Sayed - PowerPoint Presentation

Slide1

Sayed H. Saghaian (Mehdi), Associate ProfessorUniversity of KentuckyLexington, KentuckyThe First Iranian Conference of Urban EconomicsMashhad, Iran23 – 24 Nov 2011

Infrastructure, Agglomeration, Cluster Development and Cluster PolicySlide2

Economic GeographyWhat happens where? Why do firms and people tend to concentrate in a few locations ?What explains the variety of economic activities and land uses in a region?What are the economic diversification prospects for low-population places that are costly to get to and from?Why some regions achieve significantly higher growth rates than others? Slide3

Economic GeographySpatial EconomicsUnderstanding the role of distanceTheory of Spatial EquilibriumProduction Location TheoryLand EconomicsStudy of land use and valueRegional EconomicsSub-national economicsRural Economics Urban EconomicsSlide4

Foundation StonesThree foundation stones: an understanding of spatial and regional economic problems built on three facts of life: Natural resource advantages, Economies of concentration, and Costs of transportation and communication. A fundamental view: the importance of trade-offs among: Scale, Transport costs, and Endowments in explaining the economics of establishment location.Slide5

Urban-Rural The important role of local public goods and amenities to explain household and establishment location choices.The emergence of auto transport by mid–twentieth century made commuting to urban employment the mode to engage with urban economies.Increased accessibility to urban markets key factor to prosperity of regions.Slide6

Urban-Rural Urban growth cause of rural-brain-drainThe pull effect of the higher urban returns to human capitalHighest skilled will leaveExurban sprawl fuel adjacent rural growthJob growth complementary to population growth through increased commuting.60% of local non-metro job growth is due to commuting, 30% through migration.Slide7

Urban CentersUrban centers and spatial concentration of production provide: Product variety: Intermediate inputs for firms Final goods to consumers Monopolistic competition (more firms)Average cost pricingHigher profitsSlide8

AgglomerationIt is geographic concentration of related economic activities.The agglomeration of related economic activity is a central feature of economic geography.Agglomeration arises from interdependencies across complementary economic activities that give rise to increasing returns. Trade-Offs:Either enjoying agglomeration economies of scale, or avoiding transportation costs wrt spatially immobile resources.Slide9

AgglomerationTwo potential types of agglomerating forces: localization (increasing returns to activities within a single industry) and urbanization (increasing returns to diversity at the overall regional level).Agglomeration may arise from: specialization of a region in a particular industry where firms share common inputs or knowledge (so called localization economies). exploiting the overall diversity of industries in an entire regional economy (so called urbanization economies).Slide10

AgglomerationAt least three distinct drivers of agglomeration: input-output linkages, labor market pooling, and knowledge spillovers.Additional agglomeration drivers: local demand, specialized institutions and the structure of regional business and social networks Slide11

AgglomerationIn a given location, limitations on resources can result in diminishing returns.This can lead to convergence in economic activity (employment, income, productivity) across regions over timeEach of those mechanisms is associated with cost or productivity advantages that result in increasing returns to geographically proximate economic activity.Free trade remove barriers to agglomeration and foster growth of clusters.Clustering of economic activity is wisely recognized as resulting in economies of agglomeration.Slide12

What is Competitiveness?Competitiveness is the productivity with which a nation uses its human, capital, and natural resourcesProductivity sets the standard of livingProductivity growth sets sustainable economic growthProductivity and prosperity depends on how a nation competes, not what industries it competes inRelentless innovation necessary to drive productivity growth and enable standard of living to riseTechnology, products, and organizational methodsSlide13

Competitiveness & Diamond FrameworkMany things matter for competitiveness:Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing.Porter Diamond Model for Competitive AdvantageThe Diamond Framework has four dimensions:Context for Firm Strategy and RivalryFactor (Input) ConditionsDemand ConditionsRelated and Supporting IndustriesSlide14

Diamond FrameworkSlide15

Diamond FrameworkSlide16

Diamond FrameworkSlide17

Context for Firm Strategy and RivalryA local context and rules that encourage productivityincentives for capital investments and intellectual property protectionIncentive systems based on meritOpen and vigorous local competition, especially among locally based rivalsSlide18

Factor (Input) ConditionsAvailability of high quality, specialized inputs available to firms:Human resourcesCapital resourcesPhysical infrastructureAdministrative infrastructure (e.g. registration, permits)Information infrastructure (e.g. economic data, corporate disclosure)Scientific and technological infrastructureNatural resourcesSlide19

Demand ConditionsMore sophisticated and demanding local customer(s)Local customer needs that anticipate those elsewhereUnusual local demand in specialized segments that can be served nationally and globallySlide20

Related and Supporting IndustriesAccess to capable, locally based suppliers and firms in related fieldsPresence of clusters instead of isolated industriesSlide21

What is a Cluster?Michael Porter defines clusters as “geographically proximate groups of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities”.Clusters have become the focal point of many new policy initiatives globally in the last few years.The goal is to become the most competitive and dynamic knowledge based economy.Clusters are a leverage point for action

, not just a description of economic reality.

A way to

realize

location-based

complementarities

.Slide22

Anatomy of a Cluster

Support Industries

Suppliers:

Customers:

Driver Industries:

Local &

State

Gov’t

Federal

Agencies

Sources of

Capital

Workforce

Development

& Training

Universities

Community

& Technical

Colleges

Nonprofits

Public

Infrastructure

Labor

OrganizationsSlide23

Cluster CharacteristicsFirms and institutions in a cluster share four critical characteristics:Proximity; they need to be sufficiently close in space to allow positive spill-overs and sharing of common resources to occurLinkages; their activities need to share a common goal, for them to be able to benefit from proximity and interactionInteractions; for positive cluster effects to occur some level of active interaction has to be presentCritical mass; needs to be sufficient number of participants for interactions to have a meaningful impact on performanceUnderstanding these four dimensions is more important than defining specific benchmarks for firms and institutions to be called a cluster.Slide24

Clusters and InnovationClusters allow to be more productive and innovative.Clusters provide a particularly fertile ground for innovations.Clusters reduce barriers to entry for new business creation relative to other locations.Innovation occurs in non-sequential interactions of different universities, research institutions, and companies

.

Different

from

traditional model

where

R&D centers

turned universities’

basic research

into applied

products and processes

.

Clusters of Innovation

: locations face to

compete

on

innovation

and

productivity

.Slide25

Roles of Private and Public SectorsCluster initiatives an opportunity to redefine the roles of the private and public sector in economic policy.Economists focus on clusters as geographic concentration of interconnected companies and institutions in a particular field.Clusters offer a crucial opportunity to take the necessary steps for modernizing economic policies.Slide26

Cluster and Macro PolicyThe turn to cluster policy is a shift in priorities from macro to microeconomic issues.Monetary and fiscal policies are increasingly well understood.But macroeconomic progress turned out to be only necessary, not sufficient to achieve higher prosperity.Targeted microeconomic efforts in a new partnership with private sector, universities, and other institutions is required to translate the macroeconomic achievements into real productive improvements

.Slide27

Cluster DevelopmentEfforts for cluster development and for regional economic development need to be better integrated.Cluster development should not aim to create clusters, but to activate them.Activating an existing base of companies and institutions to jointly upgrade their cluster is more effective than creating clusters from scratch.The state of cluster development is a measure of active policies to strengthen clusters, and the overall cluster rank is a measure of necessary ingredients for clusters. Slide28

Cluster PolicyClusters are a useful way to organize efforts and launch effective action initiatives.Need to strengthen home clusters to exploit their roles.Cluster Policy: provide budget for cluster development, and use clusters to set policy priorities.Providing better data on clusters, convening joint public-private research groups for clusters, and supporting regional cluster initiatives

are the key roles.Slide29

Cluster MappingEmploying cluster approach to regional growth policy is crucial.regional employment patterns in groups of industries could be defined as clusters.There is a need for a Cluster Mapping Project.cluster mapping: quantitatively identify and profile clusters.cluster mapping efforts could cover municipalities, counties, urban economies, or national economies.need to conduct and compile cluster case studies.Slide30

Policy and Practice Must Change

Unprecedented challenges require innovative solutions for creating jobs and promoting regional prosperity.

From Silos …

… to Collaboration.Slide31

Regional ClustersImplies bounded area characterized by inherent social, environmental, economic, and cultural assetsTranscends socio-political boundariesInclude both urban & ruralSlide32

Five Key Components to Consider When Defining Unique Regional Assets:

ECONOMIC

BASE

ENTRE-

PRENEURSHIP

TALENT

INNOVATION

& IDEAS

Location, Infrastructure, Amenities, Factor Costs, Natural Resources

The basic conditions defining the economic milieu of the region

Your capacity to create companies wholly new or from existing firms

Your capacity to innovate and generate new ideas

What you make, including your existing & prospective industry clusters

What you do: your workforce skills & human capital base

Regional AssetsSlide33

Latin: To make new or renewThe value-added commercialization of a new idea that produces new goods, services, and/or processes.The recombination of existing goods, services and processes that results in new or renewed goods, services, and/or processes.Because innovation can be widely applied it can occur in both emerging and traditional industries

Regional

Innovation

ClustersSlide34

Presence of spatially proximate organizations that share active commercial interaction channels, specialized infrastructure, labor markets, and services.Share a common goal to maximize regional prosperityLink to trans-regional and global networks.

Regional Innovation

ClustersSlide35

Regional Cluster PolicyOne of the first regions to apply cluster policy in its economic policy was the Basque country in Spain. In deep economic crisis of its steel and ship building, public and private sector leaders adopted the cluster approach to change their economic trajectory. A decade later, the region is one of the richest regions in Spain and has achieved a GDP per capita level equal to the EU average.Many countries employ clusters in their policy. For example, the Netherlands and Denmark. Slide36

Regional Clusters: EvidenceRegional clusters: groups of closely related and complementary industries operating within a region.There is significant evidence for cluster-driven agglomeration.Industries participating in a strong cluster register higher employment and wage growth, number of establishments, and patenting.New regional industries emerge where there is a strong cluster environment.The presence of strong clusters enhances growth opportunities in other industries and clusters.Slide37

Regional Clusters: SurveysMost surveyed clusters are dominated by small or medium-sized companies.Most surveyed clusters serve global markets.R&D and advanced services available within a particular field in many clusters.Clusters tend to be young, growing, and among the national leaders in their fields.The Global Competitiveness Report provides comparative data on overall cluster strength for 75 countries.Slide38

Thank You!