Regional Development Leads to National Growth

Economic development can be either regionalized or dispersed throughout a nation. Advantages associated with regional development are discussed by Simon Flynn and how this impacts growth, welfare, inflation, income distribution, and regional economic inequality (2014). Most nations are focused on regional development and have gained some success in finding growth and stability. 

Nations that seek to diversify their development throughout the country may have some difficulty finding enough capital to raise the nation as a whole. However, by focusing on regional areas it is easier to funnel resources for greater economic enhancement. Modern regional development seeks to develop the core as well as the peripheral area around that core for maximum appeal. 

Each nation has their individual strategies for regional growth and development. Some include equitable income distribution, GNP increase, GDP increases, productivity development, and international competition (Kim & Kim, 2002). These concepts are not mutually exclusive. For example, GNP and GDP are associated with income opportunities and competitive position.  

Regional development can create greater international economic integration. These follow four patterns or steps such as Free Trade Agreements, Customs Unions, Common Markets, and Economic Unions (Holden, 2003). Integration of regional interest is not permanent and can change forward or backward depending on market needs.  When successful, regional trade agreements can improve upon the flow of goods, services, and information throughout an area.  

Economists are more accepting of regional integration because it is these sub-national levels that appear to create the greatest economic momentum. The actors within the market can use their abilities to adjust their local institutions and resources to market needs easier than what can be done an on a national scale.   When regional economic integration works well it leads to growth and stability for the whole nation.  

Regional economies divert resources to creating stronger infrastructure, job growth, and industry development.  Old institutions may need to change when they are outdated or no longer foster growth. In the regional development process both private and public stakeholders should have similar goals in development. They can create greater ability to utilize resources for the best overall position within the global marketplace.   

Flynn, S. (2014). Economics of regional development. Research Starters Business.

Kim, E., & Kim, K. (2002). Impacts of regional development strategies on growth and equity of Korea: A multiregional CGE model. Annals of Regional Science, 36(1), 165.

Holden, M. (2003). Stages of economic integration: From autarky to economic union. Government of Canada Depository Services Program. Retrieved March 24^th, 2014 from http://publications.gc.ca/collections/Collection-R/LoPBdP/inbrief/prb0249-e.htm

How Does Information Networking Create an Export Region?

Export driven economies fuel themselves through an octane boost of information. Information makes their way into opportunity finding, employment, and development. With the right methods of information transference regions can further develop their export driving economies by understanding how innovation fulfills demand-side and supply-side economics. Paul McPhee (2012) explores innovation strategy information spillover contributions as an important catalyst in simulating exports and employment. 

Local development exists within a national context. Local stakeholders and business members work together to create development. Local networks and supply chains also rely on greater information links in national networks to be successful (Bathelt, 2005).  In other words, there exists the tighter information transference within local networks and wider networks within the nation. Even though the author doesn’t state this it can also include information and resource vines throughout the globe.

This is demonstrated by international organizations that seek investment locations that have assets, organizational and institutional structures that support innovation information that fosters development (Paniccia, 2002).  As a bounded rationality such organizations draw in this information to create new products and services that have market relevancy. Without the information sources full development is not possible due to a lack of development feed.

We can find a number of examples within the market. In Australia clusters formed from networks of regionally based firms within the wine, fishing, film, education, and tourism industries that collaborate and innovate collectively and individually through alliance, commissions, federations, and associations (Roberts and Enright, 2004).  Each industry has the opportunity to work with other industries in both the local setting as well as the national setting to create new products and services. Local clusters exist within a wider national and international context.

The author found that information transference fostered exportation of products and services. A process of increasing the sourcing, generation, transferring, and sharing of information within regional networks is necessary to increase export related employment. This information is used for mutual development that impacts demand-side and then export-side growth.  When information transference speeds up the opportunities from growth and exportation also increase and this can lead to higher levels of regional employment.

Comment: The study lends support to the concept that tighter formations of economic vines exist in clusters and these clusters are woven into regional hubs that are connected to other hubs both within a nation as well as across the globe. The success of local economies is based in the ability to quickly and easily transfer information and resources through their economic hubs. These hubs use their resources to create newer and better products.

Bathelt, H. (2005) Cluster relations in the media industry: Exploring the ‘distanced neighbour’ paradox in Leipzig. Regional Studies, 39, pp. 105-127.

McPhee, P. (2012). Export driven regional development: a comparison of policies based on tiberi-vipraio-hodgkinson innovation strategies and networked information flows. Australasian Journal of Regional Studies, 18 (1). 

Pannicia, I. (2002) Industrial Districts: Evolution and Competitiveness in Italian Firms, Edwards Elgar, Cheltenham

Roberts, B. H. and Enright, M. (2004) Industry clusters in Australia: Recent trends and prospects. European Planning Studies, 12(1), pp. 99-121.

Growing Small Business and the Economy Through Clustering

Small and medium businesses have difficulty getting past a critical threshold that allows them to grow in the market. Helping them collaborate with like-minded businesses helps their growth potential. A paper by Dhakal, et. al. (2013) discusses an open-innovation concept of living labs that allows stakeholders and customers to engage in the co-creation process together. They studied a cluster in Australia to show how this enhances business development and the economic engine.  

A living lab is a user-centered open innovation ecosystem (Hippel, 1986).  It uses modern technology to foster communication between stakeholders and customers to co-develop products.  The natural environment becomes the testing grounds for new products and services and this allows users to offer feedback on the success of changes and provide ideas on how to improve on the products and services. 

It provides a collaborative space (virtual or physical) that distributes problem-solving tools, capacities, and responsibilities to the end user to create greater innovation (van der Valt et. al., 2009).  This innovation is used to enhance the offerings of companies through enhanced products and services. In this context, innovation is seen as enhanced discovery whereby innovation equals invention plus exploitation (Roberts, 2007). 

Before an open innovation living-lab can be successful the stakeholders will need to agree on joint goals, and focus on the resolving of problems in the real world (Bergyall-Karaborn, et. al., 2009).  This process allows stakeholders to work collaboratively on developing products and consideration customer feedback to enhance their offerings. The information is shared among the stakeholders to further develop mutual products and services. 

When living labs have the right stakeholders and functionally work well together, each of the businesses receives a benefit for both the co-creation product/service as well as gain important knowledge for the enhancement of other products/services. When innovations are significant, it can have an impact on the regional well-being and local employment opportunities (Keniry, et. al. 2003). 

Living labs are beneficial to enhancing knowledge clusters. Clusters are defined as “a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities (Porter, 1998, p. 4). Cluster members need a way to communication to foster mutual growth. Greater growth contributes to the functionality of a larger economic hub.

The authors found that geographical togetherness of small businesses form around competence similarities. To enhance the local interaction it is possible to use open innovation (i.e. living labs) to further their growth. It requires a method operationalizing processes and developing mechanisms that help further innovation. Organizations that willingly collaborate around certain key objectives with other stakeholders and use customer feedback to enhance their products are likely to reap growth while the region experiences greater economic enhancement. 

Bergvall-Kåreborn, B., et. al. (2009). A Milieu for Innovation – Defining Living-Labs. In K. R. E. Huizingh, S. Conn, M. Torkkeli and I. Bitran (eds) Proceedings of the 2nd ISPIM Innovation Symposium: Simulating recovery - the Role of innovation management, New York City, USA. 6-9 December 2009.

Dhakal. et. al. (2013). The innovation potential of living-labs to strengthen small and medium enterprises in regional Australia. Australasian Journal of Regional Studies, 19 (3). 

Keniry, J., et. al. (2003). Regional Business – A Plan for Action, Department of Transport and Regional Services, Canberra.

Porter, M. (1998). Clusters and competition new agendas for companies, governments, and institutions. In M. Porter (Ed) On Competition (pp. 197-287), Harvard Business School, Boston.

Von Hippel, E. (1986). Lead users: a source of novel product concepts. Management Science 32, 791–805.

The Interactivity within Economic Hubs Produces Financial Value

The value of an economic hub is its ability to draw in new resources and convert them to higher value products for exportation. The economic value of a system can be seen as the total value of exports minus the total value of imports. In other words, the cost of materials and production input should be of lower value than the export of higher end value products. Effective hubs create value by using their connections and resources in an effective manner to generate sustainable financial resources.

Markets have large, medium and small businesses that contribute to the development of strong hubs through the interaction of resources, communication (business and social), and innovation that turns lower value inputs into larger exports. The more effectively the business and social community can work together the more the economic system can grow for the benefit of all members.

In the diagram these transactions are noted in blue and may be larger or smaller based upon the value of the business relationships and the value of their transactions. When government runs efficiently and transparently the transaction costs of conducting business within a particular hub decreases. Where demographic and market information is easily accessible and transaction costs are low businesses will naturally be inclined to invest further in these lower risk markets.

Larger businesses often rely on medium and small business to supply their needs as well as improve upon their capacities. For example, some small businesses may take over functions outside of the core competencies of the organization (i.e. maintenance) to help ensure strategic focus. Other businesses may provide new innovative concepts that larger businesses adopt, develop and export on a larger scale. Still others export in the niche market.  Each relies on the other for success.

Investment within proper infrastructure can reduce this costs by lowering taxes, increasing the speed of information transference, and furthering the interaction of business entities for development. Each infrastructure project should have goals and objectives to improve upon the social and business platform to spur greater economic growth. As activities and investment increases so will the life quality of the inhabitants. They will find improved services, employment opportunities, and greater options for personal advancement.

Imports of materials, information, and knowledge denoted in red should be of lower value than the export of finished products and services denoted in purple. The value creation of the hub is based upon on how businesses and individuals use these resources to develop higher value products for exportation. Individuals invest their time and energy and companies invest their financial resources to develop better products and more opportunities.  Labor, Management, and Investors have an inherent stake to produce value.

Cities are generally the center of suburbs and are part of the same hub. In the global economy it is the larger macroeconomics of an area that takes precedence. The business, civic, and social connections will determine how effectively they can work together to solve problems and become economic viable. Some businesses will be located within the suburbs and others within the city but each is connected together through social and business connections that help ensure mutual self-interest in development. When they do not produce value or cannot create synergy they are considered dysfunctional.  Constructive connections and financial interaction often leads to higher levels of economic activity for members.