regional development and endogenous approach- wales

EBS14REGIONAL DEVELOPMENT AND

ENTREPRENEURSHIP

SUBMITTED BY: 13000357

FACULTY OF BUSINESS AND SOCIETY UNIVERSITY OF SOUTH WALES

Abstract

Key Words: regional inequality, regional economic development,foreign direct investment, inward investment, 'branch plant',endogenous, neo-Schumpeterian theory, 'creative class', clusterstheory, endogenous growth theory, knowledge spillover theory,entrepreneurship

1

Index

1 Introduction3

2 Measurements of Regional Inequality4

2.1 Gross Added Value (GVA)2.2 Gross Disposable Household Income (GDHI)2.3 Unemployment Rate

2.31 Claimant Count Method2.32 Survey Method

2.4 Earnings2.5 Innovation2.6 Analysis

3 Foreign Direct Investment (FDI)9

3.1 Forms of FDI (Table of Comparison)3.2 FDI and its Effects on the Welsh Economy3.3 Shortcomings of FDI

3.31 'Branch Plants'3.32 High Closure Rates and Employment Rates3.33 Increased Regional Inequality

4 Endogenous Entrepreneurship154.1 Neo-Schumpeterian Theory, 'Creative Class' & ClusterTheory4.2 The Endogenous Growth Theory & Knowledge Spillover Theory

5 Recommendations and Conclusion19

References 20

(Appendix A)

2

1 Introduction

Regional inequality has been on the rise since the 1980s andbesides affecting the economic development of regions in theUK, it has impacted the regions in a social, health andoverall well-being of people in the regions.

It is integral to address the issue of spatial inequality asit 'influences the cohesion of society, determines the extentof poverty for any given average per capita income and thepoverty-reducing effects of growth, and even effects people'shealth' (F. Stewart, no date). (Talk about Wales and the Welsh economy;what is happening at present and why is there a need to address the issue.)

This report aims to analyse the present economic performanceof the Welsh economy and with academic literature particularlyon FDI and the endogenous approach towards building a strongerregional economy, aims to provide recommendations for theregion. (Somemore...)

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2 Measurements of Regional Inequality

Measuring regional disparity has its complications because ofthe lack of regional data. Lessmann (2009) considers threedifficulties: selecting a suitable economic indicator,application of territorial level and an applicableconcentration measure. Lessmann (2009, 2013) also considersthe varying sizes of regions as one of the challenges as 'Incountries with large economic differences and an unequallydistributed population, a disparity measure might be difficultto interpret'. However complicating it is to calculateregional inequality, Mills and Ferranti (1971), Boadway andFlatters (1982) believes that 'ethnic discrimination or frommarket failures such as excessive migration' contributes toregional inequality and therefore, is important for academicsas well as policy makers (Lessmann 2011).

Under this section, five indicators will be used to showregional disparity in Wales as well as South West of the UK.Data reflected are from the 'Regional Economic Indicators-March 2013' by regional economic analysts, Amy Riggs andRichard Prothero from ONS (Office for National Statistics).

2.1 Gross Value Added (GVA)

GVA is one of the most frequently used indicators ofregional economic performance. According to ONS, GVAmeasures the 'contribution to the economy of eachindividual producer, industry or sector in the UnitedKingdom'. Figure 1 shows the share of total UK GVA fromthe period 2006-2011.

5

London Wales0

5

10

15

20

25

20.7

3.7

21.9

3.6

20062011

Figure 1: Share of UK workplace-based GVA at current basic prices

Source: Office for National Statistics (ONS)

Over the period of half a decade, Wales has been stagnantwith regards to its contribution to the total UK GVA ascompared to London which has increased their share ofUK's GVA steadily over the years from 20.7% to 21.9% in2011.

2.2 Gross Disposable Household Income (GDHI)

The GDHI is a measure of 'the regional welfare ofindividuals' (ONS) and stands for the amount of moneyindividuals (or per head in this context) have remainingafter having incurred expenditures that associate withone's income. According to LRO (Lincolnshire ResearchObservatory), expenditures include 'taxes, socialcontributions, property ownership and provisions forfuture pension income'. Data from Figure 2 are calculatedas a percentage of growth in GDHI over the period of 4years (2006-2010).

6

London

Wales

0 20 40 60 80 100 120 140

125.5

87.7

129.7

87.5

20102006

Figure 2: Gross Disposable Household Income (GDHI) per head

Source: ONS (Office of National Statistics)

London has always had a higher GDHI relative to thenational average and persists to deviate from UK's GDHIsince 2006 while Wales remain stagnant at 87% belownational average.

2.3 Unemployment rate

OECD (Organisation for Economic Co-operation andDevelopment) views the unemployment rate of a region as'an important indicator of economic and social well-being'. Unemployment rates can also identify and resolvewhere valuable labour resources are being under-utilisedand thus, determine how a particular region shouldutilize their resources to their maximum potential. Thereare two methods to calculate the unemployment rate of aregion- the claimant count method and the survey method.

2.31 Claimant Count Method

The Claimant Count method defines those thatregisters and claims the Jobseeker's Allowance (JSA)as unemployed and is the UK's most timely and up-to-date employment measure.

7

London Wales012345678910

4.4 5.5

2012

% of

wor

kforce

Figure 3: Unemployment Rate (2012) based on Claimant Count

Source: ONS (Office for National Statistics)

While the unemployment rate in London is at 4.4% in2012, it is slightly higher in Wales with a rate of5.5%. This further supports the presence of regionaldisparity in terms of unemployment in the UK.

2.32 Survey Method

The standards of the Labour Force Survey (LFS) isset by the International Labour Organisation (ILO)and the unemployment rates measured by the LFS tendto be 50% higher than the figures based on theclaimant count on its own since the latter includesthe unemployed who are either not entitled to claimunemployment related benefits or choose not to do.

The ILO defines an unemployed as one who is jobless,who is available to commence work in the next twoweeks, who has been looking for a job the past monthor one who is waiting to start an acquired job.

8

London Wales012345678910

8.3 8.4 2012

% of

wor

kforce

Figure 4: Unemployment Rate (2012) based on LFS by ILO


As mentioned, the unemployment rates derived fromthe survey method is about twice the rates derivedfrom the Claimant Count method. This method ofcalculation shows that the regional disparitybetween London and Wales in terms of unemploymentrates is small. Data from both methods ofcalculation is based on 2012.

2.4 Earnings

The analysis of earnings from employment illustrates 'howpay differs regionally and by job type and by gender'(ONS). Figure 5 shows an estimation of weekly pay in bothLondon and Wales for the males and females employed on afull time basis. Data from Figure 5 is extracted from theASHE (Annual Survey of Hours and Earnings).

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Wales

London

0 100 200 300 400 500 600 700

406.7

574.9

493

651.3

Male (Full Time Employed)Female (Full Time Employed)

Median Weekly Pay in £

Figure 5: Gross Median Weekly Pay of Full Time Employees (2012)


The gross median weekly pay of full time employees inLondon is highest in the UK at £651 for the males and£575 for females while the gross median weekly pay inWales is much lower at £493 for males and £407 forfemales. The difference in pay by gender is also slightlylower in London as compared to Wales.

2.5 Innovation

While Schumpeter (1961) views innovation as 'the centralautonomous cause of economic development', Marx (1654)sees entrepreneurship and innovation as the 'key elementsof the capital accumulation process'. Research done byNesta also show that 'innovation accounted for 63% ofeconomic growth' (Paul Hobcraft, 2013). According to ONS,innovation and R&D is 'recognised as an important driverof productivity' and thus, this indicator will be helpfulin analysing a region's potential for future economicdevelopment by looking at its present position in thecountry.

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London Wales0

10

20

30

40

32.840.6

2008-2010

Percentage of Businesses

Figure 6: Innovation Active Enterprises (2008-2010)

Source: Business, Innovation and Skills, ONS (Office for National Statistics)

According to ONS, an enterprise is considered innovation active if it has engaged in:

1. Introduction of a new or significantly improved product(good or service) or process;

2. Engagement in innovation projects not yet complete or abandoned;

3. New and significantly improved forms of organisation, business structures or practices and marketing conceptsor strategies.


In the aspect of innovation active enterprises in the region, Wales record a higher percentage of 41% as compared to 33% in London. This will be analysed more in detail in the next section of this report.

2.6 Analysis

The first four indicators entail the presence of regionaldisparity between London and Wales where London scorehigher than Wales. However, in terms of innovation activeenterprises, Wales show a higher percentage of 8% as

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compared to London. The next section of this report willcover the analysis of FDI (Foreign Direct Investment) inWales and aims to show close relation to the presentperformance of Wales as a region in the UK.

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3 Foreign Direct Investments (FDI)

According to OECD, FDI is a key component in internationaleconomic integration and supports the establishment of alasting interest between the investor and the investee companyor entity where the lasting interest refers to the creationand development of stable and long-lasting links betweeneconomies (Department of Statistics Singapore, 2013). For aFDI relationship to be established, the investor must own atleast 10% of ordinary shares or voting power (OECD).

Besides economic integration on a global level, Dr PornsawanEvans et al (no date) from Swansea University sees the basis ofFDI as to 'increase or protect the profitability and capitalvalue of a firm'. Besides the fore mentioned, successful FDIalso allows (a region to gain) market access and distributionnetworks (Dr Pornsawan Evans et al, no date) as well asproductivity gains, managerial skills and know-how in thedomestic market (Lessman 2013, Alfaro, Chanda, Kalemli-Ozcan,& Sayek, 2004).

Therefore, where inward investments help a region tosuccessfully clinch projects and create jobs that wouldbenefit a region as a whole, FDI is seen and expected to bringseveral advantages to the regional economy. However, amidstthe mentioned advantages, Lessman (2013) also believes thatfollowing FDI, there is an increased regional disparity.Besides an increased regional disparity, Jonathan Potter (nodate) also explores the criticisms of very few spin-offbenefits for local enterprises as well as the localcompetitive environment where 'branch plant' FDI is attracted.

This section will cover in brief, the different forms of FDIand the advantages and disadvantages of each in a table ofcomparison; and by recognising and evaluating the performanceand success of FDI from the 1980s to present in the Welsheconomy, in particular the manufacturing and serviceindustries, aims to identify the limitations and implications

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of FDI in Wales which will then provide with recommendationsand conclusions in the next section.

3.1 Forms of FDI (Table of Comparison)

14

While amergerreferstocomb^So

15

Cost Reduction

Economic/PoliticalRisks

Access to Technological Expertise

Market Access

Joint Venture:

Agreement ofpooling of resources between two or more parties

Combination and share of resourcesand capital1

Spreading, sharingand reductionof risk, profit and losses1

Common wisdom andsharing ofdifferent skills andexperience1

Engagement with a foreign collaboratorwill grant more access to new markets1The other

party may withhold or steal technological advancements2

Greenfield Sites:

Setting up of new operational facilities in a foreigncountry where constructionand establishment starts from square one

Sites which arenot completely developedwill incur additional costs i.e. headwork costs3

Involvement of risk higher ascompared to the Joint Venture and Merger and Acquisition2

Does not allow access to technological expertise in general2

Allows access of new markets

Merger:

Combining two separatefirms to a newly formedone

Acquisition:

One firm purchasing another where no newfirm is formed

Lower costs of operationand production4

Economic and politicalrisk thatcomes with thisform of FDI is lower than a Greenfield Site but more than a Joint Venture2

Allows access to new technologyand other available products

Allows access of new markets

Incurs legal expenses,cost of takeover and intangible costs4

urSource: ER3S72-BusinessReportElecdyne-13000357-1 (2014), University of SouthWales

3.2 FDI and its Effects in the Welsh Economy

There was a record level of FDI within the UK during theperiod of economic recovery in the mid 1980s andaccording to Business Monitor, 1990; Wales showed acomparatively high share of 15% of total inwardinvestment in the UK (Stephen Hill & Max Munday, 1991)which produced an increase in capital, export earnings aswell as job creation in foreign firms. However, by the1990s (Parliament UK, 2012) where the global businessenvironment has changed rapidly and where 'the landscapefor FDI has become more diverse and complex' (WIBC,2013), the manufacturing FDI in Wales, in particular thecoal and steel industries, have also declined. Foreignfirms are pushed to globalize so as to keep competitivein the global market (Pornsawan Evans et al, no date) andrelocate labour-intensive operations to countries inEastern Europe and Asia where operating costs are muchlower than Wales (WIBC, 2013). David Pickernell (2011)recognizes that Wales has since lost to China, South EastAsia and Central and Eastern Europe (Evans et al, 2008)where labour costs are lower and levels of education andskills are much higher. This has resulted in moredifficulty for the Welsh economy to compete for inwardinvestment in the production and manufacturing sectors(David Pickernell, 2011) and actually gain significantspin-off or benefits from FDI.

In the case where Wales has become a "branch plant"economy where inward investments are just externalownerships (John Ball, 2012), WIBC (2013) identifies theneed for a more 'aggressive approach' to attract foreigninvestment. Professor Robert Huggins (2012) and ProfessorDavid Brooksbank (2012) from the University of Wales Institute,Cardiff (UWIC), identifies that "the rules of FDI attraction"

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have been 'altered by the development of the knowledgeeconomy' (Parliament UK, 2012). Also, Wale's inability toidentify the changes of the global market as well as makechanges to its strategy to attract inward investment toreflect the new world economy (Glen Massey, 2012) hascontributed to the sharp decline in FDI.

Over the past few decades, entries of inward investmentin Wales are slowly shifting from the 'manufacturingsector to lower value-added activities in the financial(and) service sector' (WIBC, 2012). David Pickernell(2011) identifies that "the focus (of FDI) has nowswitched to services rather than manufacturing" and thateven in manufacturing the focus from electronics hasswitched towards the transport-related sectors (DavidPickernell, 2011), as seen on Figure 7 as shown below:

Resources Manufacturing Services0

100

200

300

400

500

600

2008200920102011£

billio

n

Figure 7: Net FDI International inward investment positions in the UK by industry (2008-2011)


It is uncertain as to whether FDI in the manufacturingsector will pick up in future and therefore, instead ofrelying on the manufacturing sector alone to bring inwardinvestment to the Welsh economy, where Glen Massey (2012)refers to as being an attraction for 'low-valuemanufacturing'; the government and regional policyresources in Wales should come up with strategies toattract inward investment, whether firms are Wales-based

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or foreign (Parliament UK, 2012), just as long as it is along-term strategy to attract 'high added-value projects'to bring more economic benefits and job creation to theWelsh economy. Also, by putting more focus and upgradingof knowledge and skills in the service sector whereinward investments are increasing steadily, Wales willlikely to regain its competitive edge in Europe becauseaccording to Lundvall (1992), "...in the modern economythe most important resource is knowledge and the mostimportant process in learning."

3.3 Shortcomings of FDI

Although the Welsh planning authorities are activelyseeking for large projects and developments to attract,the authorities are adamant on the Section 106 Agreement(Refer to Appendix A) which could put off foreigninvestors with high profile and large projects (Jung WonJom & Dongheon Lee, 2010).

Siri Terjesen et al (no date) recognizes the point of FDIplaying an important role in the 'economic development ofemerging countries' and adds on that FDI enablesindigenous enterprises in the host country to establishfurther and therefore, facilitates the sharing ofknowledge, R&D as well as technology to create jobs aswell as other entrepreneurial opportunities.

However, as fore mentioned above, Lessman (2013) believesthat following FDI, there is an increased regionalinequality. Jonathan Potter (no date) also explores thecriticisms of very few spin-off benefits for localenterprises as well as the local competitive environmentwhere 'branch plant' FDI is attracted. The last part ofthis section on FDI will explore the limitations of FDIon the economy and well-being of Wales.

3.31 'Branch plants'

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Jonathan Potter, Directorate of Employment, Labour and SocialAffairs from the OECD, believes that a local regionwill develop and benefit from successful attractionof FDI such as increased domestic employment, localpurchasing of materials and services, technologytransfer, higher levels of skills and knowledge aswell as contributions to the local infrastructure.There is no doubt that Wales stand to gain severalbenefits and advantages from inward investments.

However, where 'truncated' or 'branch plant' natureof investments are attracted (Jonathan Potter, nodate), there are strong criticisms for the very fewspin-off-benefits for the domestic businesses andWelsh competitive environment. Also, John Ball(2012) considers a 'branch plant' economy as onewhere inward investment has become externalownership where domestic firms no longer hold anyrights. Furthermore, Jonathan Potter (no date)associates marketing efforts and investments onforeign affiliates to 'financial leakage'.

Indeed, with successful FDI comes several localdevelopment gains—an increase in employment but suchwhich involves low levels of skills and restrictedmanagement opportunities (John Ball, 2012). TheWelsh government and regional developmentorganisations should, therefore, aim to attractinvestments of higher quality—investments which are'more knowledge-intensive and with greatermanagerial autonomy' (Jonathan Potter, no date)instead of what John Ball (2012) regards as'employment at any price'.

3.32 High Closure Rates and Employment Rates

There is no doubt that successful attraction of FDIprojects brings creation of new jobs. However,

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Nicholas A. Phelps & Jeremy Alden (1999) discoverthat majority of the jobs are involved not in newopenings but acquisitions to which John Ball (2012)would conclude that inward investments have'(adverse) effect on ownership of Welshmanufacturing and provision of jobs' (Nicholas A.Phelps & Jeremy Alden, 1999).

Markusen & Venables (1990) identifies that foreignaffiliates tend to have 'autonomous effects ondomestic employment' where foreign and 'footloose'firms exit a sector when they decide to replacedomestic production or source for inputs elsewherecheaper. This is because foreign firms have thetendency to move to lower labour-cost areas whichwith low-wage and low-skilled jobs (Hudson, 1998)which will in turn cause a rapid decrease inemployment in the region.

3.33 Increased regional inequality

Besides the direct effects FDI has on a regionaleconomy, it also assists in expanding economies andthus, 'making them less prone to adverse economicshocks' (Jonathan Jones & Colin Wren, 2012).However, as mentioned by Jonathan Potter above,foreign-owned investments incur potential costs andaccording to Driffield & Munday (1998), raisedcompetition in the region may reduce the number oflocal producers, thus causing an 'overall reductionof regional employment' where MNEs have greatereconomies of scale.

Considering the fact that FDI is likely to'agglomerate in certain activities' (Kiyoyasu Tanakaet al, 2012; Klaus E. Meyer et al, 2011; Hilber,Christian A.L et al; Angels Pelegrín et al, 2006),regions may grow to be 'vulnerable to adverseindustry-level shocks' (Jonathan Jones & Colin Wren,

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2012). Therefore, unless the region is adaptable andable to adjust to changes of the businessenvironment, it will find difficulty in adjusting tothose changes.

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4 Endogenous Entrepreneurship

(Dismiss FDI and work towards endogenous approach by first explaining Neo-Schumpeterian Theory, Creative Class and then Cluster Theory. End off withendogenous economy and knowledge spillover)

4.1 Neo-Schumpeterian Theory (Joseph Schumpeter),'Creative Class' (Richard Florida) and Cluster Theory(Michael Porter)

Figure 8: Drivers of Regional Growth

The Neo-Schumpeterian Theory by Joseph Schumpeter (1942)sees institutions, entrepreneurs and technological changeas the heart of economic development. With 'appropriateknowledge and technological externalities', a regionwould be able to develop and create an innovativeenvironment for technological spillovers to exist.Following Joseph Schumpeter's theory of 'CreativeDestruction', the prosperity of a region 'depends on(its) ability to renew (its) economic base in response tothe process of creative destruction' (Jean-Claude Prageret al, 2012) when firms are faced with strong competitionin the industry and whereby competition is an 'essentialpart of economic growth and fostering enhancedproductivity' (Davis et al, 1996; Wren, 2004; JonathanJones & Colin Wren, 2012). Therefore, where Wales is

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Neo-Schumpeterian

Theory:Innovation, Knowledge &

Entrepreneurship

'Creative Class'/

Institutionalist Theory/:

Tolerance, Talent,

Technology

Cluster Theory:

Competitive Success

concerned, the business environment should invitecompetition because only then will the region be able toimprove under competitive circumstances and be encouragedto remain innovative and competitive.

While some economists see employment as a driver toeconomic development, others see technology as theunderlying driver of regional growth. However, with theglobal business environment changing rapidly undertremendous amount of competition, 'high-class' humancapital has become the key driver in economic developmentboth nationally (Barro, 1991) and across regions as wellas in developed countries (Rauch, 1993; Simon andNardinelli, 1996; Simon, 1998). Charlotte Glasser (2004)adds on that regional economic growth is driven by 'thelocation choices of people', and where the barriers ofentry are low and where the labour force is highlyskilled forms a creativity advantage.

The concept behind the 3 Ts: tolerance, talents andtechnology by Richard Florida (2002, 2005, 2006, 2008) issuch that Wales should aim to build, develop and maintainan open and tolerant environment which supports andencourages development of new and conventional ideaswhich will then attract, accumulate and cluster talents andmembers of the 'Creative Class' because high-techcompanies and technology will seek for human capital wherethe creative minds are (Richard Florida, 2002; 2008).

Finally, following the 'Cluster Theory' by Michael Porter(1998), the wealth of a region is determined by a propermix of clusters. Michael Porter (1998) defines clustersas a geographic concentration of companies, suppliers,service providers, firms from the same industries andinstitutions such as public bodies, universities,research and development organisations and boards etcthat compete against, cooperate with and support oneanother (Rob Gurwitt, 2000; Yudo Anggoro, 2013).

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As seen on Figure 8, it is understood that by achieving aknowledge-based economy which encourages and welcomesinnovation, competition and entrepreneurship (Neo-Schumpeterian Theory) and developing an open and tolerantregional business environment to attract talents with newand conventional ideas, there will be a higher start uprates of technology-based companies ('Creative Class') in theregion. Where appropriate knowledge and technologicalexternalities exist in a competitive environment ofcreative minds, 'Cluster Dynamics' (Michael Porter, 1990,1998; Krugman, 1991), 'Institutional Thickness and Inter-organisational Collaboration' (R Mitchell, 2009) (ClusterTheory) will likely to bring regional growth to Wales.

FDI may increase employment rates but in the long run,Wales will lose out to where operational and labour costsare much cheaper in other regions of Europe or the world.Instead of attracting inward investment and 'footloose'investors to the region to gain low-skilled and low-wagedjobs, Wales should concentrate on building up itsinternal business environment to attract the righttalents and people to bring wealth and prosperity to theregion.

4.2 Endogenous Growth Theory & Knowledge Spillover Theory

According to Paul M. Romer (1994), 'Pure knowledge isnon-rival' and under most and common circumstances theuse of knowledge by one person does not remove another'srights to use it, to which Jeffrey Parker (2010) agreesto and added that technology and knowledge, being non-rival, allows anyone the benefits of using them. Romer(1994) distinguishes endogenous growth from theneoclassical growth by the idea that economic growth isan endogenous outcome of an economic system instead ofbeing 'a result of the forces that impinge from theoutside'. However, endogenous growth does not give anexplanation to how spillovers come about where the

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missing link between knowledge and economic knowledgestill exists (Zoltan J. Acs et al, 2004).

The knowledge filter is what Arrow (1962) refers to asthe 'gap between new knowledge and economic orcommercialized knowledge'. Since knowledge is non-rival,it is available 'in the open' for businesses to acquire.Yet, with what David B. Audretsch (2005) would call a'formidable knowledge filter', public policy instrumentsand research & development may not be suffice for aregion to generate economy growth. The missing link hasto be entrepreneurship.

Entrepreneurship is 'recognition of opportunities andpursuit of those opportunities' (Venkataraman, 1997).Since knowledge is not necessarily economically relevantknowledge (Arrow, 1962) and there will always be aknowledge filter between knowledge and commercializedknowledge, what Wales should do first and foremost is toadopt policies to increase the spillover of knowledge andenable commercialization of knowledge (Zoltan J. A et al,2004) – to encourage new-firm start ups, to encouragecreation of entrepreneurial clubs or societies inschools, to have low-barriers of entry in the businessmarket so as to encourage entrepreneurship. Lucas (1993)sees 'the main engine of growth is the accumulation ofhuman capital—of knowledge', believes that in order togenerate economy growth, the filter between knowledge andeconomic knowledge must be reduced and therefore,suggests training programs and apprentice systems beintroduced in order to enhance human capital andknowledge in the region.

Following the New Growth Theory, firms which invest inhuman capital and knowledge endogenously bring economicgrowth through the spillover of knowledge (Zoltan J. A etal, 2004). Research and findings done by Audretsch(1995); Caves (1998) show that companies with a greater

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investment in new knowledge also showed evidence ofhigher start-up rates as compared to those which investedless in new knowledge. Where firms invest in labour toundertake research and expand their firm-specificknowledge, there is a highly likelihood that knowledgewithin the industry will be commercialized. Finally, therationale behind spatial dimension of knowledgespillovers by Jaffe (1989); Audretsch & Fledman (1996);Audretsch & Stephan (1996) is such that knowledgespillovers are 'geographically bounded and localizedwithin spatial proximity to (the) knowledge source'.

That being said, if the Welsh government providesopportunities technology and knowledge enhancements andsuccessfully implements public policies to encourageentrepreneurship to commercialize technology andknowledge, Wales will definitely pick up. Last but notleast, following the 'Creative Class' concept by RichardFlorida, Romer (1994); Lucas (1988) hold the sameconsensus that people with human capital tend to migratefrom places where it (human capital) is scarce to whereit (human capital) is abundant.

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5 Conclusion

(Limitations of Endogenous Growth Theory: European Paradox)

(Weigh FDI and Endogenous Growth Theory)

FDI embedding policies can help to retain attracted investments, encouragereinvestments, and link foreign investors with local firms and institutions. They arealso likely to improve the overall regional competitive environment, helping topromote long-term endogenous development, with a consequent reduction in futurereliance on marketing or incentives to attract foreign investment. Indeed, foreigninvestment policy should not be seen as independent from regional developmentpolicy more generally. Instead foreign investment programmes should be seen as apart of a wide range of instruments to build regional competitive advantage,including the development of infrastructure, human resources and entrepreneurialnetworks, so that foreign investors are not divorced from the regional economiesthat host them.

- Jonathan Potter,

Jonathan Potter (no date), 'Embedding Foreign Direct Investment', OECD, Available online at http://www.oecd.org/gov/regional-policy/2489910.pdf, Accessed 10 January 2014

Inward investment continues to be crucial to the growth of the Welsh economy. Itprovides a number of benefits and multinational firms help develop efficient supplychains, raise productivity in local suppliers, improve export performance andmaintain employment. Traditional approaches, such as grants and low labour costs,can no longer be relied upon to attract inward investors. The development of theknowledge economy has changed how countries attract investment from overseas.The Welsh Government must think innovatively about how to exploit this opportunityand develop a cogent economic strategy to maximise potential gains. In addition todeveloping domestic business growth, the Welsh Government must reassert theimportance of inward investment in its economic policy.

- Parliament UK,Parliament UK (2012), '2 Importance of Inward investment to Wales', Available online at

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http://www.publications.parliament.uk/pa/cm201012/cmselect/cmwelaf/854/85405.htm, Accessed 15 January 2014

Romer (1994); Lucas (1988): People with human capital migrate from places where it (human capital) is scare to places where it (human capital) is abundant

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id=sAmg_BmVWx8C&pg=PA65&lpg=PA65&dq=fdi+in+manufacturing+sector+wales&source=bl&ots=vJO_ILwmLM&sig=UJWjRcpnwYZ-u7Fyv9EiRtlTnFk&hl=en&sa=X&ei=Bi3UUtymK4-BhAeqnYHABQ&ved=0CHIQ6AEwCQ#v=onepage&q=fdi%20in%20manufacturing%20sector%20wales&f=false, Accessed 15 February 2014

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Appendix A

Section 106 AgreementsSummarySection 106 (S106) Planning Obligations are legally bindingagreements entered into by persons with an interest in a pieceof land (often a developer) secured by a legal agreement ordeed.

They are designed to mitigate for a particular impact thatwould arise from a development. Planning Obligations arenegotiated between the Local Planning Authority and thedeveloper in consultation with a number of key externalstakeholders including The County Council, The Police and thePrimary Care Trust.

Planning obligations can be entered into by means of a legalagreement between a developer and a Local Authority (S106Agreement) or offered up by a developer without the LocalAuthority signing up to the document as a UnilateralUndertaking (UU). UU’s are usually only used for smallerdevelopments with limited contributions.

Further informationS106 agreements are drawn up when it is considered that adevelopment will have negative impacts on the local area thatcan not be mitigated by means of conditions attached to theplanning permission. For example, a new residentialdevelopment can place additional pressure on the social,physical and economic infrastructure which already exists inthe surrounding area.

Planning obligations aim to offset the extra pressure createdby new development with improvements to local infrastructureand facilities ensure that wherever possible a developmentmakes a positive contribution to the local area and community.

S106 legal agreements are obligations in accordance withsection 106 of the Town and Country Planning Act 1990 (asamended). They are associated with a particular development

35

and as they are a legal charge on the land, they transferautomatically with any change in ownership.

When and what will the Council seek in a Section 106Agreement?All planning applications are assessed on a case by case basisand not all developments will require obligations. When aplanning application is submitted to the Local Authority, anassessment is made of the likely type and level of mitigationrequired for a particular development.

Source: Blaby District Council (no date), Available online athttp://www.blaby.gov.uk/resident/planning-and-building/section-106-agreements/, Accessed 15 January 2014

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