The Higher ED Blog: What’s new in economic development research (summer 2015 edition)
Michelle Madden / August 17, 2015
The title of this blog might sound very familiar, which makes perfect sense because Higher ED published a blog with basically the same title back in March. That was our first research roundup, and it was so well received that we decided to make it part of the regular rotation. I hope this second contribution is as interesting and helpful.
A note on the source material: for that first blog, I focused solely on Economic Development Quarterly, which I argued was the most relevant academic journal to North American economic development practitioners. This time, I expanded my search to include Regional Studies and the Journal of Rural Studies, which are also reputable sources producing research relevant to economic developers.
The dos and don’ts of cluster-based development policy
Many communities are poring over their economic data, trying to figure out their local industrial specialties and build them into a ‘cluster’. Lots of research has been done on clusters—defined by Michael Porter as “geographic concentrations of interconnected companies and institutions in a particular field, linked by commonalities and complementarities”—but few researchers have prescribed policies for building them. This paper reviews the previous research and fills that gap.
Before recommending any actions, the authors start with a few warnings. First, economic developers should not try to create a cluster from scratch; you need to start with a sector that is already established in your region. Second, don’t invest in a cluster that is in decline or mainly produces low skill/low wage jobs. Third, consider your competitors and what they can do better; focus efforts where there is a competitive advantage relative to other regions.
With those caveats in mind, policy makers can take the following steps to develop local clusters:
- Identify sectors in your region that are export-based, competitive, growing, and large enough to be considered a cluster.
- Identify the cluster driver(s), components, and the interaction between the driver(s) and components. Components can include businesses, research facilities, schools, training institutes, and anything else that feeds into the cluster. Build a ‘map’ of these relationships.
- Use the resulting map to search for “gaps, inefficiencies, and market failures” that could be improved through intervention—and create policies, programs, or other interventions to fix them.
Is it better for regional economies to be specialized or diversified?
Here’s a long-running economic development debate: is it better for regional economies to be specialized or diversified? Economic success is often tied to specialization in rising sectors (such as tech) but then again, specialization can make economies vulnerable when their key sector loses value (see Alberta’s recent struggle with the oil and gas industry, or the impact of the auto industry’s departure from the Rust Belt). The latter examples make a clear case for diversification. So which model produces better results?
According to a recent study of US metro areas, it seems that specialization is the winner when it comes to wages and income. However, the level of impact is affected by the type of specialization and the industry.
Specialization can be one of two types: absolute or relative. If we’re measuring jobs, then absolute specialization means the industry provides a large number of jobs in the local economy (compared to the same industry in other communities), while relative specialization means the industry provides a large share of the jobs in the local economy (compared to other industries within the community). The study found a strong positive relationship between absolute specialization and wages. The relationship between relative specialization and wages was less clear. So according to this study, you should pay more attention to the size of an industry than how dominant it is in your economy.
The authors go on to say that the industry itself is even more important than its type of specialization. New York is specialized in finance and Los Angeles is specialized in entertainment but New Yorkers are richer (per capita) than Angelenos because finance and business services have higher wages than entertainment. These are huge cities, but the principle stays the same for smaller communities: if your specialty is an industry that is low quality and/or low innovation, then increasing the relative or absolute scale of it will not improve incomes.
In summary: “It is good to do a lot of something, but even better to do a lot of something good” (p. 1015).
Collaboration between universities and industry can positively impact rural economies
Universities can stimulate economic development, but the full economic potential of universities doesn’t emerge organically. The rural area around Pennsylvania State University was a good example: despite the strength of the university, the region’s economy was struggling. To remedy this, Penn State received funding to develop a model for promoting university-industry engagement (and to study the results).
The model was based on three outcomes: leveraging university research to support local industry competitiveness, promoting innovation and entrepreneurship, and developing and retaining a “new economy” workforce. Penn State developed a series programs with these outcomes in mind:
- Researcher-company pairings: two programs formalized arrangements where researchers (and their laboratory and technology resources) were matched with companies who had a problem they couldn’t resolve in-house. The companies gained valuable information while the researchers learned about industry needs and secured opportunities for their students. However, they found that these pairings work best without an expiration date where they can build trust, understanding, and mutual benefit.
- National workshop: a national workshop in Washington was organized to develop widely applicable recommendations for leveraging university research for industrial competitiveness. The consensus was that industry needs a greater role in shaping university research agendas. Penn State opted to open its IP policies for industry-sponsored research agreements, and create a service-oriented engineering unit that works with industry clients to solve short-term problems outside of the usual academic cycles.
- Innovation Day: the university hosted an event on campus designed to get high school students interested in college-level science and engineering. It successfully increased the university attainment levels in nearby counties by several percentage points.
- The Learning Factory: Engineering students were matched with companies for a semester-long capstone project. It prepared students to work in knowledge-based industries while providing innovative ideas for companies. The program experienced some growing pains around expectations of the students but these were resolved with increased communication about the education mission of the initiative.
These programs were delivered over five years and the results showed that if a university collaborates with local industry, even in a rural area with few resources, there can be positive impacts. The role of economic developers in this burgeoning model is to facilitate relationship building and encourage this kind of collaboration.
Tourism, reputation, and an online presence are key in attracting new residents to rural areas
Attracting residents to rural municipalities can be a challenge, especially when prospective residents don’t even know that the community exists. If rural economic developers are to successfully attract in-migrants, they need to understand the decision-making process first. A group of Dutch researchers recognized this need and recently did an in-depth study on how people end up in a specific place when they move to a rural area. They found that among their participants, the process was very subjective and non-linear.
Inter-regional and long distance migrants typically started the search by selecting a broad region they were interested in. To be considered, a region needed to be in the migrant’s “awareness space”, which included places the migrant had positive direct or indirect experience with, ie via previous residence, tourism, or reputation. Migrants sometimes used internet searches to explore places outside of their awareness space.
Once a region was selected, the migrants sought out areas with objective characteristics (like a specific housing type or landscape features) and also subjective characteristics (like a community with a good “feel”). The latter requires experiencing the place in person rather than just via the internet. Many of the participants reported driving around communities and talking to neighbors to assess social characteristics. The migrant eventually chose the community that best satisfied their requirements.
There are a few takeaways for economic developers here. First, reputation and tourism are major factors in being considered or dismissed from the start, so they should be included in a resident attraction strategy. Second, potential migrants need to be able to find objective information about housing and work opportunities online, which means a strong internet presence can help migrants find your community even if they have no experience with your area. Third, direct experience with a place at the community, neighborhood, and street levels are important for sealing the deal. The authors recommend providing incentives to visit, like free train tickets or “try living here” events.
About the author
Michelle Madden is the editor of Higher ED. She is also the Outreach Manager for the Economic Development Program and a graduate of the LED master’s program. She has authored a number of the articles in this series on behalf of the students, and has published several of her own blogs on economicdevelopment.org as well.
About the series
Higher ED: Insights for the Next Economy is a platform for students, guest speakers, staff and faculty of the University of Waterloo’s professional and graduate economic development programs to share knowledge with the field at large. The series takes works destined for an academic audience and reworks them into a fresh, easy-to-digest blog article.
Established in 1988, the Local Economic Development program is the only master’s program in Canada devoted solely to local economic development. It offers a balance between theory and practice by combining coursework, a major research paper, an internship, and weekly seminars featuring guest speakers. Students are prepared for careers in local, community, or regional economic development.
The Economic Development Program is a nationally-accredited provider of professional training. It delivers certification programs and seminars that offer a deep understanding of the Canadian context in a convenient block format. Peer learning is combined with informative lectures and practical case studies to provide dynamic instruction that is beneficial for junior and senior-level practitioners.