This document discusses economic development and increasing regional income through the export base theory of growth. It explains that a region must increase exports to outside areas to increase monetary inflow and generate additional income through the multiplier process. Activities that bring money into the region from outside, called "basic" or "traded" sectors, include recruiting traded firms, tourism, and attracting talented entrepreneurs. While population growth can help, simply increasing the number of residents is not sufficient for economic development without also increasing the traded sectors of the economy. The document also notes some criticisms of and limitations to the export base theory.

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Why do we need economic
development?
• Creative destruction/disruption leads to
industry shifts  growing or dying
• Community can influence regional business
environment
 Types of firms, talent pool, etc.
• Opportunity for all
 Industry must match pop to some extent
• Expand non-residential tax base

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Increasing regional income:
An Economic Base Model
Approach

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Income Level
$ Inflow
From
Exports
$ Outflow
From
Imports

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 Export base theory of growth – must
increase exports to increase monetary
inflow
• Income earned through exports
• spent and re-spent locally
• creating additional income through multiplier
process
 These activities are called “basic”,“traded”,
or “primary”
 ΔRegional Rev. = multiplier * Δ “basic” revenues

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More Formally…

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Marginal Propensity to Consume Locally:
the fraction of extra income spent
consuming locally produced goods or
services

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Too simple
• No role for productivity
Import substitutions (shop local)
• Often inefficient
Education feeds into productivity,
competitiveness, and exports
Multiplier may not be stable
Over-aggregation – (not all exports
same)

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Fiscal Policy – the setting of taxes and
expenditure levels by government
Fiscal Stimulus – an increase in public
spending or reduction in taxes to
encourage economic growth
Why don’t county government’s
undertake fiscal stimulus?
• County increases spending on police cars from
Jeff Gordon Chevrolet  almost all the $ flow out
because cars are imports

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Maximizing inflows

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Local Sector Traded Sector

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Recruit traded firms
• Can be difficult
• Location matters – access to:
 Markets
 Suppliers
 Labor
Retain existing firms
• Often cheaper than recruiting
• Help them expand

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Other sources
• Tourism – tends to pay poorly
• Retirees – may not want to “invest” in community
• Talent and entrepreneurs
 Talent often follows jobs
 Quality of place and amenities retains talent

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Traded Sector
• Tourism
 Tends to pay poorly
• Talent and Entrepreneurship
 Increase productivity and create new ideas
 How to attract?
 Workers follow jobs or jobs follow workers?
 More likely workers follow jobs
 Amenities (quality of place) help to retain

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“We just need people to move here,
growth solves all problems…”
• Partially correct
• Need mass of workers and consumers but…

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 𝑹𝒂𝒕𝒊𝒐 =
𝑷𝒖𝒃𝒍𝒊𝒄 𝑺𝒆𝒓𝒗𝒊𝒄𝒆 𝑬𝒙𝒑𝒆𝒏𝒅𝒊𝒕𝒖𝒓𝒆
𝑹𝒆𝒗𝒆𝒏𝒖𝒆𝒔 𝒇𝒓𝒐𝒎 𝑳𝒂𝒏𝒅 𝑼𝒔𝒆
Land Use Type Cost Ratio
Residential 1.18
Commercial / Industrial 0.44
Agricultural / Open Space 0.50
Source: Kotchen and Schulte 2009

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One time projects:
• Construction, film projects, grants
• Not the source of new eqm level of income
• “Bonus”
Permanent increases in inflows
• Provide new, higher eqm income levels
• These are the projects most often incentivized
• “Raise”
In general:
• Continuous inflow preferred to one time

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Development is more than growth
1. Job creation  income creation
2. Fiscal Improvement
 New business(es) contribute to tax base
3. Physical Improvements
 Renovations to blighted areas
 Blight may spread, vibrant activity is much better
 (think old Walmart buildings…)
 Infrastructure construction to accompany projects

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Growth increases demand for products
and services
• Resource owners’ income increases
 Duration of gains depends on elasticity
 Real assets less elastic (longer gains)
 Buildings or land
 Labor is modestly elastic
 (note: can be very elastic in ILM…)
 Mobile resources elastic (short gains)
 i.e. financial resources
• Lag time for firm entry helps explain size of
gains

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Opponents of growth
• Higher prices hurt fixed incomes
 Increasing rents and slow wage growth (retirees)
• Environmental concerns
 Weigh environment vs. income tradeoff differently
• “Not in My Backyard” - NIMBY
 Hope to benefit from growth but do not want
downsides
 New grocery store?Yes! Connect with my street? No!
 (Citizens against virtually everything, CAVE people)