Economic Development Overview

Economic Development OverviewArthur C. Nelson, Ph.D., FAICPUniversity of Utah

Arthur C. Nelson, Ph.D., FAICPUniversity of Utah

Key Economic Development Goals

Key Economic Development Goals

Create jobsImprove wagesReduce unemploymentEnhance tax baseCreate economic resilienceAdvance family and social quality of

lifeStabilize declining/stagnating areasImprove competitivenessEstablish economic linkages

Create jobsImprove wagesReduce unemploymentEnhance tax baseCreate economic resilienceAdvance family and social quality of

lifeStabilize declining/stagnating areasImprove competitivenessEstablish economic linkages

Purposes of Purposes of GovernmentGovernmentPurposes of Purposes of GovernmentGovernment

GrowthGrowthEconomic, cultural, social, quality of lifeEconomic, cultural, social, quality of life

StabilityStabilitySoften down-turns, provide certainty and Soften down-turns, provide certainty and

predictabilitypredictabilityDistributionDistribution

Elevate lesser-endowed to elevate all of societyElevate lesser-endowed to elevate all of societyAllocation Allocation A Major Planning Role A Major Planning Role

Allocate resources efficiently, such as land, Allocate resources efficiently, such as land, natural natural resources, public budgets, etc.resources, public budgets, etc.

GrowthGrowthEconomic, cultural, social, quality of lifeEconomic, cultural, social, quality of life

StabilityStabilitySoften down-turns, provide certainty and Soften down-turns, provide certainty and

predictabilitypredictabilityDistributionDistribution

Elevate lesser-endowed to elevate all of societyElevate lesser-endowed to elevate all of societyAllocation Allocation A Major Planning Role A Major Planning Role

Allocate resources efficiently, such as land, Allocate resources efficiently, such as land, natural natural resources, public budgets, etc.resources, public budgets, etc.

Allocation and Allocation and EfficiencyEfficiency

Allocation and Allocation and EfficiencyEfficiency

Technical efficiencyDMV; DABC Examples

“Pareto” efficiencyAt least one person better off and no one worse off

“Potential” efficiencyThe gains of the winners are larger than the losses

of the losersCompensatory efficiency

Losers get compensated from gains

Technical efficiencyDMV; DABC Examples

“Pareto” efficiencyAt least one person better off and no one worse off

“Potential” efficiencyThe gains of the winners are larger than the losses

of the losersCompensatory efficiency

Losers get compensated from gains

Allocation and EquityAllocation and EquityAllocation and EquityAllocation and EquityHorizontal equity

Equal protectionVertical equity

Ability to payEquity of endowments

Inherent advantages by birth, connections, etc.Equity of process

Some people can get ahead of the lineEquity of outcomes

Jobs from Ivy League admission based on “legacy”

Horizontal equity Equal protection

Vertical equity Ability to pay

Equity of endowmentsInherent advantages by birth, connections, etc.

Equity of processSome people can get ahead of the line

Equity of outcomesJobs from Ivy League admission based on “legacy”

Why Government Provision?Why Government Provision?Private goodsPublic goodsMerit goodsSpillovers and free-ridersMonopoliesPrice and income sensitivity

Private goodsPublic goodsMerit goodsSpillovers and free-ridersMonopoliesPrice and income sensitivity

Private GoodsPrivate GoodsWhich of the following ought to be left

to the market to determine the price?HamburgersCarsClothesNational parksClean air

Which of the following ought to be left to the market to determine the price?

HamburgersCarsClothesNational parksClean air

Public GoodsPublic GoodsCan’t exclude:

No admission costs or paying billsCan’t congest:

Enjoyment or quality is not reduced with more users

No one worse off with more people using itExamples

National defenseLighthousesAir (assuming no one pollutes – separate issue)

Can’t exclude:No admission costs or paying bills

Can’t congest: Enjoyment or quality is not reduced with more

usersNo one worse off with more people using it

ExamplesNational defenseLighthousesAir (assuming no one pollutes – separate issue)

Merit GoodsMerit GoodsMay be exclusive (have to pay to

use) or “congestible” (new users erode enjoyment of existing users) but not both.Beaches, community parks, cable TV

Future value to society may be more than current value in the market.Education, farmland

May be exclusive (have to pay to use) or “congestible” (new users erode enjoyment of existing users) but not both.Beaches, community parks, cable TV

Future value to society may be more than current value in the market.Education, farmland

Spillovers and Free Riders

Spillovers and Free Riders

Spillovers (aka “externalities”)City approves development creating traffic

congestion in the adjacent citySolution: Internalize externalities

Free-riderAffordable housing in one city used to help

provide the work force in another.Solution: All cities share in providing

affordable either directly or through regional financing schemes.

Spillovers (aka “externalities”)City approves development creating traffic

congestion in the adjacent citySolution: Internalize externalities

Free-riderAffordable housing in one city used to help

provide the work force in another.Solution: All cities share in providing

affordable either directly or through regional financing schemes.

What IS Economic Development?

What IS Economic Development?

Economic development is the increase in the standard of living of the population.

Is the process & policies to improve economic, political, and social well-being of people.

Competing though not exclusive measures:Aggregate economic improvement higher

average wages though skewed to top endIndividual economic improvement Higher median wages (half earn more and half earn

less) lower end benefits

Economic development is the increase in the standard of living of the population.

Is the process & policies to improve economic, political, and social well-being of people.

Competing though not exclusive measures:Aggregate economic improvement higher

average wages though skewed to top endIndividual economic improvement Higher median wages (half earn more and half earn

less) lower end benefits

ED ConceptuallyED Conceptually

Economic development means social & and technological progress.

Implies a change in the way goods and services are produced, not just an increase in production achieved using the old methods of production on a wider scale.Transitioning from manual automobile

assemble to robotic assembly

Economic development means social & and technological progress.

Implies a change in the way goods and services are produced, not just an increase in production achieved using the old methods of production on a wider scale.Transitioning from manual automobile

assemble to robotic assembly

Measuring EDMeasuring ED

Economic Growth usually means an increase in quantitative output; it may or may not involve development.

Economic growth often measured by rate of change of gross domestic or gross regional product (percent GDP/GRP increase per year.)

GDP/GRP is the aggregate value- added by the economic activity within an area.

Economic Growth usually means an increase in quantitative output; it may or may not involve development.

Economic growth often measured by rate of change of gross domestic or gross regional product (percent GDP/GRP increase per year.)

GDP/GRP is the aggregate value- added by the economic activity within an area.

ED OutcomesED Outcomes

ED usually intended to improveLiteracy rates (education)Life expectancy (health)Poverty rates “New theory” of ED adds improvement

to Leisure time Environmental quality Social justice

ED usually intended to improveLiteracy rates (education)Life expectancy (health)Poverty rates “New theory” of ED adds improvement

to Leisure time Environmental quality Social justice

Economic Development Policy

Economic Development Policy

ED Policies encompass three major areas:1 Government action to achieve price

stability, high employment, and sustainable growth.Monetary policies adjusting interest ratesFiscal policies spending or cutting taxesRegulating financial institutionsModifying trade, and tax policies

ED Policies encompass three major areas:1 Government action to achieve price

stability, high employment, and sustainable growth.Monetary policies adjusting interest ratesFiscal policies spending or cutting taxesRegulating financial institutionsModifying trade, and tax policies

Economic Development Policy

Economic Development Policy

2 Programs that provide Infrastructure such as highways, schools, parksServices such housing, crime preventionEducation

3 Job creation and retention throughBusiness finance & marketingNeighborhood developmentSmall business dev & business retention/expansion Technology transferReal estate development.

2 Programs that provide Infrastructure such as highways, schools, parksServices such housing, crime preventionEducation

3 Job creation and retention throughBusiness finance & marketingNeighborhood developmentSmall business dev & business retention/expansion Technology transferReal estate development.

Economic Development Profession

Economic Development Profession

Economic development professionals:Provide leadership in policy-makingEngage in business recruitment through

analysis and marketingAdminister policy, programs, and projects.

Economic development professionals:Provide leadership in policy-makingEngage in business recruitment through

analysis and marketingAdminister policy, programs, and projects.

Economic Development Profession

Economic Development Profession

Economic development practitioners Work in public offices at the state, regional, or local

level In public-private partnerships organizations partially

funded by local, regional, state, or federal tax money.

Economic development organizations (EDOs) are individual entities and sometimes departments of local governments.

Their role is to seek out new economic opportunities and retain their existing business wealth.

Economic development practitioners Work in public offices at the state, regional, or local

level In public-private partnerships organizations partially

funded by local, regional, state, or federal tax money.

Economic development organizations (EDOs) are individual entities and sometimes departments of local governments.

Their role is to seek out new economic opportunities and retain their existing business wealth.

Economic Development Profession

Economic Development Profession

Other organizations also engage in economic development on their own or in

partnership with others. Understand why.News mediaFoundationsUtilitiesSchoolsHealth care providersFaith-based organizationsColleges, universities, research institutions.

Other organizations also engage in economic development on their own or in

partnership with others. Understand why.News mediaFoundationsUtilitiesSchoolsHealth care providersFaith-based organizationsColleges, universities, research institutions.

ED CompetitionED Competition Intense competition between communities

and states for new economic development projects.

Economic incentives include:Tax incentivesHelp with investment capitalDonated land and goodsLabor force training

Trick is to tailor incentives to prevent opportunity costs

Intense competition between communities and states for new economic development projects.

Economic incentives include:Tax incentivesHelp with investment capitalDonated land and goodsLabor force training

Trick is to tailor incentives to prevent opportunity costs

ED Professional Technical Roles

ED Professional Technical Roles

Community profiling tools and database templates to measure community

assets versus other communities Job creation, economic output, and

increase in taxable base most common measurement tools.

ED professionals do not create jobs, but facilitate the process.

Community profiling tools and database templates to measure community

assets versus other communities Job creation, economic output, and

increase in taxable base most common measurement tools.

ED professionals do not create jobs, but facilitate the process.