Regional Development in an Age of Structural Economic Change

Piet Rietveld, Daniel Shefer

• Publisher: Routledge
• Year: 2024
• Print ISBN:
  9781138337039
• eBook ISBN:
  9780429809811
• Topic: Business
• Subtopic: Business General
• Index: Business

First published in 1999, this volume addresses various themes in regional development studies from the perspective of structural economic change. Particular attention is paid to factors having long-run implications for regional development, such as innovation and knowledge production. Innovation and research and development activities appear to take place at particular locations. This has implications for long-run spatial and sectoral developments. Another factor is transport infrastructure; its impact on efficiency and equity is surveyed. Other themes covered relate to the role of tourism and adjustments in urban economies. The books aims to offer a balance between modelling and non-modelling approaches. In addition to country-specific contributions, some are offered at the European level.

1 Spatial Consequences of Structural Change

Piet Rbetveld and Daniel Shefer

1.1 Introduction

During the past decades regional economies have been influenced by various structural forces. A major force is globalization. Economic activities tend to take place more and more at the international level. This does not only hold true for the markets of goods and services implying trade, but also for financial markets and international investments. Globalization has various effects (cf. OECD 1997) including increasing specialization of regions, increasing inter-dependencies, new patterns of spread of technologies and changes in the product mix of regions.

The globalization is partly due to changes in the cost of transport and communications (cf. Janelle 1969). The process of decrease of costs of transport (and the increase in the quality of transport services) has already started long ago. It has led to a very large reduction in transport costs and hence to opportunities of specialization and large scale production. The decrease in communication costs has led to better possibilities of coordination of production and distribution processes at various places.

Another important factor concerns changes in the position of the public sector. In many countries governments have tried to reduce their involvement in economies by deregulation, changes in the social welfare system, reduction of trade barriers, etc. These changes tend to lead to a smaller emphasis on considerations of equity in policies of the public sector. At the regional level these policies tend to increase regional discrepancies in welfare levels. A special case related to the international detente since the last decade is the reduction of defence expenditures that had far reaching effects on certain regions relying on the defence sector (either as a location of defence related research, or as a region hosting large military camps, ports and airports).

Technological change leads to the destruction and creation of many jobs at various places (Bertuglia et al. 1997). Regions face opportunities for attracting firms making new products, but also run the risk that firms already settled there are forced to leave the market because they cannot stand the competition of firms from elsewhere producing new products. The long run cyclical movements of the economy lead to continuous processes of relocation of firms since in each phase of the life cycle of the products made, they may need another environment (Vernon 1966 Nijkamp and Rietveld 1987).

Demographic change and international migration are important phenomena that have long run consequences in many economies. An economy of a country like Israel has grown tremendously during the last decade owing to the large scale immigration of mainly highly qualified workers. On the other hand, a good number of rich countries in the world are facing considerable difficulties in absorbing immigrants from poorer countries such as the developing countries and Eastern Europe. These migration flows have led to particular spatial patterns of inflow and diffusion of ethnical groups, especially impacting urban economies. Existing tendencies of dual labour markets have been reinforced by the massive inflow of lowly qualified foreigners.

The list above indicates that regions are exposed to various forces, some of them continuous (like transport cost improvements), some of them with a shock character: like sudden changes in political systems (Eastern Europe) or changes in the regulatory regime in sectors. In the next section we discuss to what extent such changes may be expected to lead to changes in the relative position of regions.

1.2 Convergence versus Divergence in Regional Systems

When analysing the development of a system of regions in the course of time one can use the following two points of view:

• divergence versus convergence: do the relative differences increase or decrease?
• positive rank correlation versus negative rank correlation: do the relative positions of regions change considerably in the course of time.

Thus, four different cases can be distinguished when one wants to study the relative positions of regions in time (see Table 1.1).

Table 1.1 Change in relative positions of regions

	rank correlation: positive	rank correlation: negative
convergence	I	II
divergence	III	IV

These four cases can be illustrated by means of Figure 1.1. Clearly in reality there can also be intermediate situations (convergence – equal inequality – divergence, and positive – zero – negative correlation). For the sake of simplicity these intermediate cases have been omitted in Table 1.1 and Figure 1.1.

The convergence idea has been strong in the standard stylized model of neoclassical economics (Richardson 1973; Sala-i-Martin 1996). Changes in all kinds of external conditions will lead to changes in the economic conditions of regions, and may thus in the short run lead to divergence. However, if markets are flexible, interregional trade and interregional mobility of labour and capital will make sure that after the initial turbulence a process of convergence will take place. Indeed, nowadays tendencies can be observed that markets become more flexible: trade barriers tend to become lower, international investments grow rapidly as a consequence of outsourcing strategies, information technology leads to an improvement of the functioning of international markets (Nijkamp 1998).

Figure 1.1 Changes in regional positions in a four region system

The divergence case has also a long tradition in regional analysis. For example Myrdal (1957) has formulated the principle of cumulative causation indicating that a small initial advantage of a certain region may bring about a process of cumulative steps taken by the private sector leading to an increasing advantage in the course of time. As long as congestion does not lead to countervailing forces, backwash effects will be dominant. The work of Krugman (1991) although using a different terminology can also be seen in this tradition: economies of scale and agglomeration lead to processes where particular regions are able to become successful producers of certain products. Small advantages or coincidences may play a decisive role in which region will eventually be the winner.

It must be emphasized that the above formulation of the issue of convergence and divergence is stylized. The cases are not as polar as suggested here. Empirical work by for example Kuznets (1955), Williamson (1965) and Ram (1995) leads to the conclusion that in the long run interregional differences tend to follow a pattern of divergence, followed by convergence. The interesting question is of course which mechanisms are behind this and the possible role of long run structural changes in such a switch of regime.

The other dimension concerns the stability of the relative positions of the regions. Of course this depends strongly on the length of the time span considered. It is not difficult to document cases where there have been clear changes in the relative position of regions. For example, certain regions being early in the process of industrial revolution because of presence of raw materials are now depressed regions having difficulties in adjusting to the new situation that these raw materials can easily be imported. And in the very long run of many centuries there have been major shifts in the position of large cities having prime positions in the world economy (see for example Wallerstein 1974).

Nevertheless, it is also clear that despite many structural changes in economies there is a remarkable constancy in the relative positions of cities and regions in spatial systems. This suggests that the development of a region does not only depend on the forces being active, but also on the initial conditions. Some theories have been developed to understand this stability. For example, evolutionary theories of development (Nelson and Winter 1982) underline that bounded rationality plays a large role in the behaviour of firms. This creates a tendency that firms attach themselves to fixed routines, not only in their behaviour of product and process innovation, but also of locational choice. The importance of innovation for the long run development of firms means that firms prefer to locate in regions with a workforce and culture that is favourable. Regions with a differentiated production structure are considered to be more attractive than regions with a more monocultural orientation (Jacobs 1984; Lambooy et al. 1997). These factors imply that regions that have already achieved a prominent position may be expected to maintain such a position. This inertia is again reinforced by the favourable infrastructure positions these regions usually have: the infrastructure once supplied to a region given a certain stage of economic development will remain of importance for next stages. This leads to a pattern of path dependence (David 1985, Gifford 1996): once for some possibly rather trivial reason a region has an advantage in infrastructure terms, economic forces will tend to reinforce this initial advantage.

The two dimensions of Table 1.1 are not entirely independent. The theories supporting the divergence view imply that rank correlations are high (case III). It is difficult to find proponents of case IV. In the convergence supporting theories there is not a clear link between the two dimensions, however. The reason is that here the historical aspects do not play such a large role. When in an equilibrium model there is a unique equilibrium the initial conditions do not matter. This means that the convergence oriented theories are rather silent about the relative positions of particular regions in the course of time.

1.3 Themes Covered: Knowledge, Infrastructure, Tourism

In the next section we address some of the themes receiving special attention in this book in more detail.

1.3.1 Innovation and Knowledge

Innovation takes place in various ways (see Table 1.2). The most eye catching form is the introduction of revolutionary new products that may have long run effects on production and consumption patterns. However, in many cases, innovations occur in a much more modest way by means of gradual improvements of existing products that may take place during a rather long period. Another relevant distinction is between technological and non-technological innovations. Technological innovations have a high-tech character and depend strongly on large R&D processes, accordingly. In addition to these technology dominated innovations there are also many innovations that are much more of an organizational character; the R&D component is less important here (cf. Van Langen 1998).

Table 1.2 Classification of innovations

	revolutionary	gradual
high-tech	I	II
low-tech	III	IV

In the past many revolutionary innovations have taken place without a high tech character. Examples are the use of the plough in agriculture, the introduction of larger ships in sea transport, etc. In the 20th century, however, revolutionary innovations tend to have a high tech character (case I). Case III seems to be an exceptional case nowadays. The number of really revolutionary innovations is not so large however. Most R&D efforts are oriented towards gradual improvements of products (case II). In addition to high-tech innovations there are also many low tech innovations, which are often of an organizational character (production of new services based on given technologies).

Large technological institutions and universities tend to dominate the high tech activities. From this angle of the preparation of innovations we observe that there may be substantial regional differences. Present day organization of production i...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Figures, Tables and Maps
• Contributor
• Preface
• 1 Spatial Consequences of Structural Change
• Part A Spatial Aspects of Innovation and Knowledge Production
• Part B Tourism, Infrastructure and Regional Development
• Part C Regional Development: Modelling and Policy