regional planning

1. SSR3033:
Theories & Techniques of Regional
Planning
METHODS & TECHNIQUES OF REGIONAL
ANALYSIS Part 11
3rd and 4th October 2016
1

2. Industry
% w/f at
study region
Regions Minimum
require-
ment
Basic work
force
A B Z
Agriculture 14 2 8 14
Food 12 16 21 23
Engineering 16 10 16 11
Textile 12 24 17 6
Services 46 48 38 46
Total a = 100 100 100 100
3. Minimum Requirement Technique
Continuation from last lecture

3. Industry
% w/f at
study region
Regions Minimum
require-
ment
Basic work
force
A B Z
Agriculture 14 2 8 14 2 12
Food 12 16 21 23 12 -
Engineering 16 10 16 11 10 6
Textile 12 24 17 6 6 6
Services 46 48 38 46 38 8
Total a = 100 100 100 100 68 b =32
Minimum Requirement Technique - solution
Multiplier, k = a/b… Calculate!
Q: What is the regional income if export value increases by £2000?

4. Steps for solving the question
1. Find the k-value (i.e. multiplier value) = 3.125
2. Then use the k value to determine the
changes
– Increase by $2000, so the total increase = $6250
3. Conclusion is that:
– An increase of S2000 in export value (i.e. basic
sector) increases the income to $6250
– So, $2000 increase in basic sector is also
corresponding to an increase of $4250 in non-
basic sector income
4

5. Min Requirement: Important to remember
• Criteria for selection of region: comparison
areas will not be precisely match with the
selected region
• Criteria use – size (not only referring to
population)- what else?
• Identifying minimum share regions

6. Summary: Methods & Technique (S/Term
Changes)
• EBT – categorized the economy into basic and non-basic
sector
• Use multiplier effects in calculating the growth or
changes
• LQ – uses local conditions and national conditions to
determine the levels of employment in basic & non-
basic sector
• Min Requirements Technique – compares local
conditions with other regions (of similar size &
characteristics)

7. Objectives of this learning unit:
• To describe the methods and techniques
of regional analysis – focusing on
Aggregate Model – long term prediction
• To explain regional growth in the context
of Neo Classical Growth Theory
• To explain regional growth in the context
of Sector Theory, Stages Theory and
Rostow Theory

8. Regional growth
What are the factors that determine the
basic economic growth in a region?
• There are a number of factors that should be
considered when talking about regional planning
• Planners must be aware of these factors …otherwise
the plan may not be in the full interest of the people
• It is not just about financial budget and political
affliation!

9. 9
Factors of
production
Wages
Price of
products and
services
Technology
Availability
of
resources
Population
Income
distribution
Factors of regional growth:

10. Factors of regional
growth
1. Endogenous: from
within the region
itself (examples?
2. Exogenous:
from outside
the region
(examples?)
3. Combination of
both: examples?

11. Neoclassical growth theory
Neoclassical growth theory is an economic
theory that outlines how a steady economic
growth rate can be accomplished with the
proper amounts of the three driving forces:
labour, capital and technology.

12. Video link (49 seconds)
• https://www.youtube.com/watch?v=3ZR0oXa
zMpw
12

13. Neo-Classical Growth Theory
• In this approach,
regional growth
determines regional
income, economic
and social welfare
• Looking at long run
reduction of
geographical
disparities in
income per capita
and output
• Output growth – the
expansion of productive
capacity within a region;
and illustrates the extent
to which the region is
attracting the key
factors of production
(capital & labour)

14. contd
• In this theory, regional output growth is
dependent upon the growth of three factors of
production
– Capital stock
– Labour force
– technology

15. Contd.
• Technological progress – seen as a key
contributor to growth due to its influence
upon productivity growth rates in the long
run
• Innovation & technology – potential to
increase output growth per worker

16. INVESTMENT IN EDCATION AND SKILLS
INFLOW OF TECHNICAL KNOWLEDGE FROM
OTHER REGIONS
REGIONAL
OUTPUT
GROWTH
GROWTH OF LABOUR
FORCE
TECHNICAL
PROGRESS
NET IN- MIGRATION
OF WORKERS
REGIONAL WAGES RATE
RELATIVE TO OTHER
REGIONS
POPULATION
GROWTH
BIRTH AND DEATH RATES
INVESTMENT BY
REGION’S
RESIDENTS
REGIONAL SAVING RATE
NET INFLOW OF
CAPITAL INTO THE
REGION
RATE OF RETURN
RELATIVE TO OTHER
REGIONS
GROWTH OF
CAPITAL STOCK
The determinants of regional output
growth
source: Pike et al (2006:63)

17. • This theory is often referred to as exogeneous
growth theory (external)
• Regional growth – explained by growth in the
main factors of production
• Assumptions:
– high wage regions lose capital but attract labour
– Regional disparities are only temporary as spatial
inequalities set in motion self correcting
movements in prices, wages, capital and regions

18. Neo classical approach to regional policy
• Regional policy underpinned by neo-classical
growth theory – described as a “free-market”
approach
• The focus – the determinants of regional per
capita income levels and how low income
regions can ‘catch-up’ with relatively higher
income regions
• Policy focus on looking at identifying
intervention to correct market failures and to
speed up convergence

19. The critiques
• The assumptions are unrealistic – factor
mobility is less than perfect (e.g. Access to
capital)
• Imperfect competition
• External (or exogenous) treatment of
technology and labours weaken the model –
technological progress is geographically uneven
• Hard to predict the convergence – coz uneven
distributions of capital, labour and technology

20. Aggregate Model
20

21. Aggregate Model
• Focus on the “overall”
• Provide information about the situation of
economic development at macro level
• E.g. using GDP and Consumer Price Index to
describe the current economic conditions in
a region
• Includes: Sector Theory, Stages Theory and
Export Base Theory

22. 1. Sector Theory
• The sector theory is an economic theory which
divides economies into three sectors of activity:
extraction of raw materials (primary), manufacturing
(secondary), and services (tertiary).
• Developed by Alan Fisher, Colin Clark and Jean
Fourastié.
• Based on an empirical study – looking at the increase
of per capita income, which is followed by the
relocation of resources.
• Examples?

23. 23

24. • Reduced number of workers in primary sector
– due to increased number of workers in
secondary & tertiary sectors
• Economic growth: demand for production
from secondary & tertiary sectors increase
faster than primary sector (hence, reduced
number of workers)
• Growth in secondary & tertiary sectors –
offers more incomes (unlike primary sector)

25. Examples:
• Increased productivity in agriculture frees
farmers to work in manufacturing sector
• Increased productivity in manufacturing &
incomes – spending less on agricultural goods
but more on manufactured goods…but spend
more on services!

26. Glasson’s explanation
“Pertambahan per capita di dalam kawasan
yang berbeza pada masa yang berbeza, pada
umumnya disertai oleh pengagihan sumber,
manakala tenaga buruh berkurangan dalam
aktiviti utama (pertanian) dan berlaku
pertambahan pada aktiviti ke-2 (pembuatan)
dan ke-3 (perkhidmatan)
Glasson, 1990: 97

27. Sector Model
• Clark-Fisher Model (of Sector Model): uses %
employed in each sector to show that many
economies move through three stages:
primary, secondary & tertiary
• Problem: do not take into account
international economic context – outsourcing
or imported goods.

28. Implications
• Changes will benefit the secondary & tertiary
sectors more!
• Changes driven by increased in productivity
per employee
• Rates of sectoral changes – offer dynamic
elements in regional growth
• Focus more on internal changes (endogenous
factors!)

29. 2. Stages Theory
• Has been claimed that the Sector Theory is
closely linked to Theory of Stages of
development of regions.

30. Stages Theory
• According to Glasson (1990):
– Development of regions is characterized by these
sequences:
1. Stage of self-sufficient subsistence economy
2. Growth through specialization production in
primary activities & inter-regional trades (link with
improved transportation)
3. Introduction of secondary industries due to
increased demand from increasing population &
diminishing returns of primary industries

31. Stages Theory
4. Shift from basic agricultural production to a more
diversified industrialization based on internal
industrial-linkages and rising incomes
5. Advanced stage: specialization of certain tertiary
industries for exports and services to less
advanced regions .
Which is similar to Rostow’s model

32. Rostow’s Theory
• Stage 1: Traditional Society
• Stage 2: Transitional Stage
• Stage 3: Take Off
• Stage 4: Drive to Maturity
• Stage 5: High Mass Consumption
https://www.youtube.com/watch?v=20p34dZW
tEI

33. Limitations of Stages Theory
• Impractical in terms of real development – too much
emphasis on industrialization as economic boost
• Rigid – determination of sectors (primary, secondary,
tertiary)
• Excludes external factors – focus on endogenous factors
only
• Discuss the growth process but not mentioning the
income per capita
• Lack of discussion on effects & reasons of growth

34. Summary
• Neoclassical theory – focus on labour, capital
and technology
• Aggregate model
– Sector Model (primary, secondary and tertiary)
– Stages Model (similar to Rostow’s Theory)
• How do these models assist planners in
regional planning?
34

35. Disaggregate Model
Shift Share Analysis
35

36. • Focus on disaggregate
• Components rather than the overall
• Must have ‘timeframe’
• advantage of disaggregate models is that they
are sensitive to the mix of variables explaining
a change (in this case: regional change).
36

37. Shift Share Analysis
• a standard regional analysis method that
attempts to determine how much of regional
job growth can be attributed to (i) national
trends and how much is (ii) due to unique
regional factors
37
Question: How does this work in regional
planning and regional development?

38. Growth or decline?
• Why is employment growing or declining in this
regional industry, cluster, or occupation?”
• Shift share analysis’s components:
– national change effect,
– industrial mix effect,
– regional competitiveness effect.
38

39. 39
i. how much of the regional
industry’s growth is
explained by the overall
health of the national
economy
ii. the share of regional industry
growth explained by the growth
of the industry/ cluster/
occupation at the national level.
the national growth rate of the total economy is subtracted
from the national growth rate of the specific industry, and
this growth percentage is applied to the regional jobs in that
industry.
iii. how much of the change
in a given industry is due to
some unique competitive
advantage that the region
possesses, because the
growth cannot be
explained by national
trends in that industry or
the economy as whole.

40. Example of a shift share scenario
Assume that:
• The national economy grew by 4% (total
employment) in the given timeframe.
• The Employment Services industry grew by 15%
nationally, and by 350 jobs regionally. It had 1000
total jobs regionally at the beginning of the given
timeframe.
• The Apparel Manufacturing industry declined by
5% nationally and by 80 jobs regionally. It had 200
total regional jobs at the beginning of the given
timeframe
40

41. National growth effect
• if the entire national economy grew at 4%, we
might have expected the regional Employment
Services industry would also grow by 4%,
• Which is: 0.04 * 1000 = 40 jobs.
• These 40 jobs = the national growth effect for
Employment Services.
• For Apparel Manufacturing, the national growth
effect is 0.04 * 200 = 8 jobs, meaning that we
might have expected it to grow by 8 jobs over the
time period simply because of general economic
growth.
41

42. 42
Employment Services= 15% nationally, Subtract 4% growth of
the national economy (to arrive at a national industry)
= 11% growth rate that exceeded overall trends).
Applied to the regional industry, we expected Employment
Services to grow by (0.11 * 1000) = 110 jobs due to industry-
specific trends at the national level.
A national industry-specific relative growth rate of (-5% - 4%) = -
9% for Apparel Manufacturing (i.e., the industry not only
declined 5% nationally but failed to grow 4% with the rest of
the nation), meaning we would have expected a regional loss of
(0.09 * 200) = 18 jobs due to national industry-specific trends.
Industrial mix effects

43. Regional competitiveness effects (i)
• Employment Services grew by 350 jobs regionally
– 40 of those jobs might have been expected due to
national trends in the economy as a whole,
– 110 jobs might have been expected due to national
trends in employment Services specifically.
– This makes a total of 150 jobs expected from
national trends.
43

44. • Since the actual growth was 350 jobs, (350 – 150) =
200 jobs cannot be explained by national trends,
– they must be attributed to unique conditions and
advantages that the region possesses which
contribute to the growth of this specific industry.
44
Regional competitiveness effects (ii)

45. • For Apparel Manufacturing, we might have
expected a net change of (8 + (-18)) = -10 jobs
regionally, while in fact there was a regional
change of -80 jobs.
• The regional competitiveness effect is thus (-80 -
10) = -90 jobs,
• Thereby, indicating that it fell short of the
expected change by 90 jobs due to some specific
conditions in the region, such as the closing of a
factory.
45
Regional competitiveness effects (iii)

46. References
• Neoclassical growth theory –
http://www.yourarticlelibrary.com/economics/
neoclassical-theory-of-economic-growth-
explained-with-diagrams/38321/
• Pike (2006) – read Chapter 3
• Shift share analysis -
http://www.economicmodeling.com/wp-
content/uploads/2007/10/emsi_understanding
shiftshare.pdf