an integrated model of subnational regional and urban economic development: framework of analysis

DEBATES AND DEVELOPMENTS

An Integrated Model of SubnationalRegional and Urban EconomicDevelopment: Framework of Analysis

AMEETA JAIN

AbstractThe mechanism of subnational regional and urban economic development has beenstudied extensively by economists, geographers, town planners and other academics.The existing widely varying theories of regional economic development are insufficienton their own in explaining how a region can develop and prosper. Each theory hasevaluated a few facets of regional economic development. Research from these differentperspectives is narrow and prevents any cross-fertilization of research from these diversetheories. Recognition of multiple factors affecting the development process has led theauthor to create an integrated model of regional and urban economic development. Theessay first sets out to describe and explain this integrated model. Each of the componentsof this new model draws heavily upon seminal work in the field. This model proposesthree rings. Each ring is at a different level of abstraction. The determinants ofdevelopment described in each ring can influence each and every other determinant ofdevelopment shown in the three-ring structure. This model recognizes that developmentin any centre, be it regional or urban, nascent or established, is a composite end resultof the complex interplay of all the determinants. The essay then goes on to show how thismodel can provide a broad holistic approach to regional economic development that canassist researchers in their attempts to understand and link its various theories.

IntroductionThe analysis of subnational regional and urban economic development is based onbuilding mathematical and theoretical models to understand and evaluate the drivers ofeconomic development. Once the mechanism of development can be understood, theprocess may be amenable to modification by appropriately directed policy tools andmeasures. There is also the potential to replicate the development and economic statusachieved by stellar regions. The same philosophy can then be applied to other regionsthat are in the process of developing and those that have not been successful, thus far,because of poor resource allocation or misdirected efforts.

I wish to acknowledge the constant support and encouragement of Associate Professor JerryCourvisanos from the University of Ballarat, Australia. He very patiently read multiple drafts of thisessay and provided helpful comments and constructive criticism.

Volume 33.3 September 2009 809–26 International Journal of Urban and Regional ResearchDOI:10.1111/j.1468-2427.2009.00888.x

© 2009 The Author. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd. Published by BlackwellPublishing. 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA

While there are a number of studies that have looked at the development of regionsand cities on the basis of population (O’Connor and Stimson, 1995; O’Connor et al.,2001) and many studies of regions that have developed on the basis of innovation(Marshall, 1890; Lundvall, 1994; Cooke et al., 2004), there is no theory or model that hasexplained subnational regional and urban economic development by combining the rolesof population and innovation as the major stimuli for growth. This model attempts to fillthis gap. Growth and development would appear to be eminently possible in bothsituations: innovation-based and population-based. This new model integrates both typesof theories of regional and urban economic development.

This essay begins by defining development and subnational regions. It then evaluatesthe various determinants of growth and growth theories, before presenting an integratedmodel of subnational growth. This is based on an extensive review of the literature.The model is discussed and explained, with examples throughout. In the next section, themodel is applied to Casey, a local government area in Victoria, Australia. The essayconcludes with a brief commentary on the usefulness of the model in understandingdevelopment and its use in formulating appropriate government policy to encouragegrowth.

Subnational local, regional and urban developmentThe model looks at the development of subnational regional or urban areas. It is flexibleand can be used to analyse the differing levels of influence of the determinants ofeconomic development. Economic development is a continuum, with each level ofgeographic and political region interconnected to the other. Compartmentalizing theeconomy into small parcels allows a better understanding of loco-regional processesdriving economic development. However, the impact of the world milieu or externalitieson the development process at any level cannot be ignored.

Governments at all levels collaborate with the private sector to stimulate, foster andregulate economic development. The macro-level approaches to development includeregulation of taxation, trade, banking, tariffs and communications (federal governmentresponsibility in Australia), promoting development on a broad national level. Thedevelopment of infrastructure, vocational education and training, and regulation ofplanning by the state governments is the responsibility of state governments in Australia.Local economic development (Blair, 1995), also referred to as community development,is the micro-level complement to the macro-level regional and national development(Outer Suburban/Interface Services and Development Committee, 2008). Therefore,local development leads to regional and, consequently, national development.Conversely, local development relies on input from all levels of the government andprivate sector, which cannot be viewed in isolation.

Hettne (1983) observes that development theory at a national level has evolved fromeconomic to interdisciplinary approaches. This can also be observed in regionaldevelopment theory at a subnational level. The definition of ‘development’, used toformulate the early models at national and subnational levels, was traditionallyrestrictive, as each model used a single criterion or a few set criteria to assessdevelopment, such as gross domestic product or per-capita income. However, morerecently, development has been measured using a wide spectrum of parameters; forexample, quality of life indices, such as the United Nations human development index.None of the traditional models can be adapted to measure the wide variety ofdevelopment indices in use. Another criticism of these models is that they tend toevaluate a set of factors — or a single factor — that influences development, along withhow it operates. This has resulted in further modifications and refinements of each of themajor theories of development by subsequent authors. Even though the aspect ofdevelopment each model evaluates is done well, these models have, so far, not been able

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International Journal of Urban and Regional Research 33.3© 2009 The Author. Journal Compilation © 2009 Joint Editors and Blackwell Publishing Ltd.

to take a holistic approach due to their inability to incorporate the broader social andenvironmental factors that impact on development, whether regional or national.

Traditional models of development, such as the Harrod-Domar model, see populationnot as a driver of development but as a restraint (Hettne, 1983). For this reason, Nurkse(1971) identified the need for massive and balanced investment for successfuldevelopment to occur. Such investment needs models that include structural factors andprovide a broader and holistic view of development.

When considering the development of such broader models, development theoristshave recognized that regions do not develop evenly across geographical space.Development tends to occur with peripheral regions providing the labour and the centralregions prospering (Hettne, 1983). In the regional context, this can lead to an increaseddivide between the rich inner-city areas and poor peripheral regions.

The proposed model provides a holistic view of subnational regional and urbandevelopment that incorporates the concerns raised about traditional models discussedabove. This model initially aims to classify determinants of development into two broadtypes: population and innovation. This broad classification is discussed in the next section.

Determinants of growth: innovation or population?Does innovation generate growth?

Innovation has been seen to be the driver of successful economies. Innovation could bedefined as the transformation of an idea into a marketable product or service, a new orimproved manufacturing or distribution process or a new method of providing a socialservice (European Commission, 1995). Innovation may be credited to a research scientistor any other member of the production, sales or user teams. However, it is the entrepreneur(private or public) who breaks down the barriers of resistance in society and succeeds inusing innovation commercially. The link between effective innovation and growth may bedifficult to prove, but there is circumstantial evidence supporting this hypothesis (Linder,2006b). Cooke et al. (2004), and others (European Commission, 1995; Boddy, 2000;Berry and Fleming, 2003) support the concept of innovation, in all its forms, as being themain driver of development. Firms that have a large number of patents and are quick toexploit them commercially, outperform the stock market (Linder, 2006a). What is true forcompanies is also true for regions (Saxenian, 1985). Innovation in processes, products andservices results in improving the competitive advantage of the firm and/or the region,sometimes resulting in product differentiation, amplifying or multiplying (see below) theimpact of innovation and flow-on economic growth.

The role of innovation in development is not recognized by earlier theories of regionaleconomic development (Marshall, 1890). The economic/export base theories and earlierKeynesian models recognize the impact of innovation only as an exogenous factor thatcannot be explained in the model. The works of Perroux (1955) and Myrdal (1957)developed dynamic theories of regional economic development that accept the non-homogeneity of factors of production, the presence of externalities resulting in marketimperfections and a failure of the price mechanism to bring markets into equilibrium.Perroux (1955) recommended that specific sectors of the economy be identified forpropulsive development and agglomeration. This results in increased innovation,necessary for growth. Schumpeter (1939; 1942), Romer (1986), Porter (1990) and Reich(1991) have all expanded and explored the role of innovation in the context ofdevelopment to such a degree that current theories and research accept innovation as thesine qua non of regional economic development (Cooke et al., 2004).

Does population generate growth?

If the exponents of migration (departments of immigration of the USA, Canada andAustralia) are to be believed, population does generate growth (Stimson et al., 2006).This is the main argument used currently to encourage immigration; in sharp

Debates and Developments 811


contradistinction to classical Malthusian theory (Malthus, 1798). An influx of populationincreases the demand for infrastructure services (Mazur, 1994). The ageing of thepopulation changes the financial structure of the markets (National Bureau of EconomicResearch, 2006), changes the socio-economic make-up of a region (Onge et al., 2006),increases local spending and increases the stress on the local environment. Demographictransition and its dynamics are the key to economic change (United Nations GeneralAssembly, 2006). Population is necessary for economic development (Simon, 1989;Barlow, 1994). The two Asian powerhouses, China and India, are banking upon theirhuge populations to drive their economies and dominate the world economy in thiscentury.

Does population or innovation drive the economy and make it sustainable in isolation?It would appear to be intuitively true that innovation requires a population and a socialnetwork to occur (Asheim and Isaksen, 2002). Even though population can drivedevelopment of a nascent region, a critical mass of population is necessary for innovationto drive development. Whilst innovation can be the brainchild of a solitary individual,population is needed to make it commercially viable. Therefore, population- andinnovation-based development would appear to go hand in hand; each influencing andmodifying the characteristics of the other. There is no account of these linkages betweeninnovation- and population-based development in regional economic developmentliterature.

An integrated modelOn extensive survey of the literature, it appears that none of the theories of subnationallocal, regional and urban economic development are sufficient on their own in explaininghow a region can develop and prosper. Each theory evaluates a few facets of subnationaleconomic development. Recognition of multiple factors affecting the developmentprocess leads to the proposal of an integrated model of subnational economicdevelopment.

This model has many facets, as shown in Figure 1. Each of the components of thismodel draws heavily upon seminal work in the field. It is important to try and explainregional economic development using a holistic approach and accounting for the variouspositive and negative influences on any given region. Each of these facets will bediscussed separately in detail. This model proposes three rings, with the peripheral orouter ring being the most important determinant of development in any region. Thesecond or middle ring comprises interdependent determinants: labour, capital andtechnology, basic and non-basic industry, local chambers of business and businessassociations, population, universities and other educational institutions, exports,innovation and finance. The inner ring or bullseye represents the final endpoint ofinteraction of all these variables/determinants, regional economic development. Thecreative classes (Florida, 2002) are treated as an externality in this model or exogenousto the system, in due recognition of their migratory nature.

All the lines/arrows in this model are two way, emphasizing the bidirectional influenceof each determinant of development on the other. Each circle comprises determinantsthat influence each and every other determinant of development shown in the three-ringstructure, including the creative classes, to change the degree and direction ofdevelopment. This model recognizes that development in any centre (regional or urban,nascent or established) is a composite end result of the complex interplay of all thedeterminants of development. This model is flexible in that it permits variations of itsbasic tenets for the evaluation of different regions.

The outer ring comprises the three major determinants of development: natural factorendowment, proximity to a nodal centre and government policy (see Fung et al., 1999;Osborne, 2000). These three determinants of development are relatively more

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independent than the others. While neither the proximity to the nodal centre norgovernment policy can change the natural factor endowment, it certainly can and doesaffect the utilization and exploitation of natural resources. The distance between a regionand the nodal centre is fixed. Government policy is often a result of the applied political

CREATIVECLASSES

NATURALFACTOR

ENDOWMENT

UNIVERSITY

POPULATION

NON BASICINDUSTRY

FINANCE

GOVERNMENTPOLICY

INNOVATION

REGIONALECONOMIC

DEVELOPMENT

LOCALCHAMBERS OFCOMMERCE/

BUSINESSASSOCIATIONS

BASICINDUSTRY

LABOURCAPITAL

TECHNOLOGY

PROXIMITYTO

NODALCENTRE

Figure 1 Integrated model of subnational regional and urban economic development(source: Ameeta Jain)



economy of the entire country and does not necessarily reflect the specific needs of theregion (Osborne, 2000). The second-ring determinants of development can influence theouter ring to a limited degree. The interplay between these three determinants will affectthe second ring or tier of determinants of development; considered in this model as thedirect immediate pathway to development.

Beginning at the outer ring, we first look at the natural factor endowment as a crucialelement. Regions rich in resources, such as Western Australia and Southern Africa, willbenefit from their natural endowment but only if government policy permits exploitationof these resources. Further, the manner in which these resources can be mined will beaffected by government policy and the nearest nodal centre. In Southern Africa, the issueof political stability will be more important than in Western Australia, whereenvironmental concerns of both the government and resident population will affect thenature of mining operations.

The very nature of government, democratic or autocratic, can influence the path thatdevelopment takes (Sen, 1999). Sen illustrates, with numerous examples, howdemocratic processes give the freedom to choose and make decisions which ultimatelylead to more stable and long-lasting development. In contradistinction, similar short-termresults may be obtained in an autocracy. India and China have developed quitedifferently. The former as the world’s largest democracy and the latter the largestautocracy exemplify the influence of government policy and the socio-political milieu.Further, the nature of local and subnational leadership, including government,entrepreneurial, social and innovative, also influences the nature of economicdevelopment, not least by influencing government policy and involvement (Kaufman,1975; Fisher et al., 2005). Government policy also determines the nature of public–private partnerships, popular in the last two decades to encourage local economicdevelopment (Walzer and Jacobs, 1998). The interplay between local and governmentleaders, entrepreneurs and other regions (externalities) is what has been described as agrowth machine (Molotch, 1976).

Any government development policy needs to be viewed in the context of a socialorder in a region or nation. Social order, with a coherent system of rules, is a prerequisitefor any economic system to develop (Hettne, 1995). Where there is a transition betweensocial order and the political system of a region, for example the former USSR in thepostcommunist period, markets reflect the political turbulence (Hettne, 1995). This iswhy regions such as oil-rich Nigeria, which have a poorly formed social and politicalorder, have not developed in any manner or form.

Lack of funds for any reason, including government policy, distance from the nodalcentre, and lack of financial institutions, entrepreneurs or venture capitalists will alsoreduce the development and commercial exploitation of natural factor endowment.Finance may not be available as a result of government policy restricting funds, lack ofinterest in investment in the region because of its political economy (Hettne, 1995), lackof venture capitalists and entrepreneurs, which are situated in the financial nodal centre,or the region’s geographical attributes (Osborne, 2003). Financial investment in a regionis initially a result of the three determinants of development in the outer ring in thismodel. Once a critical mass of population and industry is reached in a given region, thenthe second-ring determinants can exert a greater influence in attracting investment.

The remoteness of Kalgoorlie,1 a mining town of about 30,000 people, resulted ininnovative methods of service and goods delivery from the nearest nodal centre, Perth.Kalgoorlie’s remoteness and the richness of its resources resulted in innovative newemployment and pay structures being developed (a few weeks working, then a few weeksoff; paid return airfare to Kalgoorlie). The characteristics of the outer ring determine howthe middle-ring determinants are brought into play for regional economic development.

1 Kalgoorlie is the centre for gold mining in Western Australia and home to the world’s third largestnickel smelter. It is located nearly 600 km from Perth, the nearest capital city. It has about 7,000homes.

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Whilst everything revolves around the mines, the process of development can beexplained by the interplay between all the determinants of development, as discussed inthis model.

This integrated model considers the social, political and cultural make-up of allregions (peripheral and core/nodal) as being crucial in development. It accepts thatagglomeration will affect the nature of industry in a nascent region, by virtue of spatialproximity to the nodal region and also due to cluster formation within the region or withindustry outside the region. The inherent nature of factor endowment and of the populacechanges slowly over time; the skill set and the values persist for a long time and arevaluable in directing development and innovation.

For a regional centre, the proximity to a nodal centre, with the nearest largepopulation, is a crucial outer-ring determinant of development, as seen in Figure 1. Thiscan be considered as an extension of the location theories of von Thünen (1966), Weber’stheory of industrial location (1909), Christaller’s theory of central market places (1933)and Hotelling’s spatial competition theory (1929). All these regional developmenttheories raise the issue of the optimal distance from a nodal centre in order for industryand agriculture to develop. In the context of regional development, where the region is astate or a country, this concept can be used to explain development. However, in thecurrent globalized world, with no region/state/country being self-sufficient and all beingreliant on trade for survival, the proximity of the nodal centre is not that significant, andcan be more distant then in the past (McDougall and O’Connor, 2005). This is certainlythe case for the linkages between Bangalore and Silicon Valley. Both regions havedeveloped as software centres, Silicon Valley being the primary site. Bangalore hassubsequently developed due to reverse migration and an increasing skill set of the localpopulation in information technology.

The concept that markets drive development, conceptualized initially by the vonThunen and Weber theories, is expanded upon in this model. The nearest nodal centre isthe market for the goods and services being produced, be it for direct consumption or forexport and profit. Additionally, the nodal centre would be the market from which thepopulation/labour is sourced for the peripheral centre. This model also realizes thatmarket forces alone are not enough to drive development. Government intervention andsupport, as suggested by Keynes, are part and parcel of any successful development.

The middle or second ring comprises what is considered, by this model, as the secondtier of determinants of development. Each will be outlined separately, starting with thepopulation determinant of development.

The presence of an adequate number of people with the appropriate skill sets is crucialin the success of a region. Peripheral or non-core suburbs exist in all large metropolitancities. They suffer high unemployment and poor employability of their populace (Maher,1997). At the same time, there are vast tracts of fertile land, such as the Tasmanianhighlands, where population is sparse despite the land’s fertility. Such areas are unlikelyto have rapid development. The USA was developed over the last three centuries due tothe population migrating West from Europe. In order to keep its development advantage,the USA has refined its immigration policies to reflect the shortage of skills in the country(Tichenor, 2002).

The quality of the population does have a significant influence on the development ofa region, its industry and long-term sustainability (Saxenian, 1985; de Laurentis, 2006).It is very difficult to change the complete skill set from steel production and engineeringto information technology. A successful region modifies its competitive advantage bydiversifying (Cooke et al., 2004). The nature of existing industry in the region and thenearby nodal centre influences the development of the dominant skill set in the region, asthere is a market for these skills. Alternate skills may not be of much value in the region.

The cohesiveness and networking that exist in population groups are a reflection oftheir social capital (Field, 2003). Communities with higher social capital have a sharedlifestyle, a sense of community and strong social cohesiveness. This promotes social andpolitical order and lays the grounds for a stable political and social environment



necessary for development2 (Outer Suburban/Interface Services and DevelopmentCommittee, 2006). This concept can be extended to include business and tradeassociations, which are discussed separately below. Further, the nature, quality, skill set,political economic and social aspirations of a population will influence their eventualdevelopment trajectory (Massey, 1994). External interference by governments, withoutdue consideration to these factors, will result in failed policy. For instance, in the state ofVictoria, there is a push towards knowledge-based industry; however there is a significantlack of adequately trained labour, which requires an increase in the number of trainingpositions at universities and TAFE3 colleges to produce appropriately trained workers(Outer Suburban/Interface Services and Development Committee, 2008).

Universities and other educational institutions, such as TAFE and technical colleges,are the second inner-ring determinant of development. These institutions provideteaching and learning opportunities, becoming assertive in the community they areinvolved in by providing leadership (Garlick, 1998; Gunasekara, 2006). They are centresfor research and training. Involvement of these institutions is vital in overcoming localskill shortages through the provision of appropriate training courses and advancing newideas that can be developed.

Other more traditional courses provide training and skill sets which may not be inimmediate short supply but which can potentially attract industry and businesses to theregion. This has been the experience of India, where a large pool of English-speakinggraduates with information technology skills and low employment has resulted in anexplosion of back-office operations and call-centre outsourcing in the last decade(Kobayashi-Hillary, 2006).

The third inner-ring determinant of development is labour, capital and technology.The availability of appropriately skilled labour at a competitive price is the driver foroutsourcing (Felbinger and Robey, 2001; Kobayashi-Hillary, 2006) and the adaptation ofnew technology for local development (Keller, 1996). The influx of such labour, forwhatever reason, can improve development in the region. Immigration has been used toacquire the appropriate labour in the USA in order to maintain its competitive advantagein the high technology industry.

Availability of capital is vital for the development of infrastructure, followed by basicand non-basic industry. The major sources of finance could be governments themselves,financial institutions (both local and international), residents, entrepreneurs and venturecapitalists (OECD, 2006). Government intervention may be more relevant for nascenteconomies (Fung et al., 1999) or regions where there is a shortage of entrepreneurs(Cooke et al., 2004). Again, government policy dictates what sources of funds areavailable for development in any given region.

The role of technology in driving economic development is recognized by bothgovernments and academics (Malecki, 1997). Silicon Valley and Bangalore havedeveloped due to cutting-edge information technology (Saxenian, 1985; Arora andAthreye, 2002). The import and uptake of new technology is influenced by governmentpolicy. Well-recognized subsidies for technology development include tax breaks andgrants for research and development. The nature of technology used at the nodal centrecan certainly influence the type of technology development in a given region (e.g.software in the hinterland of Silicon Valley, nanotechnology in New Jersey), andeducational and research institutions play a significant role in the development of newtechnology (Garlick, 1998; Heidenreich and Krauss, 2004).

2 A recent report to the Victorian Parliament entitled Building new communities (Outer Suburban/Interface Services and Development Committee, 2006) supports this position.

3 TAFE: technical and further education institutions established in Australia provide apprenticeshipsand pre-apprenticeships in engineering, hospitality, horticulture, building and construction,plumbing, diplomas and certificates. They offer flexible and part-time learning, both for the generalpublic and industry.

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Once there is a critical mass of population, both basic (Alexander, 1954) and non-basic industry (Mazur, 1994) develop in the region (Simon, 1989), influenced by themilieu of the nearest nodal centre and all the other determinants shown in the model.Both of these next two inner-ring determinants of development are therefore discussedtogether. The central tenet of economic base theory — that exporting or basic industry isresponsible for development — can be seen in this model. In this context, exports can beto neighbouring regions, interstate or overseas. An increase in exports leads to increasedjobs, increased spending, increased demand for basic services and industry, increasedpopulation, labour capital and technology. This ultimately affects the utilization ofnatural endowments and government policy and the interaction with the nodal centre. Ifthe region in question is itself a nodal centre, then the nature of its trade and governmentinteraction with the nearest next nodal centre will change. Further development of bothbasic and non-basic industry is contingent on the availability of finance from thepopulation and institutions within the region (Degryse and Ongena, 2005), thegovernment or external investors. In the absence of adequate funds, even the mostprofitable natural resources cannot be exploited. Non-major metropolitan regions, whichsuffer from a locational disadvantage, often do not have access to adequate venturecapital, government and public money to allow them to implement change or developeconomically (Ughetto, 2006). Further, the skills to lobby governments and float publicshare issues reside mainly in the major financial and industrial centres, located in majornodal centres, often capital cities. This can, therefore, explain the reason why regionaland non-core centres lack access to adequate funds and financial institutions. A furthercorollary of this is that, in the absence of finance, innovation suffers; even if there isinnovation, its commercial exploitation may be conducted by external parties. This isseen in Europe, where local research is commercially exploited by American firms andventure capitalists, with little reward reaching European researchers (Cooke et al., 2000).

Innovation-based literature recognizes the role of local chambers of commerce andindustry and business support groups. Local chambers of commerce and businessassociations have proven to be vital in established economies. These are of particularimportance in regions dominated by small and medium enterprises (SMEs), such as inItaly (Braczyk et al., 1998; Cooke et al., 2000; Otatti, 2004; Dalziel, 2006). Theseassociations provide a forum for the expression of the needs of local SMEs. They providetraining and learning opportunities, tax-planning services, knowledge, exposure to newtechnologies, and showcase local products and services to potential markets. In essence,these associations function like knowledge-distribution nodes, marketing centres andresource centres, all at the same time (Bacaria et al., 2004). Even though the descriptionsof the role of business support groups are from established economies, it is anticipatedthat they would play a similar role in nascent regions. The local chambers of commerceand business associations reinforce the role and function of local governments.

This model recognizes that innovation can be both endogenous and/or exogenous tothe system it also recognizes that development can still occur in the absence ofinnovation. Innovation per se is not an essential determinant of development; thepresence of innovation in any form, however, will accelerate development (Schumpeter,1939; Cooke, 2001). Technical innovation resulted in the well-recognized hightechnology and software cluster in Silicon Valley (Saxenian, 1985). Gold Coast(Queensland, Australia) is developing almost exclusively on the basis of its weather andtourism: its development is predominantly population based (Stimson et al., 1998).Clusters and innovation systems, which are considered the raison d’être of development,have a place in this model: as components of the basic and non-basic industrydeterminants. This model does not distinguish between clustered and non-clusteredindustry, but accepts that the presence of clusters and innovation systems has a positiveinfluence on development.

This positive influence is significantly impacted by the level of interaction of allstakeholders in the system. This is called institutional thickness, and is considered animportant predictor of development (Amin and Thrift, 1995). This ‘thickness’ includes



institutions, dissected out in this model, such as universities and teaching institutions,local chambers of commerce and industry, existing basic and non-basic industry, andtheir interactions. This model extends this to include the effects of other determinants ofdevelopment as shown in Figure 1.

Finance, the last determinant in the inner ring, is increasingly multi-sourced.Governments are no longer the sole source of finance. Public–private partnerships(Walzer and Jacobs, 1998) are increasingly relied upon for large infrastructure and otherdevelopmental projects. In effect, these partnerships are a result of government policy,with finance made available from both government and non-government sources, forbasic and/or non-basic industry. Inspirational local leaders and entrepreneurs can be thedriving force for innovation, development of industry or development of infrastructure,all of which have significant multiplier effects for the local economy. Both leaders andentrepreneurs are a part of the overall population stock of a region.

The creative classes (Florida, 2002), by their very character, are well heeled, mobile,highly qualified and innovative. They are exogenous to the system in this model. They arelike free radicals, attaching themselves anywhere to the system, attracted by increasedactivity and increased development. They are important but not considered essential fordevelopment. Creative classes are responsible for accelerated innovation and,consequently, development. However, innovation is not the exclusive purview of thecreative classes. Even in their absence, economic development is possible, though it maynot be as rapid as it could be with input from this class of population.

By putting all the determinants together, we have developed an integrated model ofregional development. Contrary to previous models, this model recognizes that bothpopulation and innovation can drive development. Similarly, even in the absence ofpopulation increase or innovation, change in other factors described in the model canhave a positive effect on development. For example, increase in availability of finance,increased exports due to a change in the exchange rate of the local currency, thediscovery of new natural resources, improved infrastructure and changes ingovernment policy may, in isolation, increase development. This model recognizes thatdevelopment is multi-factorial and a complex interplay of all determinants. Whilst it isa theoretical model, it follows from first principles that this acknowledges thevariability and externalities in the real world and can be applied to every region. Forexample, Canberra4 has developed as a management and political centre, purely on thebasis of government policy, with change in population dynamics, followed byincreased demand for non-basic goods and services. This model recognizes thatdevelopment can be government driven, where governments take decisions to invest ina region such as Canberra and develop it as a management and political centre, in theabsence of any existing infrastructure, basic or non-basic industry, resources or pre-existing industry. Population migration to Canberra is only on the basis of jobs andopportunities created by the federal government and not on the basis of any naturalfactor endowment, industry or proximity to a nodal centre. Canberra is a purpose-builttown with no pre-existing population.

This model recognizes that there is no single final common pathway for economicimprovement. For example, innovation can reduce the number of jobs but, paradoxically,increase the per-capita gross regional product. Further, the assessment of developmentcan use any measure necessary for the study: job and firm numbers, quality of lifeindices, gross domestic product, per capita income, infrastructure, utilization of hightechnology products, education levels, health and nutrition, or any other new measure of

4 Canberra is the national capital of Australia and the seat of parliament. It was built in response tothe historic rivalry between Melbourne and Sydney, both competing to become the capital ofAustralia on Federation. In 1908, by an Act of Parliament (until then in Melbourne), the sparselypopulated City of Canberra was selected as the site for the future national capital. Canberra is nowa thriving city of about 300,000, with the primary employer being the Federal Government ofAustralia.

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development. Broader definitions of economic development include measures of qualityof life and equity (Blair, 1995) and freedom (Sen, 1999). Admittedly, the nature offreedom enjoyed by any population is determined by the very nature of the politicalprocess and government of a nation. The curtailment of the freedom of choice in anysphere of activity will skew development.

The holistic model recognizes that the system is open to influence from outside in aglobalized economy. The externalities that this model recognizes are changes in theworld economy,5 national and international government policy, international demand andsupply of goods and services, development of new products and services that mayprovide new competition to the products and services of the studied region and externalinnovation. This model also recognizes that labour, capital and technology are notperfectly flexible and mobile, in contradistinction to neoclassical theory. Further, thismodel also considers labour, capital and technological change as being endogenous tothe system, unlike the neoclassical theories.

This theoretical model can be used to explain regional economic development for anascent region, irrespective of its geographic, spatial and natural endowment. Itacknowledges the role of government policy in shaping the region. Minor changes in theeffectiveness of government policy have the potential to have far-reaching consequencesfor any region and its development.

Government business support policies and grants result in the initial development ofnew suburbs by, first, changing land use and making it available for residential andindustrial development. Next, government policy shapes the provision of labour capitaland technology by the provision of training for businesses and their employees. Buildingeducation infrastructure, such as TAFE and university departments, allows for thetraining of the local population with the requisite skill sets needed by the localcommunity and businesses. The government (predominantly state and federalgovernments) can give, by adequate policy measures, appropriate tax breaks and otheraid to businesses. Often, this is in the form of trade and land subsidies. Even thoughAustralia is moving away from business subsidies in general, some subsidies, such asresearch and development grants and small business assistance, are becoming moreimportant. Government policy is a strong determinant of the nature of both basic andnon-basic industry. Good programme utilization and uptake results in successful policiesthat lead to business development, with the ultimate aim of overall regional economicdevelopment. Business development is facilitated by the local chambers of commerceand industry and business support groups (Braczyk et al., 1998; Cooke et al., 2004).These institutions are vital for the survival and development of local industry andbusiness as described above. As this essay was being finalized, it was evident that thefall-out from the 2008 global financial crisis, through the loss of local jobs anddecreasing incomes, was forcing governments to move away from a neoliberal stance toa more interventionist policy.

The fellowship of the ringsThe three levels of abstraction presented above denote the theoretical independence ofeach of the determinants of development. The three determinants described in the outerring are more independent than the determinants in the second ring. Any change in oneis likely to impact on all the other determinants of development in some way. Eachdeterminant of development is important in its own small way. This model provides fora broad understanding of the process of development. It also follows that, in any given

5 In this context, the local and regional economic effects of the 2008 global financial crisis and thestock market crash can be easily explained. The reduction in cash flow, reduced incomes, reduceddemand, fall in house prices can all be explained.



circumstance, the impact of any particular determinant of development will depend onthe sum total of the activity of all the other factors.

Even though, for any given region, one of the many factors affecting developmentlisted and described in the section above may be dominant, the others cannot beforgotten. Rich natural resources for which there is a market drive development,irrespective of their proximity to the nodal centre. However, the proximity to the nodalcentre determines the nature of development. Again, economic development will bedictated by government policy. This is facilitated by the local business support groupsand the chambers of commerce and industry. Development requires population, skilledlabour, technology, capital and education, all initially sourced from the nodal centre. Thisis essential for the development of industry in any shape or form, which will lead on tothe export of goods and services. Export of goods and services results in increased grossdomestic product for the region and insulates the region from local economic downturns.This results in increased population and eventually the arrival of the creative classes. Inthe background, processes and procedures undergo incremental innovation, often notrecognized, to improve the delivery of goods and services.

Economic development of any region results in an increase in its influence ondecision-making and government policy promulgation. Creation and maintenance of thecompetitive advantage of a region requires input from all stakeholders. An amicablefellowship between the members of each ring is necessary for economic development.6

Application of the model to the City of CaseyThe City of Casey is the largest local government area in the Melbourne StatisticalDivision (MSD) in terms of population (Australian Bureau of Statistics, 2007). It isdistinct in its factor endowment (demographic profile of residents, existing businessesand support groups) and geography. Casey is located along the Monash freeway South-East of Melbourne central business district (CBD). There is a direct train link betweenMelbourne CBD and Casey, on the Pakenham line, providing the major public transportalternative to private road transport. Casey also has rolling parklands, seashore andfoothills.

Casey has developed as a result of the federal and state government decisions toencourage urban sprawl (Forsyth, 1999). Cheap land has been made available as a resultof government policy, along with public infrastructure (Frost and Dingle, 1995;Department of Infrastructure, 2002). Land previously designated as rural or agriculturalland and crown land has been released for the development of new housing estates,resulting in this population growth from the nearest nodal centre, Melbourne,immigration and drift from provincial areas. People and industries have migrated toCasey because of the cheap land available and its location on the freeway. Casey is alsoideally situated for the location of logistics warehouses between the two Victorian portsof Melbourne and Western Port. Land has also been developed by the Casey Council asindustry and business parks.

The labour, capital and technology for the development of this subnational region aresourced predominantly from the nearest nodal centre, Melbourne. The demand for localteaching and university campuses resulted in the establishment of the Berwick Campusof Monash University and the Chisholm Institute of TAFE. These institutions providecourses and training required by local industry, leadership by way of Monash UniversityBusiness Group and information sessions. Multiple local chambers of commerce andindustry associations support development and sustenance of local businesses. They actas intermediaries between the various layers of government, provide information andguidance to businesses and feedback to the government about their policies.

6 With apologies to J.R.R. Tolkien, author of the The Fellowship of the Ring.

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Finance for the development of local infrastructure comes from the state and federalgovernments. Since public–private partnerships are on the increase, private funding ismade available predominantly from the CBD of Melbourne and other capital cities.Business development, research and development attract finances from the CBD ofMelbourne and other state capital cities in Australia. Government funding for researchand development is mainly targeting the synchrotron facility in the neighbouring localgovernment area of Monash, with little research funding being spent in Casey. Thus, themultiplier effects of the synchrotron have not been felt thus far in Casey.

Since its formation in 1994, the initial drive was to increase the local population byway of increasing land available for housing estates. The City of Casey initiated researchon home-based businesses in the South-East region of Melbourne (Hitech MarketingServices Pty Ltd, 1998). The economic importance of these businesses to the region wasrecognized. In 2002, the C21 vision was launched by the City of Casey (2002a). Thisprovided a strategic direction for economic development in Casey. In the same year, thecity council adopted its first business development strategy (City of Casey, 2002b). Thisemphasized that diversification of the industrial base was important for the region. Thiswas based on the home-based business training surveys (2000, 2001), Casey BusinessTechnology Audit (2001), Industrial Wholesale Audit (2000), Horse Racing IndustryNeeds Project (1998) and the Cluster Identification Strategy (2000). The City of Caseyhas taken a proactive role in trying to understand the needs of local businesses anddeveloping appropriate support strategies. However, given the lack of finances, the Cityof Casey is unable to provide any substantive fiscal support. So far, there is no largeindustry or business that can claim to be the major employer in the region. The currentlack of any such business is a composite result of the interaction between federalgovernment policy, the inherent factor endowment of Casey and international events,similar to other peripheral regions in Australia (Maude, 2004).

The City of Casey profiled the industry in the region by a survey in 2004. A coherentbusiness attraction policy was developed (City of Casey, 2005). This was in recognitionof the role that the council needs to play in the current neoliberal climate. This policyaims to attract businesses and investment that will provide Casey’s residents withhigh-quality employment and career-development opportunities. From 2006, the City ofCasey has changed its emphasis from housing development to business attraction.

The government decision to reclassify the region as housing land, instead ofagricultural, has resulted in a large number of new housing estates. However, theneoliberal market-driven philosophy has not seen any significant business or industrydevelopment that would be able to make Casey self-sustaining. Government interventionis needed. The economic situation of the City of Casey at the end of 2008 is similar toWestern Sydney in the early 1990s (Hodge, 1996). Healy and O’Connor (2001)concluded from a review of jobs and housing location in Melbourne that emphasis on jobgrowth and community facilities in peripheral suburban regions like Casey is needed tomake them self-contained.

Keynesian policies that were useful after the great depression are now required toincrease the economic development of Casey, particularly in this recessionary economicclimate. Any funds made available for the development of businesses and industries areprovided mainly by the federal government (Maude, 2004). The state and localgovernments have a number of policies and information sites but no real money. Further,Australia does not have access to supra-national funds, as is the case in Europe (ibid.).Access to government finances is necessary for research and development, educationalinstitutions, infrastructure, research and development. Macro-level initiatives, such asregion-specific tax breaks or other initiatives, as are routinely provided to the carindustry, are needed to make cities such as Casey self-sufficient.

The economic development of this local government region was primarily on the basisof population factors thus far. The push towards business development and attraction ishampered by the lack of a financial carrot that the government can provide industry. Ifsuccessful, this may well be able to change the direction of development in the future. All



of this can be easily explained by our integrated model of subnational regional and urbaneconomic development.

ConclusionThis integrated model recognizes the many determinants of regional economicdevelopment. A complex interplay of these factors results in the ultimate goal of regionaleconomic development. This model can be used to explain development in any region,state or country. Each ring of the model can be expanded to evaluate the effect of changesin any of the determinants of development. Empirical analysis of any region will confirmthe robustness of this model.

Once the reasons for the development (or absence of development) of any region canbe understood, then it is easier to formulate appropriate government policy to improveeconomic development. If one of the factors for regional development identified in thecomposite model can be shown to be absent, i.e. business networks or training, thengovernments can address the issue using the model. For example, they can provideincentives and mentoring to develop business networks, and support training andeducation programmes to address skill shortages. The aim would be to see how thesefactors link into all aspects of regional development using the composite model. Anapproach of this kind in a globalized world, where local embeddedness of industry andservices is needed to create and preserve competitive advantage, is necessary. This willthen eventually result in better and sustainable business development, which is requiredfor sustainable economic development for any region.

Ameeta Jain ([email protected]), School of Accounting, Economics and Finance,Deakin University, 221 Burwood Highway, Burwood, Victoria 3125, and School of Business,University of Ballarat, PO Box 663, Ballarat, Victoria 3353, Australia.

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RésuméÉconomistes, géographes, urbanistes et autres spécialistes ont largement étudié lemécanisme de développement économique urbain et régional infranational. Les trèsnombreuses théories existantes sur le développement économique régional sontinsuffisantes à elles seules pour expliquer comment une région peut se développer etprospérer. Chaque théorie a évalué quelques facettes de cette évolution. Les étudesrésultant de ces différentes perspectives ont un champ étroit et empêchent toutenrichissement mutuel des recherches émanant de ces diverses théories. Prenant encompte les facteurs multiples qui affectent le processus de développement, l’auteur a pucréer un modèle intégré de développement économique urbain et régional. Le textecommence par décrire et expliciter ce modèle intégré. Chacune de ses composantesrepose en grande partie sur les travaux majeurs dans le domaine. Le modèle proposetrois cercles. Chaque cercle se situe à un niveau d’abstraction différent. Lesdéterminants du développement présentés dans chaque cercle peuvent influencer tout oupartie des autres déterminants du développement appartenant à la structure d’ensemble.Le modèle admet que le développement dans un centre quelconque, qu’il soit régional ouurbain, naissant ou établi, est un aboutissement composite des interactions complexes detous les déterminants du développement. Est ensuite montré comment ce modèle peutapporter une approche holistique élargie du développement économique régional,capable d’aider les chercheurs à comprendre et relier les diverses théories sur cetteévolution.

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an integrated model of subnational regional and urban economic development: framework of analysis

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