The Higher ED Blog: What’s new in economic development research (summer 2016 edition)
Michelle Madden / July 4, 2016
The Higher ED Blog publishes a quarterly economic development research roundup that shares new research practitioners might find useful. The series draws from Economic Development Quarterly, Regional Studies, the Journal of Rural Studies, and other reputable peer-reviewed academic journals.
Creativity among low-income entrepreneurs
A study from the University of Toronto has found that poverty encourages creativity in the early stages of product and business development, but inhibits their ability to sustain them. Previous studies had conflicting results about their ability to create novel products, with some pointing out that they lack the social networks and financial capital to bring products to market, while others found truth in the proverb “necessity is the mother of invention”.
To provide clarity, the author interviewed 41 poor entrepreneurs in Panama and found further evidence that low-income individuals have moderate success in developing new business products. However, once the business is established, it is harder for them to sustain it. Since the businesses tend to be started during times of financial emergency (ie engaging in self-employment when work can’t be found) they spend little time vetting their idea, and must reach profitability quickly. Making things worse, they tend to locate in areas with other low-income individuals, so local consumers may not be willing or able to experiment with new products.
If this study was repeated in a developed country the results might be different, but it is valuable for economic developers everywhere to consider the needs of low-income business owners after the startup phase. As the author puts it, “it is essential to differentiate between generating creative ideas and profiting from creative ideas”.
Necessity is the Mother of Isomorphism: Poverty and Market Creativity in Panama. Sociology of Development, Forthcoming.
More travellers are going solo
A 2015 study by Visa found that 24% of overseas leisure travel was alone, up from 15% in 2013. Many are women, older, and affluent. This type of traveler is relatively underserviced and may present an opportunity for tourism product development and marketing.
An article published in May explored the motivators and drivers of solo holiday travellers. The author interviewed 24 English-speaking Australians of many ages and backgrounds who had recently travelled solo. She found that most travelled alone because they didn’t have someone to travel with, but also because they enjoyed it. Solo travel offers the opportunity to roam without compromise or consideration of others. It also provides the opportunity for reflection and self-discovery, and to meet new people. The downsides are that travelling alone often comes with financial penalties (particularly from accommodations, though that is starting to change), restaurants are less welcoming, and it can be lonely and less secure.
The study also explored drivers of satisfaction and dissatisfaction. For solo travellers, satisfaction is less about destination factors and more about feelings of freedom, bravery for travelling alone, personal indulgence, and meeting interesting people. The largest source of dissatisfaction was from feeling unsafe; solo travellers are more vulnerable to criminals and health problems. Unhelpful service providers were also a source of dissatisfaction, particularly when dealing with a challenging problem or situation without the support of a travel companion.
The author suggests that destination marketing organizations (DMOs) work to provide a safe and supportive environment to attract this segment and ensure satisfaction. DMOs should also promote events and venues where solo travellers can socialize with locals and other tourists. An effective way to achieve both of these targets is to train service providers to accommodate solo travellers in a positive way and perhaps provide opportunities for them to meet people.
Read more: Solo Holiday Travellers: Motivators and Drivers of Satisfaction and Dissatisfaction. The International Journal of Tourism Research, 18(2).
Racism in small business financing
Past studies have shown that inner-city minority communities receive less small business financing than white-owned firms. Minority-owned firms tend to receive smaller loan amounts from major banks—if they are approved at all—and are asked to provide more documentation to get it. For these, and other, reasons a large number of minority-owned firms needing credit are discouraged from applying in the first place.
A pair of US-based researchers recognized that inner-city minority communities were underfunded and wondered if the discrepancy was due to a firm’s location in a disadvantaged neighborhood, discrimination against minority owners, or both. Using logistic regression analysis, the authors found no correlation between firm location and either the size of the loan or whether owners were discouraged from applying. Meanwhile, firm ownership by African Americans or Latinos was strongly associated with discouragement, indicating that potential borrowers of colour are less likely to submit a loan application than equally creditworthy white owners. Race was also important in loan size, but less so than for discouragement. Black firm ownership was consistently associated with smaller loan amounts, but there was a wide variation for Latino-owned firms (resulting in no statistical significance).
This study has implications for any loan-issuing organizations. Some reflection may be in order to determine if discrimination is a factor in lending decisions and how it might be countered. A first step may be to subject minority owners to the same degree of scrutiny as white clients seeking loans. On the demand side, organizations working with minority entrepreneurs should actively encourage creditworthy borrowers to apply for loans if they are feeling discouraged.
Read more: Impacts of Owner Race and Geographic Context on Access to Small-Business Financing. Economic Development Quarterly, 30(2).
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 many Higher ED articles sharing information relevant to economic development practitioners, and has written several on behalf of students. She has published several of her own blogs on economicdevelopment.org as well. Follow her on Twitter at @michelle_mad.
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.