local and regional development Flashcards
Example: FDI-led Economic Development in Romania
The government of Romania wanted to boost its economy, so they encouraged foreign companies from other countries to invest in their country. These foreign companies set up factories and businesses in Romania, which created more jobs and produced more things, like clothes or electronics.
Benefits of FDI:
Because of these foreign investments, Romania’s economy grew. More people got jobs, and the country made more products to sell. This seemed like a good thing for Romania.
Low Embeddedness in Local Economy:
However, there was a problem. These foreign companies didn’t really rely on local suppliers or businesses to help them make their products. They brought in their own materials and didn’t work closely with Romanian businesses.
The Case of Mattala Rajapaksa International Airport
Cost of USD 210 million
- plans for residential complexes, a cricket stadium, and an industrial park, all aimed at transforming a small village with a population of around 13,000 into Sri Lanka’s second-largest city.
-The idea was to create a regional hub to balance development disparities beyond the capital city.
-lack of actual demand for the services being developed.
-There are no regular scheduled flights
Castellón-Costa Azahar Airport
Population of around 800,000, already had an existing airport, and another one was conveniently located nearby in Alicante.
-price tag of €150 million.
– the airport stood vacant for nearly four years.
Collaboration Over Competition: The rush to mimic neighboring regions without considering mutual cooperation and resource sharing can lead to an inefficient allocation of resources.
Real Demand Matters: Infrastructure projects should be driven by actual demand and necessity rather than being guided solely by aspirations.
Prudent Financial Planning: Large-scale investments should be undertaken with careful financial planning, ensuring that the potential benefits outweigh the costs.
EU’s regional policy
The policy employs targeted financial aid, commonly known as “structural funds,” to regions struggling to reach a GDP per capita threshold of 75% of the EU average.
An integral aspect of this policy - the substantial investment in infrastructure - raises pertinent questions about its effectiveness and outcomes.
reasons against investment in infrastructure
Rodriguez-Pose and Fratesi’s findings clearly indicate a positive medium-term impact of investments in human capital. Such investments, which prioritize education and skills development, contribute to robust regional economic growth over time.
However, in the realm of infrastructure investments, the study reveals a different narrative. Despite the substantial allocation of resources to infrastructure projects within the EU’s regional policy, Rodriguez-Pose and Fratesi find no conclusive evidence of short- or medium-term impacts on regional economic growth stemming from these investments.
impact might take longer to materialize.
reasons against Rodriguez-Pose and Fratesi
- Not all infrastructure investments are equal in terms of impact. Some types of infrastructure might yield faster and more noticeable outcomes than others. For instance, investments in critical utilities like water and electricity supply could directly improve living conditions and encourage economic activity in a relatively short period.
- Critics could contend that the lack of significant short-term impacts observed in the study could be due to various local factors and challenges related to project implementation. Regional differences in governance, planning, and project execution could influence the outcomes of infrastructure investments. Therefore, attributing the lack of impact solely to the nature of infrastructure investments might oversimplify a complex situation.
-Counterarguments could also focus on the limitations of the Rodriguez-Pose and Fratesi study itself. The study’s findings might be influenced by data availability, regional variations, or other methodological factors that could affect the accuracy of its conclusions.
what are Public-Private Partnerships (PPPs):
private companies collaborate with the public sector to fund and manage infrastructure projects. This approach allows governments to leverage private sector expertise, innovation, and resources while sharing the risks and rewards.
how does the company benefit from PPP
Profit: The company gets paid for its services and expertise in building and managing the infrastructure project. This payment is usually agreed upon in advance, so the company knows it will make money from the partnership.
Reduced Risk: Sharing risks with the government can be beneficial for the company. If unexpected problems arise during the project, the financial burden doesn’t fall solely on the company; it’s shared with the government.
Access to Resources: The government might provide resources, such as land or permits, that can make the project easier for the company to carry out.
Reputation and Experience: Successfully completing a PPP project can enhance the company’s reputation and show off their skills. This can help them win more contracts in the future, both in the same country and in other places around the world.
Special Economic Zones (SEZs)
Specific areas within a country that offer certain advantages to firms operating there. These advantages include tax incentives, simplified administrative processes, and various support services.
Example of SEZ
The city of Shenzhen. China’s government established SEZs to attract foreign investment and stimulate economic growth. Shenzhen, for instance, transformed from a small fishing village into a global manufacturing and technological hub.
strategic decision-making in wine industry example
Argentina held a prominent position as a high-volume wine producer.
-Focus was on low-quality wine primarily for the domestic market.
Began to shift significantly by the late 1990s.
-Experienced a profound transformation. This period saw a remarkable shift from domestic-oriented production to a focus on quality and international exports.
-wine exports from a mere few million dollars in 1990 to a staggering $480 million by 2004.
Key Locations: Mendoza and San Juan: Within Argentina’s wine industry, two provinces, Mendoza and San Juan, emerged as prominent players, each taking a distinct path.
Mendoza’s Modernization Leadership: Mendoza spearheaded the modernization of the Argentinian wine industry. The province adopted strategic measures to improve production quality and align with international tastes. This proactive approach led Mendoza to become a trailblazer in the industry’s transformation. Its wines gained recognition and acceptance on the global stage due to their enhanced quality and alignment with evolving consumer preferences.
San Juan’s Lagging Position: In contrast to Mendoza’s dynamic trajectory, San Juan’s wine producers remained laggards in the industry’s transformation. The province did not fully embrace the modernization efforts seen in Mendoza. As a result, San Juan struggled to match the success and international appeal achieved by its counterpart.
why couldn’t San Juan improve its wine industry?
Attracting Outside Investment: The provincial government of San Juan sought to invigorate its wine industry by attracting investment from external sources. However, this approach led to a concentration of investment in a handful of large firms that operated within the region. These large firms were the primary recipients of external investment, leading to a situation where they were less engaged with other local wine producers.
Limited Interaction and Fragmentation: Despite attracting investment, the wine industry in San Juan experienced increasing social fragmentation. This fragmentation refers to the lack of cohesion and collaboration among various stakeholders within the industry. The larger firms that received outside investment were not effectively interacting or cooperating with other local wine producers, which hindered the development of a unified strategy for the industry’s technological advancement.
Failed Attempts at Collaboration: The passage mentions that during the 1990s, different sectoral associations within the wine industry proposed the establishment of new institutions aimed at supporting training and export promotion. However, these attempts at collaboration and joint strategy-building were unsuccessful. The state government and the industry associations were unable to come to an agreement, and these efforts failed due to mutual accusations of “free riding” (benefiting from resources without contributing) and attempt to control state resources
why was Mendoza more sucessful with the wine industry
Dialogue and Collaboration: In Mendoza, there was a continuous and positive conversation between government officials and business people in the wine industry. This meant that they talked to each other often and worked together.
Support Organizations: The government set up different groups to help the wine industry with sharing knowledge and training. This support helped the industry grow and improve.
Working Together to Solve Problems: The government also took steps to help the winemakers cooperate and solve challenges together. They did things to encourage joint efforts in solving common problems.
Building Relationships: Mendoza’s agricultural research institute organized events like workshops and vineyard tours. These events brought winemakers from different areas together. It helped them build relationships and learn from each other.
Question: What were cluster policies and how did Bavaria in Germany implement them for promoting innovation?
Answer: Cluster policies were strategies aimed at fostering connections and knowledge-sharing among key players in a local economy. In Bavaria, the government invested €1.35 billion from 1999 to 2004 in five technology areas to:
Enable firms to use joint research facilities.
Strengthen public research institutes and universities.
Improve training and lifelong learning.
Support international linkages and innovative start-ups.
Question: What were the outcomes of these cluster policies in Bavaria?
Research by Falck et al. (2010) highlighted key outcomes:
The likelihood of innovation increased by around 5% in industries targeted by the policy.
Firms reduced R&D spending by nearly 20%, suggesting increased cost-efficiency in innovation.
Firms benefitted from greater access to external knowledge and collaboration with public research institutes.
