consumer goods or unpriced amenities.

This is where the NNUE counters the core-periphery thinking of NEG by arguing that in some cases people will reduce their nominal wages in the periphery in order to get its better unpriced amenities and cheaper housing, such that sorting over many different types of locations with different characteristics is achieved.

The NEG sees wages in the core regions as possibly incorporating a real wage boost from lower consumer prices scale-supported variety and productivity , not a smooth, arbitrage-and-substitution-driven version of spatial equilibrium. The big picture is completed in NNUE approaches by adding the notion that other sectors of the economy respond to these dynamics, but also—and this is crucial—shape them.

The most important such sector is housing. Housing stocks respond to demand, which in turn depends on whatever is said to determine population growth workers to jobs?

Describe and explain the changes in regional boundaries and names of African states during colonization and after independence in the nineteenth and twentieth centuries. Regions are defined by different sets of criteria, and places can be included in multiple regions of different types Therefore, the student is able to: A. Identify and explain how a place can exist within multiple regional classifications, as exemplified by being able to Construct a map showing the boundaries of the multiple regions within which the school is located e.

Identify a location in the world and explain a number of possible different regions that may include the location e. Regional change is caused by multiple interacting processes Therefore, the student is able to: A. Describe and explain the processes that have resulted in regional change, as exemplified by being able to Describe and explain how the breakup of the Soviet Union led to changes in formal, functional, and perceptual regions in the areas that originally comprised that country.

Analyze how the boundaries and names of regions have changed over time and explain the reasons for those changes e. Explain some of the results expected from climate change models on the physical characteristics of selected world regions e.