Webinar1: Ron Martin - Shocking Aspects of Regional Development: The Economic Geographies of Resilienceadditional material

1
Shocking Aspects of Regional
Development: The Economic
Geographies of Resilience
Professor Ron Martin
Department of Geography
University of Cambridge
Seminar Presented to Department of Geography
Trinity College, Dublin
30 June 2015

2
•  Why the rise of ‘resilience thinking’
•  Regional economic development as a shock-prone
process
•  What is meant by resilience – defining and
conceptualising the notion
•  Regional resilience to recessions in the UK
•  Regional reactions to the European crisis
•  Some unresolved issues
Outline

Resilience – A Bourgeoning Area of
Research and Policy Discourse
3

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•  Increasing interest in notion of resilience across
physical, natural, social and organisational sciences
•  Succession of major natural and environmental
disasters has focused attention on how affected
local communities recover from shocks and
emergencies
•  More general belief that we live in more risk-prone
world (economic change and instability, global
economic crises, climate change, terrorism, etc)
•  So to some extent, geographers are being swept up
in this development
Why the Rise of Resilience Thinking?

5
•  Change is one of capitalism’s constants
•  What might appear as slow change at aggregate
level conceals a multitude of local ‘disruptions’
•  Ongoing ‘creative destruction’not a spatially
neutral process
•  A firm closure can be a significant shock to a local
economy
•  An industry-wide collapse can give rise to multi-
location shocks (eg closure of 150 coalmines
across UK, 1983-2000)
•  The regional and local impact of macro-shocks
(recessions, crises, major policy shifts, etc) – the
recent crisis
Regional Development as a Shock-Prone Process

6
•  Resilience is concerned with how systems and
entities react to and recover from such shocks
•  Do shocks have merely transient or more
permanent effects (‘remanence’, ‘hysteresis’)?
•  How is a region’s resilience influenced by its
developmental pathway?
•  How do shocks influence a region’s developmental
pathway?
•  What about ‘slow-burn’ processes? Are these
‘shocks’?
•  Or do they become shocks when they reach a
‘tipping point’ or threshold?
Regional Development as a Shock-Prone Process

7
1.  An inappropriate metaphor
2.  No distinct ‘theory’ of resilience
3.  Privileges idea of ‘return to normal’, ignores ‘perverse’
resilience
4.  Too associated with idea of equilibrium
5.  Emphasises holistic (systems) ontology, and ignores micro-
level agency
6.  Notion is depoliticised
7.  Suggests local resilience determined endogenously
8.  Adds little to existing notions of sustainability or
competitiveness
9.  Notion easily captured by neoliberal ideology
Criticisms of Resilience Thinking

8
•  Resilience – from Latin Resilire - “to leap back or
rebound”, “to recover form and position elastically”
•  Question is how we interpret, apply or adapt, such a
definition in regional socio-economic contexts
•  Resilience of what to what?
•  Ontological as well as epistemological issues –
different meaning as between physical and social
worlds?
•  Both an analytical concept and a normative policy
imperative (as a ‘desirable’ characteristic)
•  Entered policy discourse (‘resilience building’) without
sufficient collective agreement as to its meaning and
determinants?
What is Regional Economic Resilience?

9
•  Two typical definitions of ‘resilience’:
• 1. Self-Restorative ‘Bounce
Back’ (‘Engineering Resilience’)
• Concentrates on stability of system near an
‘equilibrium’ or steady state: vulnerability and
resistance to disturbances (shocks) and speed of
recovery to system’s ‘equilibrium’ or steady state
• Bears some affinity to notion of ‘homeostasis’ -
self-correcting compensating adjustments to
restore ex ante state or trajectory following a
disturbance from that state or trajectory
• Or some versions of ‘robustness’ in Evolutionary
Biology (resistance to environmental change)
Towards a Definition?

Stylised Possible Reactions of a Regional
Economy to a Shock
10
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• 2. Resilience as ‘Ability to Absorb
Shocks’ (‘Ecological Resilience’)
• “Magnitude of shock that can be absorbed before
system changes its structure… a measure of
robustness and buffering capacity” (Berkes and
Folke, 1998)
• Focuses on behaviour of system when pushed ‘far
from equilibrium’ by a shock
• Resilience defined by stability of structure and
functionality in the face of shocks
• But what if system moved to new state or path
that is more favourable than original? This surely
is equally (or more) an indication of resilience?

12
•  But third form can be defined:
•  3. ‘Adaptive or Developmental Resilience’
•  Capacity for positive adaptation in anticipation of or
in response to shocks in order to maintain/restore
functionality and stability
• Similar to notion of ‘developmental resilience’ in
Psychopathology, ‘plasticity’ in Evolutionary Biology;
‘self-organised adaptation’ and ‘adaptive robustness’
in Complexity Theory
• Two versions
• System adapts its structure and function in response to
or in anticipation of changes in environment
• System changes its environment

Key Issues in Regional Economic Resilience
13
Domain Key Issue
Vulnerability to
shocks
Why do regions differ in their vulnerability (propensity) to
shocks?
Disturbance or
shock
What is the nature of the shock? What aspect of a
region’s economy is being disturbed?
Reference state
or dynamic
What is the ‘reference’ state or dynamic of the variable(s)
of interest in the absence of a shock?
Resistance to
shock
How far has the ‘reference’ state or dynamic been
disturbed by the shock?
Adaptability What are the mechanisms by which the region’s firms,
workers and institutions respond and adapt to shocks?
Recovery Recovery to what, and how fast?
Determinants of
resilience
What determines a region’s resilience?

A Possible Definition?
The capacity of a regional or local economy to
withstand or recover from market, competitive,
technological and other shocks to its
developmental growth path, if necessary by
undergoing adaptive changes to its economic
structures and its social and institutional
arrangements, so as to maintain or restore its
previous developmental path, or transit to a new
sustainable path characterized by a more
efficient, productive and equitable use of its
physical, human and environmental resources
(Martin and Sunley, 2015).
14

Regional Economic Resilience as Process
15
!
Depth of
Reaction to
Shock
Extent and
Nature of
Adjustment to
Shock
Recession
Post-Shock
Regional
Developmental
Pathway
Vulnerability
and Exposure
to Shocks
Scale, Nature
and Duration
of Shock
RESISTANCE REORIENTATION RECOVERABILITYRISK
Regional Economic Structures, Resources, Capabilities
Competences
Business Cultures, Confidences and Expectations
Local (and National) Institutions
Nature and Extent of Supportive Policies and Measures
Pre-Shock
Regional
Developmental
Pathway

Some of the Determinants of Regional Economic Resilience
16

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Measuring Regional Resilience
Method Focus Examples
Case study
based
Mainly narrative based, may involve simple
descriptive data and interviews with key
actors, interrogation of policies
Munich (Evans and Karecha, 2013);
Cambridge and Swansea (Simmie
and Martin, 2010); Buffalo and
Cleveland (Cowell, 2013)
Resilience
indices
Singular or composite, comparative,
measures of (relative) resistance and
recovery, using key system variables of
interest
UK regions (Martin, 2012; Martin and
Sunley, 2015); US cities and counties
(Augustine et al, 2012; Hans and
Goetz, 2013)
Statistical
time series
models
Impulse response models; error correction
models. These estimate how long it takes
for impact of shock to dissipate (how much
of the impact is subsequently eliminated per
unit time period)
US regions (Blanchard and Katz,
1992); UK regions (Fingleton,
Garretsen and Martin, 2012)
Causal
structural
models
Embedding resilience in regional economic
models to generate counterfactual positions
of where system would have been in the
absence of shock
US metropolitan areas (Doran and
Fingleton, 2013); EU regions
(Fingleton, Garretsen and Martin,
2014)
!

Reaction to the Great Recession, Selected US
States
18
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•  Context – growing regional imbalance across the UK
economy over past 40 years
•  Role of recessionary shocks?
•  Four main recessions, 1974-76, 1979-82, 1990-92 and
2008-10
•  How have UK regions resisted and recovered from
these?
•  What has been the role of economic structure in
shaping regional resilience?
The Resilience of UK Regions
to Recessionary Shocks

20
•  Simple Measures of Regional Resistance and
Recoverability
•  Need to define the ‘expected’ (counterfactual) –
•  Eg assume each region reacts the same as the
nation over contraction or recovery (say, t to t+k):
A Simple Measure of Resilience
€
Re sisr =
(ΔEr
Contraction
)− (ΔEr
Contraction
)expected
(ΔEr
Contraction
)expected
€
Recovr =
(ΔEr
Recovery
)− (ΔEr
Recovery
)expected
(ΔEr
Recovery
)expected
€
(ΔEr
t,t+k
)expected
= ΣigN
t,t+k
Eir
t

A Simple Measure of Resilience
21
!
Strong resistance but
weak recoverability
MOST RESILIENT
Strong resistance and
strong recoverability
>0.0
Recoverability 0.0
<0.0
Weak resistance and
weak recoverability
LEAST RESILIENT
Weak resistance but
strong recoverability
<0.0 0.0 >0.0
Resistance

Last Four Recessionary Shocks to UK
Economy (Employment)
22
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Recessions and Recoveries in the UK
Regions
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Regional Resilience over Last Four
Recessionary Shocks
24
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25
•  Specialisation versus diversity debate in regional studies
(eg Duranton and Puga, 1999; Frenken and Van Oort,
2007; Kemeny and Storper, 2014)
•  Some argue that specialisation is the motor of regional
growth (Storper, 2013)
•  But others argue that diversified economy is more
resistant to shocks: different sectors have different
elasticities of demand
•  And hence diverse structures should make regions more
resilient (diversity ‘spreads risk’) (Davies and Tonts,
2010)
•  Major structural changes in regional economies over past
40 years (deindustrialisation, tertiarisation,
financialisation)
The Impact of Economic Structure
on Regional Resilience

26
•  Shift-share decomposition of differential regional
reaction to shocks (relative to national reactions) into
industrial structure effect and regional competitiveness
effect:
That is,
Differential change = Industry effect + ‘Competitiveness’
effect
Using Shift-Share to Assess Role of Industrial
Structure
ΔEr
t,t+k
= Σi (gN
t,t+k
Eir
t
)+ Σi (giN
t,t+k
− gN
t,t+k
)Eir
t
+ Σi (gir
t,t+k
− giN
t,t+k
)Eir
t
ΔEr
t,t+k
− Σi (gN
t,t+k
Eir
t
) = Σi (giN
t,t+k
− gN
t,t+k
)Eir
t
+ Σi (gir
t,t+k
− giN
t,t+k
)Eir
t

27
Contribution of Industrial Structure and
Competitiveness Effects to Regional Resilience over
Successive Economic Cycles
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28
•  Industrial structure has some influence
•  Has been positive in London, South East, Eastern
regions
•  Negative in most of northern and less prosperous
regions
•  But typically outweighed by ‘competitive effects’ in
almost all regions
•  London’s competitive effect shifts from strongly negative
to highly positive over time
•  Regional industrial specialisation has declined (regional
structures have become more similar) over time, except
London
The Impact of Economic Structure
on Regional Resilience

Structural Convergence across UK Regions
29
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30
•  Context – Has European Monetary Union rendered
regions in Eurozone more or less vulnerable to
shocks?
•  Banking crisis of 2008-09 triggered most severe
recessionary shock since formation of EU
•  Continuing crisis in certain Eurozone member
states (especially Greece!)
•  Is Eurozone viable single currency area?
•  Large body of theory on ‘optimum currency areas’
•  Key underlying premise (requirement) of OCA –
‘homogeneity’ across members of monetary union
Regional Impact of European Crisis

31
•  ‘Homogeneity’ is satisfied by three conditions:
•  1. Symmetry – economies should be roughly similar
and synchronised (all member states – and regions –
similarly affected by shocks)
•  2. Flexibility – free movement of labour and capital (to
restore regional imbalances in the event of asymmetric
shocks)
•  3. Integration – common fiscal policy (automatic
stabilisers and transfers to reduce impact of
asymmetric shocks)
•  Generally agreed that when established in 1999, Euro
zone did not satisfy key requirements of optimum
currency area (eg Bayoumi and Eichengreen,1993)

32
•  Primarily a political rather than economic project
•  Membership based on monetary (budgetary) criteria
(Maastricht convergence) – concerned with debt,
deficit and inflation thresholds
•  Argued in any case that –
• Monetary union would itself ‘endogenise’ the required
symmetry, flexibility and integration conditions (Rose,
2004, De Grauwe and Mongelli, 2005)
• And that states and regions were becoming ‘more
similar’and synchronised
•  Some argued, however, (eg Paul Krugman) that
increased integration could lead to greater regional
specialisation and hence asymmetry of shocks
•  Made worse by absence of common fiscal policy

33
•  Employment and productivity trends back to 1980
suggest degree of symmetry (variance) has
increased (declined) among Eurozone regions
over time, especially since 1999, compared to
Non-Eurozone regions
•  However, northern-central regions of Eurozone
more stable than southern-peripheral regions, in
both employment and productivity terms
•  In this sense ‘two-Eurozones’ – one northern-
central; one southern-peripheral
•  After 1999, productivity in southern-peripheral
Eurozone regions fell progressively behind more
central-northern Eurozone regions

34
Eurozone regions
differ less in
employment growth
rates (show greater
synchronicity) than
Non-Eurozone
regions
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35
And in similarly in
productivity
growth ratesg
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36
But major difference in Productivity Levels
between Northern and Southern regions
of Eurozone, and divergence after 1999
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37
•  Assessing regional resilience to the crisis
•  How quickly and how far have EU regions recovered to
their pre-shock (employment) growth paths?
•  Fingleton, Garretsen and Martin use dynamic vector
spatial panel model
Where E is 255x1 vector of regional employment
W is 255x255 matrix of regional trade interdependencies
Q is 225x1 vector or regional output (GVA)
K is 255x1 vector regional capital stock
Estimated over 1997 to 2007
€
ln Et = γ ln Et−1 + ρWEt + β0 + β1 lnQt + β2 lnKt +εt

38
•  Model used to generate ‘counterfactual’ regional
employment paths over 2007-2011 (b-e)
•  These then compared with actual paths (c-d)
•  Also extent of‘recovery gap’ (e-d)
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39
•  Model estimated over 1997-2007 using actual
values, gives R2 =0.91 for employment levels, R2
=0.6 for growth rates
parameter 0.639 0.156 0.104 0.01
t-value (321.1) (42.7) (140.4) (108.0)
•  Then used to predict 2008-2011 (using recursive
values of E and predicted values of K and Q from
moving average estimates over 1993-2007) (see
Fingleton, Garretsen and Martin, 2015)
€
ln Et = γ ln Et−1 + ρWEt + β0 + β1 lnQt + β2 lnKt +εt

Actual Employment Change in the Crisis, 2008-2011
Greatest declines in Southern and Peripheral regions
40

Predicted (Counterfactual) Employment Change
2008-2011
(More evenly spread across regions)
41

Difference between Actual and Predicted
Employment Growth, 2008-2011
42

Difference between Actual and Predicted
(Counterfactual) Employment Level as at 2011
‘Differential recovery’ – worst in Peripheral and
Southern EZ regions
43

44
•  Prior to Crisis, peripheral Eurozone regions converged in
synchronicity compared to non-Eurozone region (though
began to fall behind in productivity)
•  But southern-peripheral regions of Eurozone proved less
resilient to crisis than either central Eurozone regions or non-
Eurozone regions
•  In this respect
• Regions of Eurozone may not constitute an OCA
• Convergence in good times, partly stimulated by EMU,
may be more apparent than real
• Real convergence matters as well as monetary
convergence (Maastricht criteria)
• Impact of crisis has varied within as well as between
countries
• Magnifico (1973) warned of this issue four decades ago!

45
•  Studies of OECD nations suggest countries which
suffer deep or frequent shocks have lower long-
run growth rates (Cerra et al, 2008, 2009)
•  If this also applies to regions, shocks can
contribute to long–run regional divergence in
economic growth paths
•  Positive adaptation versions of resilience suggest
recoveries could mark shift to new, improved
growth path
•  But negative shifts also possible, leading to
inferior growth paths
Resilience and Long-Run Regional Development

Shock-Induced Permanent (Hysteretic) Shifts in
Regional Growth Paths? Two UK Regions
46
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47
•  Need to embed notion of resilience in theory of
regional development
•  Different theories imply different interpretations of
shocks and resilience
•  Resilience not some fixed ‘attribute’, but produced by
development process
•  Evolves over time – can rise and fall
•  Also, insight needed into the multi-scalar nature of
resilience (the links between micro-behaviours and
aggregate dynamics)
•  And role of locally endogenous versus exogenous
factors in shaping regional resistance
Some Unresolved Issues

48
Theorising Regional Economic Resilience?
Regional
Theory
Role of Shock/Implied Interpretation of Resilience?
New Economic
Geography
theory
‘Resilience’ as stability of an equilibrium spatial pattern of economic activity
in the face of shocks. A shock above critical threshold induces shifts to new
spatial equilibrium pattern.
Evolutionary-
Schumpeterian
theory
Shocks as ‘gales’ of creative destruction and ‘competitive selection’.
‘Resilience’ as regional economic ‘fitness’, and ‘positive re-orientation’ of a
region’s industrial-technological system.
Marxist Theory Shocks as major over-accumulation or competitive crises that set in train
the search by capital for radically new ‘technological and spatial fixes’.
‘Resilience’ of regions depends on balance between local in situ
technological fix and flight of capital to more buoyant or cheaper locations.
Path
dependence
theories
Shocks ‘de-lock’ regional development paths. Is ‘resilience’ resistance to
‘de-locking’ or positive path dependent adaptation/ability to create new
paths?
!

49
•  Increasing interest in ‘building resilience’ (reducing
vulnerability, improving capacity to absorb shocks,
increasing adaptability of local economies)
•  But need more insight into causes and
consequences of resilience before jumping to policy
conclusions
•  Both national and local institutions, and regulatory
and governance arrangements, may play crucial role
•  Comparative case studies important to gain policy
insight
Some Unresolved Issues

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