Institut für Wirtschaftsforschung Halle Martin T. W. Rosenfeld New Tendencies in Competition...

Institut für Wirtschaftsforschung HalleMartin T. W. Rosenfeld

New Tendencies in Competition between Cities and Regions:

Empirical Results from Case Studiesin Germany and Austria

Martin T.W. Rosenfeld

The Halle Institute for Economic Research (IWH)Department of Urban Economics

Halle an der Saale, Germany

TWELFTH ANNUAL CONFERENCE OF THE CYCLE “LEONTIEF READINGS”

«ECONOMY AND GEOGRAPHY»ST. PETERSBURG, 15-16 FEBRUARY, 2013


Presentation is based on results of aResearch Group within the network of theGerman Academy for Spatial Research and Planning (“Akademie für Raumforschungund Landesplanung”, “ARL”)

- Work from 2008-2012

- Presented to the public on a conference in Halle, April 2012; keynote speech by Paul Cheshire, LSE

- Final report just published


Agenda:

I. Motivation / Hypotheses

II. The Main (New?) Features of Modern Locational Competition

III. Design of the Case Studies

IV. Main Results

V. General Conclusions

VI. Future Need for Research


Agenda:




IV. Empirical Results




Objects of competition: mobile resources (may be used to increase local wealth / improve economic performance)

People / workers / academics / students

Consumers from outside / tourists

Businesses / flows of private investment

Public authorities / Regional Gov. Units (RGU)

Public money from taxes etc.

Stylized facts: There has always been competition between cities, regions, countries


Economic Theory: Locational Competition as adriver for more effectiveness and efficiency in the Public Sector (=Tiebout Theorem)

Competition between (local / regional) governments results from the motives of politicians

-to stay in office (to become re-elected)

-to maximize control over resources

incentives to improve the quality of a location!

interregional support / equalization policy will lead to negative impacts on welfare and growth!


Negative impacts of Locational Competition?

- Size and locational advantages of local / regional units are not equal

some units have better starting conditions than other

- Race to the bottom / or oversupply because of the doubling of public facilities?

not in general,voters have to take into account both the level of outcome and the level of local taxes

- Is consolidation of adjacent municipalities beneficial?

not in general, incentives for politicians may decrease


Suggested by several empirical and theoretical studies from NEG, New Growth Theory, Theory of the Creative Class

Is this Suggestion really true – or is there just a feeling of more competition?

If it is true, we should find some clues for changes in Locational Competition by looking at

-- changing economic positions of cities and regions

-- changing economic developement strategies of cities and regions

General Hypothesis: Recently, Locational Competition has become more intensive, new categories of competition have evolved!


Basic Hypothesis I:

changing conditions of Locational Competition

changing economic positions of cities / regions

cities / regionswith locational qualities which go along („match“)

with modern demandswill have had a better economic development


Basic Hypothesis II:


cities / regions will have reactedwith new categories of strategies


Basic Hypothesis III:


changing economic positions of cities / regions

Opening of the iron curtain / economic transformation of cities and regions in CEE-countries

as a second major change


Two steps of research:

(1.) Review of theoretical and empirical literature on what has changed in general

(2.) Empirical research for identifying the changing structure of Locational Competition in the real world, within the context of case studies


Agenda:




IV. Empirical Results




Agenda:




IV. Main Results




What is new (1)?

“Old” locational factors become less important, businesses are becoming “footloose”, because of decreasing costs of transportation

The importance of Creativity and Knowledge has increased Localization economies have become more important

“Clusters” and “Networks” of businesses from one industry are necessary


What is new (2)?

Also urbanization economies and local “amenities” have become more important:

-- “… it is in cities that new goods and services are first created“ (Jane Jacobs 1969, p. 9)

-- „Theory of the Creative Class“ (Richard Florida)

-- with regard to amenities, a certain minimum size of a city is necessary to come to a basic level of supply!


What is new (3)?

“Rankings” of cities and regions have become popular as an instrument for private households and businesses for deciding on their appropriate location

A city’s “Image” has become more important Decision makers at the state, federal an EU level have

introduced more and more “artificial” processes of competition, e. g. for the title of a “Capital of Culture” or just for the best local plans for using categorical grants

cities and municipalities try to reduce intraregional competition by creating projects of intermunicipal cooperation or even new “Metropolitan Regions” higher degree of competition between these new units


What is new (4)?

Changes within the general conditions for cities and regions:

-- „Fiscal Stress“ of the public sector, especially at the local level-- Demographic change-- Opening of the „Iron Curtain“-- Climatic change


Agenda:




IV. Main Results




Criteria for the selection of case cities and regions:

- Cities and regions from East and West Germany and from Austria (control group)

- Cities with a different size and some rural areas

- As there was just a limited budget for research: the research was build on the existence of scholars who had already finished case studies / have special expertise for a city or region


Results of the selection process:

- Federal Capital City Berlin with more than 3 millions of inhabitants- Hanseatic City of Hamburg with 1,7 millions of inhabitants- Tradtional Fair City of Leipzig with about 500.000 inhabitants

- Former Capital Bonn with about 300.000 inhabitants

- The Austrian city of Linz (Higher Austria) with about 200.000 inhabitants

- The Austrian state of Carinthia with the cities of Klagenfurt and Villach, both with less than 100.000 inhabitants

- The region around Lake Constance with some smaller cities, althogeher with 3,6 millions of inhabitants

- The region Bitburg-Prüm with some smaller cities, near the border to Luxemburg, with about 100.000 inhabitants


Agenda:




IV. Main Results




New tendencies had, so far, only a limited influence on urban and regional development!

- One reason could be the interregional support policy in Germany high degree of equalization!

- Regions like Lake Constance Region or Bitburg-Prüm had a good performance, although there are no agglomerations

- Apart from the new locational factors, also regions with a good equipment with natural factors had a good economic development, e. g. access to the sea (Hamburg), nature as an asset for tourism (Lake Constance Region)


Decreasing transportation and transaction costs had often positive impacts on urban development:

- Cities with industries which produce goods / services which are associated with the new tendencies have profited (logistics, e. g. in Bonn, Hamburg; ICT, e. g. in Bonn)

- Negative impacts might be less visible

- One visible example of negative impacts: Trade fairs have become footloose Leipzig has lost more and more trade fairs, because the homemarket is too small!

- Less tourism in Carinthia, because tourists are able to finance flights to Southern Europe


Downsizing of administrative borders had relevant impacts:

- Economic growth in region near Luxemburg (small country with a lot of job opportunities, but high rents for land)

- Economic growth in cities and regions in the West which had received back their hinterlands (Hamburg, Villach, Linz)


Downsizing of administrative borders had relevant impacts:

- In Eastern Germany (Berlin, Leipzig), because of the Iron Curtain and the system of central planning, creative potentials had been destroyed or migrated to the West

because of agglomeration economies in the West, no re-migration took place, so far

- Leipzig has lost its status as a District Capital


All cities and regions have introduced major adjustments of their development strategies:

- Dominant categories of strategies:

Supporting universities and research institutes

Supporting some clusters of industries (but small differences between the industries between cities, e. g. Life Sciences are very popular!)

Investing in image and amenities for the creative class (e. g. in Hamburg, Leipzig with a new Lake District)

Creating Metropolitan Regions – but so far, the integration is rather weak


Only small empirical knowledge about the success of these new strategies, so far:

e. g. the arrangements of business incubators had no or even a negative impact on the number of local businesses

instead of investing into amenities, perhaps the development of „hard“ infrastructure or investment for public research units could be a better way


Agenda:




IV. Main Results




(1.) No evidence for negative impacts of new structures of Locational Competition at the national level!

- From the national view, new local strategies to support private businesses have positive effects for the economy as a whole

- Perhaps some strategies to create new amenities may lead to an oversupply, e. g. with opera houses or philharmonics (example: the new „Elbe-Philharmonics-Center“ in Hamburg)


(2.) At the local level, cluster strategies should not be used just for marketing purposes, but be related to really existing core areas of local industry within a city!


(3.) Creativity is always good, but so far, we do not know enough about the links between amenities, creativity and economic performance!


Agenda:




IV. Main Results




- Complementing the case studies with more general studies on selected aspects of Locational Competition

- Studies for cities / regions in other European countries, where the opening of the Iron Curtain had a less relevant role than in Germany and Austria

- Studies on the results of competition between local governments oversupply with goods and services?

- Studies on the importance of institutional factors on local and regional development


Вольшое спасибо!

Thank you very much

for your attention!Professor Dr. Martin T.W. Rosenfeld

Institut für Wirtschaftsforschung Halle (IWH)The Halle Institute for Economic Research

Forschungsabteilung StadtökonomikDepartment of Urban Economics

Kleine Maerkerstraße 8D-06108 Halle a.d. Saale | Germany

[email protected]

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