economic growth in delaware: costs, benefits, and realities
TRANSCRIPT
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Economic Growth in Delaware:Costs, Benefits, and Realities
Dr. William R. Latham III
Dr. Kenneth A. LewisUniversity of Delaware
College of Business & Economics
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Examples of SuccessfulRegional Development
Silicon Valley
Austin
ResearchTriangle
Delaware
Route 128
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Examples of FailedRegional Development
Silicon Forest
Bionic Valley
Ceramics Corridor
Laser Lane
Medial Mile
Optics Valley
Satellite Alley
Silicon BayouSilicon Desert
Silicon Mountain
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Reproducing a “Silicon Valley”In Delaware Is Unlikely
• Silicon Valley guru, Frederick Terman, failed torepeat success in ventures with Princeton andSouthern Methodist University– Unique interactions with Stanford and Berkeley led to
success in Silicon Valley
– Post-World War II defense spending in electronics
• Large market for resources and products existedalong Route 128
• Consortium of microprocessors in Austin, TX
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What Factors Caused Failure?
• Unprepared labor force
• Insufficient time for success
• Failure to recruit key firms/industries
• Inadequate infrastructure
• Inability to take the “second step”
• Cultural/institutional barriers to growth
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What Can We ReasonablyExpect In Delaware ?
• Sustained moderate economic growth isattainable.
• We can avoid the mistakes of failedregional development efforts.
• We can build on the foundations wehave.
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Foundations of RegionalEconomic Growth
• People
• Sites
• Infrastructure
• Cultural/Institutional Environment
• Amenities
• Cumulative and Reinforcing Effects
Research Findings:People
¥ A concentration of college-educated adultshas a strong positive effect on growth inproducer services (Porterfield, 1990).
¥ High school attainment level has a significantpositive relationship with entrepreneurialactivity (Bartik, 1989).
¥ A large proportion of new jobs are created byautonomous small and medium enterprises(Reynolds, 1994).
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Foundations of RegionalEconomic Growth
• People
• Sites
• Infrastructure
• Cultural/Institutional Environment
• Amenities
• Cumulative and Reinforcing Effects
Infrastructure
¥ Roads and highways
¥ Telecommunications
¥ Sewer
¥ Water
¥ Airports
¥ Ports
Research Findings:Infrastructure
¥ Infrastructure investment increases the regionaldemand for private inputs and stimulates themultiplier effect within the economy (Fox, 1990).
¥ The greatest benefit of infrastructure is its abilityto serve as a catalyst for development and increasedproductivity through improved efficiency (Garrison,1994).
¥ Considerable debate exists regarding the exactmagnitude of infrastructure investment (Aschauer,1989; Munnell and Cook, 1990; Harmatuk, 1996).
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Foundations of RegionalEconomic Growth
• People
• Sites
• Infrastructure
• Cultural/Institutional Environment
• Amenities
• Cumulative and Reinforcing Effects
Cultural/InstitutionalEnvironment
¥ Incentives: Taxes, EnablingLegislation
¥ Sharing of intellectual property rights
¥ Labor laws: Right-to-Work,Compensation
¥ ÒOne-stop shoppingÓ
¥ Clearly delineated land use rules
Research Findings:Cultural/Institutional Environment
¥ Incentives have historically been provided throughfiscal policy; however, Ònew waveÓ regional growthpolicies (support of innovation, industrialmodernization, technological advancement, andtechnology transfer programs), have recently moved tothe forefront (Bartik, 1991).
¥ Tax abatements and deferred tax payments have beenfound to be insignificant in stimulating economic growth(Walzer and PÕng, 1995).
¥ Right-to-work laws reduce the cost of labor by 10% to18% and the cost of capital by 9% to 19% (Garofalo andMalhotra, 1992).
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Foundations of RegionalEconomic Growth
• People
• Sites
• Infrastructure
• Cultural/Institutional Environment
• Amenities
• Cumulative and Reinforcing Effects
Research Findings:Amenities
¥ Regional amenities are important to economicgrowth (Kohler, 1997).
¥ Firms migrate to regions where profits can bemaximized; lower wages in areas with significantamenities attract new business (Clark andCosgrove, 1991).
¥ In firm location decisions, avoidance ofdisamenities is more important than attraction toamenities (Gottlieb, 1995).
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Foundations of RegionalEconomic Growth
• People
• Sites
• Infrastructure
• Cultural/Institutional Environment
• Amenities
• Cumulative and Reinforcing Effects
Research Findings:Cumulative and Reinforcing Effects
¥ Access to pools of specialized labor reduces trainingcosts and minimizes the loss of productivity resultingfrom the mismatch between workers and firms (Kim,1987).
¥ By following other firms, new companies can reduce orentirely eliminate the search costs involved withindustrial location (Pascal and McCall, 1980).
¥ By locating in an established urban setting, firms canmaximize information-intensive business contacts, whichspawns product innovation (Davelaar and Nijkamp,1989).
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Foundations of RegionalEconomic Growth
• People
• Sites
• Infrastructure
• Cultural/Institutional Environment
• Amenities
• Cumulative and Reinforcing Effects
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Realities of Economic GrowthPolicy for Delaware
• Economic development resources arelimited– Delaware does not have sufficient resources to
promote economic development of all kinds inall places.
– Delaware must be selective with regard toregional growth policies.
• Benefits and costs should be the basis forthe selection of growth policies
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Benefits of EconomicGrowth in Delaware
• Providing desirable job opportunities forDelawareans
• Expanding the tax base to support increased publicgoods and services
• Increasing private property values
• Ensuring Delaware’s future: growth is cumulativeand reinforcing
• Expanding markets to support increased consumerchoices
Research Findings:Benefits
¥ One in five new jobs created goes to localresidents with the other four going to in-migrants(Bartik, 1994).
¥ New JerseyÕs property tax base grew by 24% inthe 1970Õs and by an additional 75% between1980 and 1987. The business tax base peremployee almost doubled in real terms (48%) andgrew almost three times faster than the rate of jobgrowth (17%) in the 1980Õs (Danielson andWolpert, 1991).
Research Findings:Benefits
¥ A dollar increase in median incomeproduces a $0.20 to $0.40 increase inland values per acre (Ottensmann,1977).
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Benefits of EconomicGrowth in Delaware
• Providing desirable job opportunities forDelawareans
• Expanding the tax base to support increased publicgoods and services
• Increasing private property values
• Ensuring Delaware’s future: growth is cumulativeand reinforcing
• Expanding markets to support increased consumerchoices
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Potential Costs of EconomicGrowth in Delaware
• Congestion
• Crime
• Environmental Degradation
• Urban Sprawl
• Loss of Local Identity
• Cross-border Effects
Research Findings:Congestion
¥ Congestion cost the the British economyapproximately 3% of GDP in 1987 (Banister,1994).
¥ Congestion is increasing most in areas of rapidemployment and/or income growth (NationalTransportation Statistics , 1997).
¥ Economic benefits of the transportationinfrastructure can best be realized by using theexisting stock more efficiently (Boarnet, 1997).
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Potential Costs of EconomicGrowth in Delaware
• Congestion
• Crime
• Environmental Degradation
• Urban Sprawl
• Loss of Local Identity
• Cross-border Effects
Research Findings:Crime
¥ Growth of population makes theapprehension of criminals more difficult andencourages illegal activity. Transientsincrease the incidence of property crime(Jarrell and Howsen, 1990).
¥ Higher per capita and aggregate incomeslead to higher total crime rates (Hemley andMcPheters, 1975).
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Potential Costs of EconomicGrowth in Delaware
• Congestion
• Crime
• Environmental Degradation
• Urban Sprawl
• Loss of Local Identity
• Cross-border Effects
Research Findings:Environmental Degradation
¥ Economic growth brings an initial stage ofdegradation followed by a period ofenvironmental improvement (Arrow et al.,1995; Grossman and Krueger, 1995).
¥ When a particular standard of living isattained, constituents begin to focus onsurrounding environmental amenities(Grossman and Krueger, 1995).
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Potential Costs of EconomicGrowth in Delaware
• Congestion
• Crime
• Environmental Degradation
• Urban Sprawl
• Loss of Local Identity
• Cross-border Effects
Research Findings:Urban Sprawl
¥ Urban sprawl leads to conflicting land uses,pressures on agricultural and open space, highercost of service provision, transportationcongestion, and social disparities (Thomas,1990).
¥ Estimates of the cost associated with urbansprawl range from as low as 3% higher than thatof planned development (Peiser, 1984) toÒsignificantly higher.Ó (Real Estate ResearchCorporation, 1974).
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Potential Costs of EconomicGrowth in Delaware
• Congestion
• Crime
• Environmental Degradation
• Urban Sprawl
• Loss of Local Identity
• Cross-border Effects
Cross-border Effects
¥ Realities: DelawareÕs growth is fueled byout-of-state workers from Pennsylvania,Maryland and New Jersey.
¥ Benefit: Expanding income tax basewithout resident costs (e.g., schools)
¥ Costs: Must provide transportationinfrastructure to accommodate thoseworkers
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Potential Costs of EconomicGrowth in Delaware
• Congestion
• Crime
• Environmental Degradation
• Urban Sprawl
• Loss of Local Identity
• Cross-border Effects
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The Desirability of GrowthVaries by Industry
• Benefits vary by industry
– Wages and salaries
– Tax base
• Costs vary by industry
– Environmental degradation
– Congestion
Research Findings:Average Salary by Sector
Sector Salary
FIRE $36,109
T ra n s . , Comm., and Util. $34,739
Const ruct io n $31,446
Services $26,006
Agriculture $19,657
Retail $14,992
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The Desirability of EconomicGrowth Varies by Location
• Benefits vary by locationFor example, per capita income is approximately $31,500in New Castle County, but only $21,000 in Sussex County,so a $25,000 job raises average income in Sussex Countybut not in New Castle
• Costs vary by location
– Environmental sensitivity
– Congestion/Identity Trade off• New Castle County vs. Sussex County
Research Findings:Distribution of Benefits
¥ Distribution of benefits is wider than that ofgrowth: stability in the distribution of benefitsamong communities, large gains for communitiesthat grow most rapidly but benefits for communitiesthat experience little or no growth directly(Danielson and Wolpert, 1991).
¥ During the 1980Õs, northern New Jersey gained400,000 jobs but only 150,000 new residents. Mostof the benefits were attained without many of theassociated costs (Danielson and Wolpert, 1991).
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What do we mean by“economic growth”?
• More jobs?
• More people?
• More tax revenue?
• More public services?
• Higher per capita income?
Research Findings:ÒEconomic GrowthÓ
¥ Gross output and employment are adequatefor measuring aggregate growth. However,personal income is more relevant fordetermining the economic welfare and averagematerial well being of individual constituents(Malizia, 1990).
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Toward a Systematic Evaluationof Growth Proposals
Agr. Constr. Man. Trans. Whole. FIRE Retail Service Gov'tNew
Castle Kent Sussex
Job OpportunitiesPublic G&S
Property ValuesFutureConsumer ChoiceCongestionCrime
EnvironmentUrban SprawlIdentity
Industrial Sector County
Benefits
Costs
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Example of Growth ProposalEvaluation
Industrial Sector CountyFinancial, Insurance, Real Estate New Castle
Job Opportunities ++ +Public G&S Property Values Future + +Consumer Choice + +
Congestion - -CrimeEnvironmentUrban Sprawl - -Identity
Costs
Benefits
Proposal: A firm in the Financial, Insurance, and Real Estate sector desires to locate in New Castle County
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Example of Growth ProposalEvaluation
Industrial Sector CountyManufacturing New Castle
Job Opportunities + +Public G&S ++ +Property Values + +Future + +Consumer Choice
Congestion - -CrimeEnvironment --- ---Urban Sprawl - -Identity
Costs
Benefits
Proposal: A firm in the Manufacturing sector desires to locate in New Castle County
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Example of Growth ProposalEvaluation
Industrial Sector CountyManufacturing Kent
Job Opportunities + +Public G&S ++ Property Values + +Future + Consumer Choice
Congestion -CrimeEnvironment --- -Urban Sprawl - Identity -
Costs
Benefits
Proposal: A firm in the Manufacturing sector desires to locate in Kent County
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What Should We ReasonablyExpect In Delaware ?
• Delaware can attain sustained moderateeconomic growth in the future.
• Provided that we...– understand the costs and benefits associated
with proposals
– avoid the mistakes of failed regionaldevelopment efforts, and
– build on the foundations currently in place