Geoff rey J.D. Hewings

REGIONAL ECONOMIC APPLICATIONS LABORATORY

Univers i ty o f I l l ino i s607 S. Mathews , #318 , Urbana , IL 61801-3671

217-333-4740: FAX 217-244-9339www.rea l .u iuc .edu: hewings@i l l ino i s .edu

Celebrat ing 25 years in 2014

Regeneration Economies: A New, Innovative Way to Approach

Economic Development1

Institute of Advanced Studies2

Congratulations to Vice Chancellor David Eastwood and Professor Malcolm Press on the development of the Institute

Hope that it will be a successful venture and help burnish Birmingham’s growing stature among the world’s best universities

Major Objectives of the Birmingham-Chicago Comparative Analysis

Unraveling the complexity of regional economiesIntegrating macro and micro approaches within the

framework of Regeneration Economies.Understanding and Forecasting the key drivers behind

growth in regional economies Evaluating the role can of policy play in stimulating

local economic growthConnecting the dots linking skills enhancement,

innovation policy, strategic investment in infrastructure to help transform regional economies.

Lessons learned from the comparative experience of Birmingham and Chicago

Role of institutions of higher education in the process

3

Why Birmingham and Chicago?

Critical need to understand the complex dynamics of two metropolitan regions that are the centers of their respective broader regions (Midwest, West Midlands) facing a regeneration of their economies

Need to provide policy makers with analytical

tools and insights into the expected outcomes of international and national changes in competitiveness, innovations and policy initiatives.

4

Birmingham and Chicago

Both regions have faced enormous structural changes in the last three decades dominated by the massive reduction in manufacturing employment.

Recent evidence for a modest resurgence in employment not only in manufacturing but other sectors provide the motivation: for understanding the sources and stimuli for this nascent

regeneration, the identification of appropriate policy interventions by local

and regional government to sustain and enhance this growth and

critical role that timely information and analysis can provide.

5

Birmingham and Chicago: Scope of Work

Development of comparable models of the two metropolitan economies to enable economic impact assessment, forecasting and evaluation of a range

of alternative policy scenarios about changes in the external (nation, world) economies

potential impacts of initiatives designed to enhance the competitive positions of both economies.

A secondary focus will explore the nature and extent of trade between the two metropolitan economies and the broader regions they anchor

A third focus will examine in depth a set of key or critical sectors in both economies with significant analysis and data collection at the firm level.

A fourth focus will examine the role of labor force training and innovation initiatives and a comparative analysis of policies adopted by both regions and their outcomes.

6

Stylized Facts: Cities and Their Regions

7

Cities at one and the same time becoming more competitive and more complementary as a result of: Hollowing out

Average establishment in a city is now buying more from OUTSIDE the region and has markets that are increasingly located OUTSIDE the region

Internal ripple effects from change in activity levels now smaller

Fragmentation Firms are re-organizing the geography of production by

separating production into distinct components to exploit scale economies and reduced transportation costs

inputs Production Block 1

ServiceLink

Production Block 2

markets

Stylized Facts: Cities and Their Regions (2)

8

Cities have transformed from being relatively self-contained (serving limited geographical market) to interdependence over very broad geographical areas

Firms: Exploitation of scale economies Specialization within plants – but exploiting scope across plants

often in different locationsConsumers

Increasing love of variety Locational and consumption preferences changing with age and

incomeIntercity trade growing much faster than growth of

Gross City ProductValue chains of production now more geographically

extensive

Understanding the Regional Economy9

How do our economies function? Policy often enacted with little understanding of the impact Complex dynamics often reduced to simple rules of thumb that are

often inaccurate or misleadingNeed to understand the role of:

Infrastructure Labor force development Smart specialization/diversification Public-private partnerships

Opportunities Enhancing trade Midwest-West Midlands (do we even know the

volume?) Location advantages as Chinese wage rates accelerate Seizing the opportunity for 3-D printing; can these regions create new

manufacturing jobs?

Understanding the Regional Economy10

Policy makers rarely take the time to discover how their city or region works How and in what direction it is likely to change Formal evaluation of expected outcomes of alternative

development strategies Policy without formal analytical support is just speculation

The philosophy of Regeneration Economies:

We cannot solve today’s economic development problems with the same

thinking that created the problems

Regenerative Urban Economies

Analysis requires understanding of how the MACRO regional economy works, expected growth rates, changes in structure etc.

Evaluation of the MICRO (firm-level) economy especially in the context of key VALUE CHAINS

Development of a strategic DEVELOPMENT STRATEGY

Cycle back to evaluation of options at the MACRO level (impacts on production, income, employment, growth rates, population, migration….)

11

Initiating Our Understanding of the Regional Economy

How are the activities linked together? Directly and indirectly How has this structure of interdependence changed over

time

What drives the regional economy? Dependence on local, domestic and international

markets Where are the major trading partners? What is the balance of trade? How diversified is the export portfolio – both

sectorally and spatially? How has this changed over time?

Role of technology, demand and innovation in generating changes in production levels

12

Initiating Our Understanding of the Regional Economy (2)

How does the trade in people (migration) compare to the trade in goods?

Is the regional economy dominated by net in- or out-migration?

What is the age and occupational capital composition of migration?

How is the age profile changing – what is the role of ageing (20% US population will be >65 by 2030)?

How is the ethnic composition changing How is the dependency ration changing (number of non

labor force participants “supported” by each member of the labor force)?

13

Initiating Our Understanding of the Metropolitan Economy (3)

Short- and Long-run Forecasts What are the expected growth rates of aggregate

indicators like GRP, population, income and employment? How will different national and international scenarios

affect the region’s economy? What are the expected changes in sector, income and

employment compositions over the next 10, 20 and 30 years?

How will the occupational capital of the region change? Supply-demand dynamics of the labor market Role of skill migration in enhancing/detracting from the labor

market’s competitiveness Who will do the training/retraining?

14

What we Propose to Accomplish15

Development of a regional macroeconomic model of the Birmingham region to complement one for the Chicago region

Next set of slides illustrate type of analysis that has been accomplished with a suite of models for the Chicago metropolitan region

Growth of Macro Variables: Chicago & US 2000-2040

16

GRP

Popul

atio

n

Perso

nal I

ncom

e

Total

Pro

duct

ion

Man

ufac

turin

g Pro

duc.

..

Servi

ce P

rodu

ctio

n

Empl

oym

ent

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

2.00%

0.60%

1.80%2.00%

1.70%

2.40%

0.60%

2.50%

0.80%

2.20%

2.90%

3.70%

3.00%

0.80%

Chicago US

Impact of Public-Sector Transportation Infrastructure Spending

17

[$1 billion per year from 2010 through 2040]

Impacts Generated from Education Expansion

18

[$1 billion per year from 2010 through 2040]

Impacts Generated from Education Premium

19

[$749,050 per new graduate spread over 40 years; 100 additional graduates/year through 2019; 1,000/year additional through 2040. Tables provides estimates of the cumulative expenditures per year ]

Identification of prominent clusters20

Set of interdependent sectors (groups of firms) that: Trade more with each other more than their

interactions with the rest of the region’s economy Employ similar mix of skills in the labor they hire Are geographically co-located Exert an above average influence on the growth

and development of the economy in which they are located through enhanced ripple or multiplier effects

Clusters in Chicago

21

Clusters in Chicago

22

Identification of the most important value chains23

Supply Chains

NOW: Dispersed-------Concentrated--------Dispersed3-D: Concentrated….Concentrated………..

Dispersed.

24

Critical missing links in the production systems and their potential economic impacts

25

Impacts of production expansion (export demand) and Import substitution

Critical missing links in the production systems and their potential economic impacts

26

Impacts of production expansion (export demand) and Import substitution

Population Cohort Forecasts27

2000

2040

Ethnic Composition 2000-204028

Demographic changes and their impacts

29

Population >65 in US and Chicago 1900-2030

Demographic changes and their impacts

30

Consumption Growth by Households of Different Ages

31

Role of Institutions of Higher Education

32

Recent initiative from U of Illinois – collaboration between National Center for Supercomputing Applications and private companies to form an Illinois Manufacturing Lab in the central area of Chicago.

The lab will be a place where manufacturers of any size “come to learn and use the world's most sophisticated tools, software and capabilities. Companies can work alongside the university's technical and business talent to experiment with new equipment, utilize digital tools, and learn how to accelerate product innovation.”

The Illinois Manufacturing Lab will be seeded with $5 million from the state and $5 million raised from private firms. But they hope to have anywhere from three dozen to 50 full-time staffers, plus visiting faculty fellows and an annual $10 million operating budget within three years

Role of Institutions of Higher Education

33

The Universities of Illinois and Birmingham train: Managers Strategic decision-makers Advertising experts Innovators of new products and techniques

But they do not train people who produce the products

Why not a new international degree, jointly launched by Universities of Birmingham and Illinois, in manufacturing?