Appunti sulle lezioni di Regional Economics + Land Rent Theories - I + II Parziale

FACTOR ENDOWMENT AND REGIONAL GROWTH

Growth conceived as an increase in individual wellbeing (coming from higher remuneration for example). Long-period regional dynamics. Supply components: an area is able to grow when it is able to increase its productive capacity. In the light of the theories described before (in particular the export-base model), they consequently not only view exports as the engine of development but take a step further by identifying the factors responsible for the greater export capacity, and therefore the competitiveness, of a local economic system. If an economic system is able to export (=gain a role in the international division of labour) it must enjoy some advantages:

• Produce at a lower price;
• Supply higher quality products;
• Place new goods on the market.

Growth is treated from resource-based, it is conceived as individual well-being, which is achieved:

• Through increases in factor productivity, and consequently in wage levels and per capita.

income(neoclassical macroeconomic models);- Through specialization processes that generate interregional trade, and consequently advantages deriving from the purchases of goods offered on the external market at prices lower than they would be if the goods were produced internally.

One-sector model (Borts and Stein 1960s)The idea that it is the production factors are mobile, while the goods produced are perfectly immobile.In the case of production factors with nil transport costs, it will be shown that the neoclassical theory, besides being a theory of local growth, is also a theory of the mobility of the production factors; if goods are perfectly mobile, the theory of local growth is also a theory of interregional trade.

Assumptions- Uniform abstract space;- Perfect competition in the goods market;- Perfect competition in the production factors market, which means that production factors are remunerated at their marginal productivity, guaranteeing profit maximization for the entrepreneur;

Full employment achieved by means of flexibility in the remuneration of the production factors;

Perfect mobility of the production factors among regions, at nil cost;

Total immobility of the goods produced;

Adjustment of the capital/labour ratio according to the dynamics of the production factors; there istherefore perfect substitutability between the two factors in the production of two goods.

The idea beyond is that if you leave the market working, through its own forces it will achieve a bettersituation of the maximization of everything, two regions coming from a situation of disparities thanks to themarket own forces can achieve a situation of equality = same endowment of production factors.

Growth in the productivity of labour and/or per capita income is equal to growth in technical progress andthe capital/labour ratio. In the absence of technical progress, per capita output can only increase if thegrowth of capital exceeds that of labour.

Law of marginal decreasing returns

(interest rate)capital K: capitalL: labour>> same factor productivities,

The reallocation process halts when the regions attain thesame remunerations, same factor endowments, same levels of income,the the and therefore thein full employment<<labour The outflow of labour enables to(wages) increase productivity

Region A: Region B: and thereforeincrease remuneration of thetoRich region Poor region

POOR REGION

RICH REGION labour factor

In dynamic terms- The dynamic equilibrium in which the capital/output ratio or per capita output remain unchangedas income increases is guaranteed when the growth rate of capital equals that of labour.

The model reaches steady-state equilibrium when capital and labour grow in exactly the sameproportions.

The steady-state equilibrium is reached at a certain positive value of the K/L ratio point at whichàthe growth rate of the capital/labour ratio is nil.

NB: If the capital growth rate curve meets the labour curve for negative values, the

region does not grow but instead constantly declines.

Main merit: Attribution of a prime role to production factor mobility in the regional growth process.

Criticisms:

• The production factors (K;L) are not the same everywhere, there could be work that is qualified in some region and not qualified in other.
• Migratory flows encounter a number of obstacles in reality, the first and perhaps most obvious of them being the economic and psychological costs of resources mobility. Assumed to be nil in the models examined above, these costs may instead explain why the factors do not move in the direction indicated by the model, or may not move at all. So capital tends to remain in rich regions because of cumulative processes and synergies attendant on the process of development.
• Persistence of marked regional disequilibria suggests that these market forces are not enough to close the gap between advanced and backward regions. Strong areas are able to absorb the decreasing returns that accompany

industrialization and high capital intensity, whilst the weak regions of the advanced countries have to compete with the low unit labour costs characteristic of the underdeveloped countries. (NB: the decreasing returns consequent on the intensive use of labour may diminish competitiveness, this is a law!)

- The uniqueness of the production function for all regions is somewhat unrealistic. If it is removed, the results of the model change: in the presence of different technologies, an equal capital/output ratio among regions no longer guarantees an equal level of production. In the real world, regions are very likely to produce different goods; while the spatially uneven distribution of specific technological knowledge and factors necessary for firms also partly explains the limited mobility of capital among regions.

Productivity Production factor

III. THEORIES OF LOCAL DEVELOPMENT: DIVERSIFIED RELATIONAL SPACE

From growth theories (quantitative) to development theories (qualitative).

that render the costs and prices of production processes lower than they are elsewhere:

• Elements exogenous to the local context, which originate externally to the area and are transferred into it either fortuitously or deliberately (the local presence of a dominant firm or a multinational company, the diffusion in the area of an innovation produced elsewhere, or the installation of new infrastructures decided by external authorities);
• Endogenous elements, which arise and develop within the area and enable it to initiate a process of self-propelling development (entrepreneurial ability, local resources for production: labour + capital; and in particular the decision-making capacity of local economic and social actors able to control the development process, support it during phases of transformation and innovation, and enrich it with external knowledge and information).

Generative development whereby the national growth rate is the sum of the growth rates achieved by individual

regions.The growth-pole theory

It suggested, for the first time, the existence of selective local development that works in favor of somesectors and some specific local areas but does not necessarily benefit the region as a whole.

It has the outstanding merit of recognizing as crucial factors for development:

• Input-output relations among sectors;
• Spatial concentration of productive activities.

I. Economic approach: Perroux (1955)

“Development does not appear everywhere at the same time: it becomes manifest at points or poles ofdevelopment, with variable intensity; it spreads through different channels, with various final effects onthe whole of the economy” development manifest itself in a specific pointà

Propulsive unit trigged the development process

Presence in the area of a dominant firm, which he called “industrie mortice” owing to its capacity toinfluence through its investment decisions the levels of investment undertaken by the firms

connected with it. It has a lot of input output relations with other firms.

This firms produce goods that are high demanded from outside (influence of the export-base model).

And thanks to its dominant position in the sector and in the economy, it generates a series of positive effects on the sector to which it belongs, and on the economy as a whole.

Its presence generates a growth-pole series of positive effects (which took place at local level):

• Keynesian multiplying effect on income that horizontally pervades the entire economy.
• Multiplying effect à la Lentief, connected with intersectoral input-output effects, which vertically pervades the dominant firm's filière.
• Acceleration effect on firms' investments. Growth of demand for the dominant firm's goods and those of the firms connected with it stimulates investments. These investments are facilitated by high