THE ROLE OF LOCAL AMENITIES IN THE BIRTH AND DEVELOPMENT OF

HIGH TECHNOLOGY REGIONS

Michael Oden Byung Su Kang

Young Sub Kwon

Korea Research Institute for Human Settlements

KRIHS Research Report 2007-44

THE ROLE OF LOCAL AMENITIES IN THE BIRTH AND DEVELOPMENT OF HIGH

TECHNOLOGY REGIONS

Michael Oden Byung Su Kang

Young Sub Kwon

Korea Research Institute for Human Settlements

Copyright © 2007 Korea Research Institute for Human Settlements

All rights reserved. Printed in the Republic of Korea. No part of this book may reproduced in any manner without permission except in the case of brief

quotations embodied in critical articles and reviews. For information address Korea Research Institute for Human Settlements, 1591-6, Gwanyang-dong,

Dongan-gu, Anyang-si, Gyeonggi-do, 431-712, Korea.

http://www.krihs.re.kr

The role of Local Amenities in the Birth and Development of High Technology Regions

Michael Oden , Byung Su Kang and Young Sub Kwon

Korea Research Institute for Human Settlements, Research Report: 2007-44 100 p. ISBN 89-8182-527-0

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Authors Michael Oden, Associate Professor, University of Texas at Austin, USA Byung Su Kang, Professor, Chungnam National University, Korea Young Sub Kwon, Research Fellow, KRIHS, Korea

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F · O · R · E · W · O · R · D

FOREWORD

The world economy of the twenty-first century has been

transitioning from the exchange of more standardized commodities and services to the exchange of products embodying qualitative distinctiveness, variety, and technological innovation. The role of high technology and other creative and knowledge based businesses is becoming more important than ever before. The birth and development of regions based on growing and dynamic sectors of the so called new economy can serve as an index of national innovation and competitiveness among advanced market economies.

I am very pleased to share this research result, The Role of

Local Amenities in the Birth and Development of High Technology Regions. This paper reviewed comprehensively and systematically the theoretical and empirical literature on the role of amenities in local economic development and considered relationships between local amenities and general regional growth process focusing on the role of local amenities in the geography of “new economy industries’. This research tries to open up an important role for local amenities in explaining regional growth.

Further, this research presents an extensive review of the

empirical research on associations between specific types of amenities and factors that influence growth. This research also evaluated general equilibrium, hedonic price models, etc. and specified a conceptual model that attempts to address issues of causality. In order to get beyond some of poorly specified discussions of the amenity/growth relation, to better understand the influence of local amenities on regional development, and provide useful guidance for government

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actors in Korea, this research refers to the cases of Austin in the US, Cambridge in the United Kingdom, and Daejeon in Korea.

As mentioned above, these cases help to understand more

pragmatically how local amenities influence development based on new economy industries. The research found that in each case, government investments were crucial to the seeding of early technology businesses. The research explores the question of “What role did amenities play in these “success story” cases?” In particular, were high technology firms attracted to the region because pre-existing pool of skilled labor and unique local amenities, or did initial location of high technology draw skilled labor to these regions who then demanded high quality amenities from local or other levels of government?

The research provides valuable insights and a more balanced

view. Owing to the research, I realized that some of the local amenities are significantly correlated with high technology growth, and they incorporate new elements into economic development strategies in the development of high technology regions. It is not necessary to doubt the fact that investments in some local amenities such as well-planned housing, high quality school and cultural activities are crucial in attracting and especially retaining skilled professionals and high tech entrepreneurs. We managed to have a new focus in economic development planning.

This research can help planning researchers, planning

practitioners and policymakers engaged in the field of high technology and regional development. I would like to deeply appreciate Professor Michael D. Oden at the University of Texas, Austin and Professor Byung Su Kang at Chungnam National University. My sincere thanks also go to Dr. Young Sub Kwon at this research institute (KRIHS) for her dedication in the joint research. My final thanks go to other researchers in and out of KRIHS with their valuable comments for enhancing the quality of the report.

December 2007 Byeongsun CHOE President, KRIHS

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S · U · M · M · A · R · Y

SUMMARY

There has been a growing emphasis on the role of local amenities and qualities of place in promoting the growth of knowledge based industries. The work of several prominent scholars and practitioners, especially Richard Florida and his work on the significance of what he calls the creative class, has emphasized that high quality local amenities are increasingly central to dynamic regional growth. The overarching goal of this paper is to carefully and systematically review the theoretical and empirical literature on the role of amenities in local economic development and delineate specific implications for regional and local development policy. We attempt to provide a more sophisticated understanding of the role of amenities in local economic development to provide policy makers with better guidance in fashioning policies to encourage growth in second tier regions.

Chapter I: Introduction

This chapter outlines the main themes, research issues and

policy implications of this study. There has been a growing emphasis on the role of local amenities and qualities of place in promoting the growth of knowledge based industries. We consider associations between local amenities and general regional growth, but focus on the role of local amenities in the geography of so called new economy industries. These industries include the conventional high technology industries, but also other knowledge intensive high growth industries such as producer and financial services, media, and culturally based industries such as fashion, art and design. These industries are thought to be especially dependent upon skilled labor pools and

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localized knowledge transfer that might be strongly influenced by qualities of place. We investigate the strongest and most controversial argument that local amenities constitute a crucial factor in the attraction of the high skilled workers and entrepreneurs that drive the development of these “new economy” industries. Questioning more simplistic causal arguments concerning the role of local amenities in regional growth, we attempt in this chapter to distill the key issues and build a broader and more nuanced context to better understand the role of local qualities of place.

Chapter II: New Regional Growth Theories and the Role of Qualities

of Place

This chapter builds up the theoretical framework of the report. We begin by placing the local amenities/growth question in broader theories explaining uneven regional growth dynamics in advanced market economies. Due to changes in conventional location factors related to rapid declines in transportation and communication costs and sectoral growth favoring knowledge based industries, new mechanisms to encourage investment and growth outside major primary cities have been advanced. Studies of high technology development and the influence of government policy in creating new technology centers focused, in the 1990s, on a certain “recipe list” of extra-firm factors that were seen as essential in sparking high technology growth in regions outside pre-existing centers. This list included variously the presence of major universities or public research institutions, specific training institutions for skilled workers, small business start up assistance, formal and informal business associations, and specific financial capacities such as venture capital.

But these efforts to seed new technology centers were at best a

mixed success. Many new “technopoles” created through public sector intervention remained only corporate branch sites of vertically integrated, externally oriented facilities. Current discussions of regional competitiveness suggest that firms and skilled workers have more locational freedom in new economy sectors and are not as tied to conventional location factors such as proximity to markets or transportation hubs. This opens up a more prominent role for local amenities and quality of place in explaining regional growth processes. Without continued institution building and attention to local amenities, it is more difficult to attract, and especially retain, the diverse and

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dynamic networks of firms and pools of skilled labor to support the evolution of new economy industries. Understanding the influence of specific qualities of place may therefore be a crucial and overlooked factor in explaining the development trajectory of second or third-tier urban centers. Chapter III: Specifying the Links between Place-Based Amenities and

Economic Performance.

In this chapter we carefully define local amenities, distinguish between the concepts of quality of life and quality of place and propose potential channels of influence between specific amenities, investment by knowledge based firms, and the migration and retention of high skilled labor. Studies of the association of local amenities and regional economic performance have a long history that predates the recent focus on this topic. But the empirical evidence linking broad amenity or quality of life measures to economic outcomes is very mixed and unclear. Our review of the literature indicates that there is no single model that can demonstrate with reasonable levels of confidence associations between amenities and economic growth for all regions.

In light of these issues, we try to carefully delimit the problem

through a series of important definitions and clarifications. To add clarity, distinctions are made between three broad categories of amenities: neighborhood amenities such as quality housing, affordable housing prices, quality schools, safe communities; urban amenities such as cultural assets and activities, unique architecture and urban design, diverse entertainment and dining entertainment experiences; and environmental amenities including climate, general air and water quality, pubic parks, beaches and open space, outdoor recreational opportunities. We then argue that interest should be concentrated on a subset of firm and household location decisions that apply most directly to how second and third-tier regions can grow through the development of new economy industries.

The aim is to develop a reasonable understanding about specific

associations between the three categories of amenities and behaviors of certain firms and households. The strongest case against a predominantly amenity-based explanation for regional growth in newly developing areas is that employment and lifetime earnings

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potentials are paramount to the location decisions of skilled workers. It is, therefore, argued that high quality local amenities must occur in tandem with a preexisting and evolving production complex in one or more new economy industries to trigger a flow of highly skilled in-migrants.

Chapter IV: Empirical Evidence of the Role of Amenities in Regional

Growth

In this chapter we thoroughly review a range of empirical studies on the effects of amenities on economic behaviors and outcomes. A large number of survey based studies that delineate specific attributes of place that are deemed important for firm location and labor migration or retention are reviewed and synthesized. With some variation, specific neighborhood amenities (school quality, housing affordability, low crime and mobility) are strong influences on both firm and worker location. Environmental quality is more important for firm location than worker migration, but this suggests that regions that want to develop new high tech or new economy industries by attracting outside investment are more likely to succeed if they have favorable environmental conditions.

While most urban amenities are not as highly ranked, cultural

facilities and entertainment are factors that influence firm and worker location. Perhaps once key neighborhood amenities and environmental conditions are considered, regions that have richer cultural and entertainment opportunities would be preferred by firms and workers/households. But the evidence here is not clear. In fact, this firm and household survey information has a number of limitations for understanding the broader relationships between amenities and regional growth processes. For example, it is not possible to clearly determine what mixes or combinations of amenities are more important than others.

Some of these limitations are addressed in empirical models

that attempt to isolate the value of local amenities in interregional differences in wage rates and residential property values. In particular, hedonic price type models can be extended to estimate individual values of specific amenities and can be summed to derive an aggregate amenity score for a particular city or region. In theory some control for relative city size could be added as an independent variable to

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account for different size cities at different levels of development. We did not, however, find any studies that incorporated these elements.

Chapter V: Qualitative Evidence on Amenities and Growth of Second-

Tier Cities

The empirical information reviewed provides helpful insights on the role of amenities in regional growth processes. We have good information about the multi-faceted amenities that constitute qualities of place, we have some understanding about how different types of amenities are valued by workers and firms in all sectors and in high tech sectors, and we can gain insights on the value of individual amenities and overall quality of place through hedonic price models.

On the other hand, while it might be possible to develop models

that account for the role of amenities in different types of cities at different stages of development, no empirical estimates of this nature exist. We believe that careful qualitative historical analysis of cases can provide very valuable insights into how amenities might influence a process of regional evolution based on the growth of high technology or new economy industries. We will focus in detail on the very compelling U.S. case of Austin, Texas. Austin is an ideal case because it has grown in the course of 35 years from a small university town and state capital city to a major second tier center of high technology and broader new economy sectors. This case supports the proposition that local amenities were an important regional advantage in the initial attraction of high technology or new economy firms and workers.

But amenities are only a part of the story and certainly would

not have stimulated the birth and subsequent evolution of the complex on their own. The attraction of initial firms and the subsequent build-up for the regional production complex involved heavy strategic local investment to build up the local R&D base, attract investments in advanced private R&D and product development, and encourage local start-up and spin-off firms. The build up of the local complex offered attractive employment opportunities for high skilled workers. Once a critical mass of high skilled workers emerged, specific urban amenities responded to increasing demand. At the end we offer some brief analysis and comparisons of second tier centers such as Cambridge, England and Daejeon, South Korea.

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Chapter VI: Conclusions

This chapter sums up the quantitative and qualitative information from our extensive review of the literature on amenities and economic development. The balance of evidence does suggest that local amenities are an important factor in regional economic development in general and in regional development based on new economy sectors in particular. We can identify combinations of amenities that are likely to be important at crucial stages in the growth of new economy sectors in second-tier cities, but the promotion and upgrading of specific amenities is not the crucial or determining factor behind the evolution of local complexes. To spark and sustain the growth of knowledge based industries in a region, amenities must be viewed as one necessary but insufficient element in a broader and more complex local economic development strategy.

The results of this study can be summarized in four

propositions for regional policy makers.

● First, local amenities must always be considered together with classic location advantages and local economic initiatives to directly stimulate local firms and attract external investment. Amenities and investments in amenities are complements rather than substitutes for more traditional economic development.

● Second, basic neighborhood (schools, housing, crime and

transportation mobility) and environmental amenities (clean air and water and outdoor recreation) are the most important objects of local policy and investment. This is especially true at early stages of development and at later stages when rapid growth can threaten these core qualities of place.

● Third, the type of urban amenities highlighted by Florida

(restaurants, entertainment districts and other cool things) seem less important and are driven by demand that expands as new high skilled workers move to an area. These amenities are more an effect than a cause of growth, but prudent investment in cultural assets during later phases of regional development may help sustain in-migration and firm growth and dampen the attraction of larger primate cities.

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● Finally, amenity strategies should always be only one component within a broader local economic development strategy that incorporates investments in human capital, research and development, technical assistance and small business development. Public sector action must be directed at a range of common market failures in a logical and disciplined way to spur healthy economic growth.

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C · O · N · T · E · N · T · S

CONTENTS

FOREWORD......................................................................................... i SUMMARY ........................................................................................ iii CONTENTS ........................................................................................ xi LIST OF FIGURES........................................................................... xiii LIST OF TABLES ............................................................................ xiv I. Introduction........................................................................................1

1. Local Qualities of Place and the Growth of New Economy Secors.........................................................................................................1

2. Potentail General Influences of Local Amenities on Regional Growth.............................................................................................4

3. Plan of the Research Report ...........................................................5 II. New Regional Growth Theories and the Role of Qualities of Place 7

1. Contemporary Theories of Regional Growth Dynamics................7 2. From High Technology to Growth in New Economy Industries .11 3. A New Place for Local Amenities in the Regional Growth

Process.........................................................................................12 III. Specifying the Links between Place-Based Amenities and

Economic Performance .................................................................15 1. Conceptual Limitations of Previous Studies ................................15 2. Defining Specific Local Amenities and Qualities of Place.........19 3. Potential Associations between Specific Amenities and Growth of

New Economy Activities.............................................................23 IV. Empirical Evidence of the Role of Amenities in Regional Growth

.......................................................................................................27 1. Survey based amenity rankings....................................................27 2. General equilibrium models of local amenity valuation ..............33

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3. Hedonic price models...................................................................38 V. Qualitative Evidence on Amenities and Growth of Second-

TierCities .......................................................................................45 1. The Austin Texas Case: Initial Development of a High Tech Base

.......................................................................................................45 2. From Branch Plant Center to Advanced Manufacturing..............49 3. Endogenous Growth and Innovation............................................53 4. Other International Cases .............................................................57

VI. Conclusions ...................................................................................61

1. Summary of the Evidence ............................................................61 2. Local Economic Development Policy Implications.....................63

REFERENCE ......................................................................................65 KOREAN SUMMARY.......................................................................77

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C · O · N · T · E · N · T · S

LIST OF FIGURES

Figure II-1 Relative Transportation and Communications Costs..........8 Figure V-1 Austin Time Line: Stages and Tech-Firm Locations or

Expansions.......................................................................47

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C · O · N · T · E · N · T · S

LIST OF TABLES

Table III-1: Items Considered Most Important to Residents’ Current

Quality of Life ..................................................................18 Table III-2(A): Sinificant Neighborhood Amenities...........................21 Table III-2(B): Singificant Urban Amenities ......................................22 Table III-2(C): Singificant Environmental Amenities .......................23 Table IV-1: Amenity Rankings All Firm Locations(11 Studies) ........29 Table IV-2: Amenity Rankings High Tech Firm Locations(8 Studies).

.................................................................................................29 Table IV-3: Amenity Rankings, All Workers(14 Studies)..................31 Table IV-4: Amenity Rankings, High Tech Workers (4 Studies) .......31 Table IV-5: Blomquest, et al : Parameter Estimates of Implicit Prices

of 16 Local Amenities .....................................................42 Table V-1: Characteristics of Nine High Growth Regions. ................52 Table V-2: Utility Patents Issued per 10,000 Population, major U. S.

High-Tech Regions..........................................................53 Table V-3: Venture Capital Investments in Austin MSA ...................54

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C · H · A · P · T · E · R · 1

I INTRODUCTION

This chapter introduces the main themes, research issues and

policy implications of this study. There has been a growing emphasis on the role of local amenities and qualities of place in promoting the growth of knowledge based industries. The overarching goal of this paper is to carefully and systematically review the theoretical and empirical literature on the role of amenities in local economic development and delineate specific implications for regional and local development policy.

1. Local Qualities of Place and the Growth of New Economy Sectors

In the advanced market (OECD) countries, studies examining the history, structure, and institutional peculiarities of high growth regions have yielded new insights into the mysterious phenomenon of uneven regional growth. Over the past ten years there has been a growing interest in the role of quality of place, or what can be defined as the ensemble of amenities available within a city region, in regional economic growth and development. The importance of local amenities in economic development is not a new theme.

In North America and Europe there has been a large amount of

discussion and empirical research on the role of individual amenities (e.g. low crime, good local schools, clean environment, cultural activities, etc.) and overall local quality of life measures on labor migration and business location decisions stretching back to the 1970s. While amenities and quality of place attributes have been considered factors in firm and labor location decisions for some time, they have

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traditionally been viewed as secondary to transportation and production costs (firm location decisions) and employment opportunities (labor migration) (Gibbs, 1997).

However, local amenities have become a “hot topic” in more

recent years in the context of the rapid growth of industrial sectors characterized as the “new economy” and the highly educated skilled labor associated with new economy activities sometimes labeled the “creative class” (Florida, 2002; Scott, 2006; Veltz, 2004). The novel premise put forward in recent research is that quality of place is a central and increasingly important factor in local competitiveness and dynamic regional growth in advanced market economies. This argument about the increasingly prominent role of local amenities in regional competitiveness has several connected elements.

First, traditional location factors such as transportation and

factor costs (land, labor and capital) have become more similar across regions due to dramatic falls in transportation and communication costs, global capital markets and global migration of labor. With the “evening out” of conventional transport and factor costs across space, they cease to be primary determinants of competitive advantage.

Second, the fastest growing and most dynamic sectors in

advanced market economies depend heavily on specific external economies of agglomeration for their competitive advantage. The so called new economy sectors - high technology, advanced producer and financial services and culture and media-related industries – draw their competitive advantages from producing innovative and/or high quality products and services. Competing on the basis of innovativeness and quality in turn requires a local environment offering intensive and efficient knowledge transfer involving large and diverse pools of skilled labor and diverse firms and firm networks.

Third, the types of firms and skilled labor that propel new

economy sectors are highly mobile and are attracted to regions that offer a high quality of life based on unique and high quality local amenities. Finally, therefore, governments (national, but especially regional or local) must make investments in amenities that improve

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quality of place to attract talented knowledge workers and leading edge firms critical to growth of new economy sectors.

The most prominent contemporary advocate of the central role

of amenities in regional competitiveness is Richard Florida. He has presented a strong and controversial case in a series of books and lectures that the attraction of skilled labor, or what he calls the creative class, is a central determinant in regional growth and development. Embedded in Florida’s work is a controversial claim about causality; if a region successfully draws in talented knowledge workers, growth in new economy sectors will follow via innovation and new business creation by skilled, creative class entrepreneurs and by the attraction of new economy firms drawn in by the pool of skilled workers (Florida 2000, 2001, 2002; Glaeser, 2004).1

The work of Florida has had a very profound influence on local

economic development planning in the U.S. and internationally with numerous city and state governments launching amenity based initiatives to attract young highly educated workers. For example the Governor of the U.S. State of Michigan launched a “cool cities” initiative for cities in her state and the mayor of Berlin has heavily promoted the unique history, amenities and youth culture of the city (Storper and Manville, 2006; Shea, 2004).

Other scholars and researchers have taken a more nuanced

approach to the influence of local amenities on regional competitiveness and growth (Gottlieb, 1994; Segedy, 1997; Rogerson, 1999; Donald, 2001; Markusen, 2006; Scott, 2006). These and other authors generally support the proposition that the importance of qualities of place has increased and that local amenities may have special importance for new economy workers and industries. However, local amenities must be considered and balanced against other regional advantages including classic location advantages (market proximity, attractive labor costs, access to technology and

1 Florida has been vigorous in emphasizing that he was only claiming correlation, not causality. He notes that other location factors are important to the attraction of creative class workers, but that many locales are most deficient in attractive urban amenities

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know-how) and broader economies of agglomeration that reduce costs of production. Moreover, most recent analysis is highly skeptical of Florida’s argument that amenities attract skilled workers and skilled workers attract new economy investment (Scott, 1996; Storper and Manville, 2006).

Nevertheless, the status of local amenities/quality of place in

explaining uneven regional growth has major implications for local economic development planning and investment strategies. If, in fact, amenities are significant and increasingly important factors in regional competitiveness, environmental regulations, open space and parkland development, and investment in arts and cultural activities may be broadly complementary to economic growth rather than primarily cost burdens on the private sector.

Put another way, regional growth might be more positively

associated with environmental quality and high levels of social and cultural capital than with low wages, low taxes, and limited regulation. If there is truth to this premise, this brings the amenity argument and the sustainable development discussion together. Sustainable growth in urban regions depends on maintaining attractive balances between economic growth, environmental quality and social and cultural opportunities. These themes have gained new status and importance in North America and Europe and the implications for Korean regional planning and policy development are important to understand and evaluate.

2. Potential General Influences of Local Amenities on Regional Growth

The broader economic development literature defines

amenities as location specific, often non-tradable goods and services that benefit residents of a region in their role as workers or consumers. Amenities can be produced by the public sector (parks, good schools, museums, etc.) or privately produced (attractive affordable housing, music clubs and restaurants, art galleries etc.) but can be jointly appropriated by all firms and residents within a region. A particular mix of local amenities can constitute the unique quality of place.

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Given this definition how, in very basic terms, might amenities and quality of place influence regional growth and development? There are basically three channels of potential influence:

1) There could be more firm location and investment in a high

amenity region because owners and mangers of enterprises prefer to locate and work in high amenity areas;

2) High skilled professional and technical personnel, who typically

are mobile and have numerous choices about where they work, will prefer high amenity areas. This will attract firm location and investment drawn by the presence of high skilled labor in their industry and in a more diverse industry base. A thick labor market of talented personnel increases the probability of enjoying the external economies of agglomeration thought to be especially crucial to new economy industries;

3) Areas with quality amenities and unique qualities of place will

attract tourism. Tourism is a rapidly growing and income elastic sector that attracts income from outside the region and operates like an export base industry.

While the potential influence of amenities on regional economic performance can be readily mapped out, determining how specific amenities or combinations of amenities (quality of place) are linked to specific patterns of firm location or labor migration is very challenging. Indeed, the empirical evidence of strong links between amenities and economic growth and competitiveness is mixed and in many cases inconclusive (Donald, 2001). There are very challenging conceptual issues and issues of causality that need to be more clearly understood before we can draw meaningful implications for concrete local economic development planning and investment.

3. Plan of the Research Report

The overarching goal of this paper is to carefully and systematically review the theoretical and empirical literature on the role of amenities in local economic development and delineate

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specific implication for regional and local development policy. We will consider associations between local amenities and general regional growth, but will focus on the role of local amenities in the geography of so called new economy industries. These industries are thought to be especially dependent upon skilled labor pools and localized knowledge transfer that might be strongly influenced by qualities of place.

To better understand the potential links between regional

economic performance and qualities of place, the paper will be organized along the following lines. First, we will briefly review contemporary advances in regional growth theory that open up a potentially important role for local amenities in explaining regional performance. We will then detail the important and often thorny conceptual issues that must be addressed to more clearly understand the status and role of amenities in local economic development.

Next we present an extensive review of the empirical research

on associations between specific types of amenities and factors that might influence growth. A large number of survey based studies that delineate specific attributes of place that are deemed important for firm location and labor migration or retention will be reviewed and synthesized. We will also evaluate general equilibrium and hedonic price models that indirectly account for local amenities through housing values, wage rates and population change.

In a concluding section the theoretical and empirical findings

will be synthesized to specify a conceptual model that tries to resolve issues of causality to provide specific guidance for economic development planners. The cases of Austin, Texas and Daejeon Korea will be references to understand better the influence of local amenities on stages of regional development. It is hoped that this work will get beyond some of the faddish and poorly specified discussions of amenity based development strategies and provide useful guidance for national and local government actors in Korea

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C · H · A · P · T · E · R · 2

II

New Regional Growth Theories and the Role of Qualities of Place

This chapter provides the theoretical framework of the report.

We begin by placing the local amenities/growth question in broader theories explaining uneven regional growth dynamics in advanced market economies. Due to changes in conventional location factors related to rapid declines in transportation and communication costs and sectoral growth favoring knowledge based industries, new mechanisms to encourage investment and growth outside major primary cities were advanced.

1. Contemporary Theories of Regional Growth Dynamics

Contemporary analyses of regional growth dynamics build upon prior theoretical developments beginning with the growth pole theories advanced by the French economist Perroux. In his account, high growth regions hosted "propulsive industries" which not only hooked onto rapidly expanding market demand for their outputs, but in the process generated backward and forward linkages in a region that accelerated growth and created the basis for the localized external economies identified by Alfred Marshall (Marshall, 1986; Polenske, 1988.) But the important policy relevant issues in economic development planning transcend this basic “how” question and related more to “why and where” questions; why does rapid economic growth occur in some regions and not in others?

A prominent approach to this fundamental question is offered

by firm location theories that analyze specific local factors that encourage firms to invest in specific locations. Older location theories were grounded in simple transportation and factor cost minimization models that attempted to explain location decisions based on firm

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profit maximization. Private firms would select locations that minimized land, labor, capital and transportation costs associated with producing and distributing their goods to market (Alonso, 1964; Blair and Premis, 1987; Hoover, 1948; Isard, 1975; Thisse, 1987).

Transportation cost factors were typically seen as the most

variable with respect to location and included the cost of transporting inputs to a production site and the cost of transporting final goods to end markets (Blair, 1995). Transport cost minimization models remain useful in analyzing firm location and consequent investment flows toward specific regions in some subcategories of manufacturing (Blair and Premus, 1993). However, the usefulness of transportation costs in predicting firm location has waned due to changes in market composition from standard goods to more specialized goods and services and rapid declines in transportation and communications costs over the past 50 years. Figure II-1 – Relative Transportation and Communications Costs

Source: This figure was taken form Bartik, Tim. 2007. “Solving the Problems of

Economic Development Incentives,” in Ann Markusen (ed.) Reining in the Competition for Capital, Kalamazoo, Michigan: W.E. Upjohn Institute. Figure based in data from the United Nations Development Programme, 1999, p.30.

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The other traditional factors (land, labor and capital costs) also came to be viewed as limited in their ability to explain uneven regional growth as the 20th century came to a close. Costs of capital became increasingly homogeneous across space due to improved communications and expansion and globalization of capital markets. Land costs continue to display significant variation across regions but constitute a smaller share of business costs in many sectors. Labor costs are the remaining traditional factor and they remain as a central explanatory variable in location and regional growth dynamics. But in more recent research, labor costs are viewed as complex and multifaceted rather than the simple or aggregated wage costs of older models (Blair, 1995; Malecki, 1997; Markusen, 2000).

Private firms assess potential unit labor costs which consider

wage rates divided by output per worker hour in evaluating locations. The denominator expresses a productivity measure that can incorporate different job related skill and quality control elements (such as defect rates). Unit labor costs depicting relationships between wages and saleable output can be influenced by local labor market conditions, local labor management relations and local training institutions. Therefore minimizing labor costs involves a locational search that considers availability and cost of labor at various skill levels and local institutions that foster training and up-skilling of the work force. For firms in sectors demanding skilled labor, minimizing labor search and transaction costs may be more important than the prevailing local wage rates per se.

In the 1970s and 1980s, with the emergence of rapidly growing

high technology industries2 older, classic location theory underwent significant revision. An important dynamic element was added to this idea with the theory of the product cycle (Vernon, 1960). Major product innovations, it was argued, typically go through a specific life

2 Throughout the text, high technology is defined according to the share of workers engaged in research and development activities in a given industry. More specifically the definition used here is consistent with the Bureau of Labor Statistics definition specifying 30 U.S. three digit SIC code industries as R&D intensive. See David Lyons and Bill Luker, "Employment in R&D intensive high-tech industries in Texas" Monthly Labor Review, November 1996.

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cycle: an experimentation and diffusion stage where profits are negative or low, a maturation stage where the product becomes more standardized, growth in demand is rapid, and profits are high; and a standardization phase where production becomes routine and growth in market demand and industry profitability slows (Markusen 1985; Utterback, 1994).

In the historical dynamics of industrial development, major

innovations based on new technologies first emerge in a number of different places. As the market for the innovative products forms and grows, firms in one region, or a few regions, gain dominant positions in rapidly growing national or global markets for the new innovation. The successfully innovating firms pull their regions up to higher growth trajectories as they rapidly expand their sales and employment base and generate additional activity in related supplier and service firms.

In the 1990s, a number of scholars identified important gaps in

this product or profit cycle theory of regional growth (Storper, 1994; Uzumeri and Sanderson 1995). Contemporary extensions of product cycle theory emphasized peculiar regional advantages based on factors external to private firms. Firms in particular places gain early first mover advantages from special expertise residing in regional institutions, including support from government sponsored research institutions, superior access to capital provided by local financiers, or specific business practices or cultures which uniquely support the commercialization of specific technologies (Saxenian, 1996, Storper and Walker, 1989, Storper and Scott, 1993). These regional "extra firm" advantages may constitute tipping points, allowing local firms to persevere and win out in the early competition to commercialize particular innovations.

Based on this analysis, studies of high technology development

and the influence of government policy in creating new technology centers focused, in the 1990s, on a certain “recipe list” of extra-firm factors that were seen as essential in sparking high technology growth in regions outside pre-existing centers. This list included variously the presence of major universities or public research institutions, specific training institutions for skilled workers, small business start up

11

assistance, formal and informal business associations, and specific financial capacities such as local venture capital. Central and regional governments in advanced and emerging market economies used the common “recipe list” in attempts to spur technology development in new regions, typically outside overpopulated centers or primate cities (such as Seoul). However, these efforts to seed new technology centers were at best a mixed success (Markusen and Park, 1994).

2. From High Technology to Growth in New Economy Industries

Over the past decade the studies of regional growth processes

have emphasized more complex patterns of industrial and organizational development and a much more multifaceted delineation of external economies of agglomeration (Drennan 2002; Storper and Venables, 2004; Duranton and Puga, 2004; Scott, 2006). Regional growth theories over the past ten years have first become less fixated on the development of conventionally defined high technology sectors, paying increased attention to fast growing media and cultural industries, advanced producer services (financial services, advertising, graphic design, etc.) and high-quality, variety based consumer goods (apparel, household furnishings, health care, etc).

Fast growing and diversifying “new economy” industries

transcend and in many cases combine with traditional high tech sectors such as electronics and computing, software, pharmaceuticals or instruments. In addition, the past 20 years have seen an evolution toward even more vertical disintegration and more intensive inter-firm collaboration, often around more temporary product or project oriented teams. For example, new products in the multi media gaming industry--games--are developed by loose and temporary associations of software and web designers, graphic design firms, and individual contract artist and musicians (TXP Incorporated, 2006).

New sector combinations, and changes in intra and inter firm

organization characterizing new economy industries influenced new understandings about the significance and operation of external economies of agglomeration. In the traditional rendering, individual

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firms could enjoy location specific cost savings from urban agglomeration economies and economies of industrial co-location. Urban agglomeration economies are conventionally related to cost savings that accrue for the volume of economic activity in an urban region, such as shared infrastructure and availability of local suppliers due to the more extensive division of labor in larger urban regions (Krugman, 1991). Economies of co-location generate cost savings when firms in similar or closely related industries locate in a specific region and include advantages from a local pool of skilled labor, lower costs of acquiring industry specific inputs, and local technology and knowledge spillovers.

While these categories of external economies remain crucial to

regional competitiveness and growth, in the context of new economy industries the lines between urbanization and co location economies blur. The most critical local agglomeration advantages for new economy firms are specialized labor pools and knowledge spillovers. Because of more intensive inter and intra-industry collaboration, production teams benefit from drawing on both industry-specific and diverse skilled labor pools and knowledge bases to innovate and successfully compete. Competitive advantage in new economy sectors occurs in regions where multiple actors can form dynamic and collaborative teams and efficiently transmit tacit knowledge through face to face interaction – competition based on unique quality and innovation requires both specialization (economies of co-location) and a degree of industrial and occupational diversity (economies of urbanization).

3. A New Place for Local Amenities in the Regional Growth Process

An important corollary to the reformulation of agglomeration economies is the relatively footloose nature of the firms and workers constituting new economy sectors. Certainly scale economies and high fixed costs are still a factor in segments of the new economy (e.g. high tech manufacturing) but many firms and industries in the new economy have low fixed costs in terms of land, facilities and machinery. Such firms have a degree of locational freedom and would

13

expand in place or relocate based on access to the crucial local external factors of skilled labor, firm networks and technology and know-how. Likewise workers whose skills are scarce and in high demand can choose among numerous locales. Their location choice will be shaped by the variety of job opportunities and lifestyle amenities available in various regions (Donald, 2001).

At a very basic level, current discussions of regional

competitiveness suggest that firms and skilled workers have more locational freedom in new economy sectors and are not as tied to conventional location factors such as proximity to markets or transportation hubs. This then opens up a more prominent role for local amenities and quality of place in explaining regional growth processes. In this light, perhaps the failure of the old recipe list approach to technology development was missing crucial ingredients. It was possible, through direct firm incentives or the building up of local extra-firm assets, such as research institutions or labor training institutions, to attract a set of high technology firm to a region. But many new “technopoles” created through public sector intervention remained passive hosts to corporate branch sites of vertically integrated, externally oriented facilities.

Without continued institution building and attention to local

amenities, more diverse and dynamic networks of firms and pools of skilled labor could not be attracted, or perhaps more importantly, retained over time. Understanding the influence of specific qualities of place may therefore be a crucial and overlooked factor in explaining the development trajectory of second or third tier urban centers. And for national and regional policy makers hoping to foster the development of regions outside primary cities, consideration of local amenities and quality of place may deserve considerably more attention.

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C · H · A · P · T · E · R · 3

III

Specifying the Links between Place-Based Amenities and Economic Performance

This chapter carefully defines local amenities, distinguishes between the concepts of quality of life and quality of place and proposes potential channels of influence between specific amenities, investment by knowledge based firms, and the migration and retention of high skilled labor. Studies of the association of local amenities and regional economic performance have a long history that predates the recent focus on this topic. But the empirical evidence linking broad amenity or quality of life measures to economic outcomes is very mixed and inconclusive.

1. Conceptual Limitations of Previous Studies

As noted, assessment of amenities and quality of life indicators has a long history, especially in the U.S. and the U.K. Scholars and practitioners from urban planning, geography, sociology and political science produced an abundant literature that goes back at least to the 1970s. Two of the most noteworthy early studies in the U.S. include Ben-chieh Liu’s Quality of Life Indicators in U.S. Metropolitan Areas and Boyer and Savageau’s Places Rated Almanac. Both of these early studies looked a host of both place-based amenities and local social indicators (e.g. political participation, economic opportunities) and developed a rating for all U.S. metro regions based on a weighted index of multiple local attributes (Liu,1976).

Even though the factors considered in the two studies were

generally similar, the actual rankings of U.S. cities were very different. When comparing just the metro areas ranked by both studies, there was little consistency between the rankings (Spearman’s

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r = .08) (Wish, 1986). The lack of convergence in these early studies is emblematic of a very inconsistent and confusing empirical record on amenities and quality of life indicators and their relationship to firm investment, labor migration and other measures of regional economic performance. Indeed, for this study we reviewed over 40 studies on amenities and quality of place and found no clear consensus in the literature about definitions of place based amenities or their influence on various economic measures.

Given the recent attention given to amenities and regional

growth by Florida and others, the actual lack of clear hard evidence linking amenities to economic development outcomes is troubling. There are important conceptual problems in defining local amenities and their potential associations to economic outcome variables that bedevil the literature and must be clarified to improve understanding and to intelligently evaluate policy options.

First, we need more comprehensible definitions of important

local amenities and we need to distinguish individual place based amenities from more aggregate concepts such as quality of life or quality of place. There are a large number of studies that detail a list of place-based attributes and, in some cases, social or economic indicators that might influence firm location, labor migration or satisfaction of existing residents. A number of these studies will be reported on below, but there is little consistency between the specific attributes considered. Some studies mix employment measures, political participation measures and business cost measures with more place based amenities such as local environmental quality, cultural amenities and public safety (Rogerson et al., 1988; Hart et al., 1989). Obviously, if we want to understand the relationship between place-based amenities and economic outcome variables, factors such as wage rates, unemployment rates, and business climate should be segregated from the list of “amenity” factors.

Second, it is important to distinguish between individual place-

based attributes and aggregated quality of life or quality of place measures. The link between quality of life and specific amenities is an individualized concept--one person’s amenity can be another person’s dis-amenity. A crowded bustling urban entertainment district might

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be valued by some and be considered crowded, noisy or unsafe by others. Quality of life involves aggregations of individual perceptions about the set of amenities or dis-amenities present in a place. Quality of place is a more directive term, suggesting that a community will form some consensus to invest in and promote certain amenities important to residents and (perhaps) geared toward a strategy to attract investment and labor (Donald, 2001).

A third important distinction involves who is being asked to

determine the importance of amenities to quality of life perceptions or economic decisions made by workers or firms. If current residents are asked what the most important factors to their quality of life are they are likely to come up with a list similar to that in Table 1, which is more a perception of well-being melding personal and family life conditions, economic opportunities and place based amenities (Rogerson, 1999). Such general perceptions of quality of life by existing residents of a place provide limited guidance to policy makers about how specific amenities might relate to economic growth or development.

When people are asked about amenity factors that might

influence their migration decisions their rankings are highly sensitive to age demographics and occupational status. A number of studies have suggested that elderly retirees are much more sensitive to certain amenities while younger migrants (aged 20-34) weight economic opportunities much higher in their migration decisions (Gustavus and Brown, 1977; Clark and Hunter, 1992; Findlay and Rogerson, 1993). College educated professionals may put higher values on certain cultural and lifestyle amenities than high school educated blue collar workers (Florida, 2002; Shapiro, 2005). Furthermore, if all business firms are asked to rank important amenities this will lead to a different list of priorities than if firms in a specific sector (e.g. high tech) are asked to rank the importance of amenities (Hart et al., 1988; Segedy, 1997).

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Table III- 1: Items Considered Most Important to Residents’ Current Quality of Life

Priority* Item 1 Relationship with family/relatives 2 Own health 3 Health of someone else 4 Finances/housing/standard of living 5 Relationships with other people 6 Availability of work/able to work 7 Other (including crime, politics, happiness/well-being) 8 Social life/leisure activities 9 Conditions at work/job satisfaction 10 Education 11 Religion/spiritual life 12 Environment (pollution, rubbish, noise, safety, cleanliness)

A fourth crucial issue to be considered in conceptualizing how

amenities might influence household or firm behavior is the geographic scale of what we consider local amenities. In the advanced market economies, metropolitan regions encompass a variety of districts and neighborhoods that typically have very different amenity characteristics and mixes (Gottlieb, 1995). Certain combinations of amenities may differ as much within an urban region as between urban regions; the amenity mix in a New York City suburb may be more similar to suburban Atlanta than to Manhattan (Wish, 1986).

When we consider urban regions and compare their amenities,

the urban region must be considered as offering a portfolio of locations suitable for different lifestyle choices and different intraregional location choices for firms. For example, young professionals may prefer central city locations due to work proximity and access to cultural and entertainment amenities, while households with children might prefer suburban locations with quality schools. At the same time, young professionals may be attracted to a place due to a lively cultural and entertainment scene, but might also consider the availability of good schools in affordable neighborhoods in their decision to migrate to and stay in a particular urban area.

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Firms in different industries or of different types would also differ on how they evaluate intraregional locations; smaller less capital intensive firms in knowledge based industries may prefer central city locales, while larger firms with more extensive facility needs may favor green field sites on the edge of a metro region. Hence, when comparing places according to amenity mixes or qualities of place it is important to consider urban regions as offering a portfolio of amenities as a region, but also as offering a range of amenity lifestyle choices within the region. When firm or workers compare regions to make location decisions, they likely consider both the overall portfolio and the range of sub-regional choices.

2. Defining Specific Local Amenities and Qualities of Place

In light of these very important and thorny distinctions, how can we create a conceptual framework that helps us better understand how amenities or qualities of place might influence firm location and worker migration decisions? Our review of the literature is consistent with the findings of other authors who have evaluated multiple amenity and quality of life studies--there is no single model that can demonstrate with reasonable levels of confidence the association between amenities and economic growth for all regions (Rogerson 1999; Donald, 2001).

However, if we can delimit the problem to the subset of firm

and household location decisions that apply most directly to the core research question of how second and third-tier regions can grow through the development of new economy industries and develop reasonable conclusions about meaningful associations between amenities and firm and household behavior, we can derive a clearer, more policy relevant framework. We must again recall that local amenities can influence regional economic performance through three channels; firm location decisions; worker or household migration decisions; or decisions of tourists.

We will not consider tourists directly, but note that regions with high amenity values for firms and households are likely to also be attractive to tourists, although the amenity mix drawing tourists

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will likely have different weighting (e.g. beaches, entertainment, cultural assets will trump schools and affordable housing). Further, we will not be directly concerned with general quality of life perceptions of existing residents and we will consider regional economic performance or opportunity as an independent or control variables. Also given our research objective, we will be most interested in the subset of industries/firms in so called new economy sectors and in workers seen as most important to these sectors--college educated professionals. However, to understand the influence of amenities on regional growth processes, we will consider their influence on other firms and workers that are inherently important to dynamic regional growth.

To add clarity to the discussion, we will distinguish between

three broad categories of amenities:

1) Neighborhood Amenities (e.g. quality housing, affordable housing prices, quality schools, safe communities). These amenities are important to firm mangers and workers as residents of a place. Neighborhood amenities can vary both between and within a metro region, but high amenity regions along this coordinate will have a diverse variety of safe and attractive neighborhoods with good elementary and secondary schools.

2) Urban Amenities (e.g. cultural assets and activities, unique architecture and urban design, diverse entertainment and dining entertainment experiences). Urban amenities are relevant to firm mangers and workers as consumers of locally available public and private goods and services. However spaces for public and private events and entertainment may be important loci for social interaction in “new economy” industries where important information and tacit knowledge is transferred outside of worksites among and between people in different firms and industries. Urban amenities are also highly valued by tourists.

3) Environmental Amenities (climate, general air and water quality, pubic parks, beaches and open space, outdoor recreational opportunities). Environmental amenities are

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significant to firm managers and workers as both residents and consumers. Recreational opportunities might also serves as spaces for communication and knowledge transfer among and between new economy workers. Environmental amenities are also important to choices of tourists.

We reviewed 55 studies that evaluated amenities in numerous

ways with numerous objectives. From this review we gleaned a comprehensive list of amenities that were seen, directly or indirectly, to have some potential influence on firm or worker location decisions (see Appendix #1). We further refined this list by putting to the side elements that directly related to regional economic conditions or measures of the political environment. Once our list was derived, we evaluated the potential effect of local or regional government policy on each amenity type (denoted by Major Influence, Minor Influence and No Influence in Table III-2(A-C), below). Degree of influence is a qualitative assessment and suggests if a range of local government actions can constitute a primary determinant or a less direct determinant on the amenity in question. Both major and minor influence designations suggest that action by local and regional government can affect the amenity values. This list is derived at a very detailed level simply to provide a relatively comprehensive list.

Table III - 2 (A) Significant Neighborhood Amenities

Field Specific Amenity

Example of Indicators(within Metro Region)

Potential Influence of Local

Government Policy

Housing Prices Median home price; Median mortgage or rental payment, occupancy rates

Minor Influence

Quality of Elementary & Secondary Education

Student teacher ratios; Student Drop-out rates; Student Achievement Scores

Major Influence

Personal safety Violent and property crimes per capita; Road accidents per capita

Major Influence

Health care Doctors and hospital beds per capita, Median health care costs; Elderly care facilities per capita

Minor Influence

Significant Neighborhood

Amenities

Personal MobilityAverage commute times; Mass transit miles per capita

Minor Influence

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While each amenity factor was mentioned in at least one study, in a number of studies the amenity factors were presented in more general terms such as “quality of education’ or “quality of the local environment” rather than in the more disaggregated elements detailed below. It is also noteworthy that the ability of local or regional government to influence amenity values varies considerably across the lists. Table III- 2(B) Significant Urban Amenities

Field Specific Amenity

Example of Indicators (within

Metro Region)

Potential Influence of Local

Government Policy

Art, Science and Children’s Museums

Museums per capita Major influence

Performing Art and Musical Venues and Events

Symphony, ballet and theatrical venues per capita; art galleries and live music venues per capita, artists and musicians per capita

Major Influence

Libraries Libraries and library books per capita Major Influence

Other Entertainment Events and Venues

Professional sports teams, amusement parks and zoos and aquariums per capita

Minor Influence

Dining Restaurants & coffee houses per capita No Influence

Urban A r c h i t e c t u r e

Number of prize winning buildings per capita

Minor Influence

Historic Character

Heritage sites per capita; Number of historically preserved building per capita

Major Influence

Urban Density People per unit of urban land Major Influence

Colleges and Universities

College and University Students as a Share of Population

Minor Influence

Significant Urban

Amenities

Racial and Ethnic Diversity

Metro Area Diversity Index Minor Influence

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Table III- 2(C) Significant Environmental Amenities

Field Specific Amenity

Example of Indicators (within Metro Region)

Potential Influence of Local

Government Policy

Specific Amenity Example of Indicators (within Metro Region)

Potential Influence of Local Government Policy

Climate

Average and seasonal temperatures and precipi tation; Sunlight per day

No influence

Air Quality

Particulates, Volatile Organic Compounds and Ozone levels

Minor Influence

Water Quality

Dangerous organic and Inorganic compounds in local oceans, lakes and streams; Quality of drinking water

Minor Influence

Absence of Hazardous Waste and Landfill Sites

Number of hazardous waste and landfill sites per urban land area

Minor Influence

Parks and open space

Public parkland, and open space area per capita Major Influence

Significant Environmental

Amenities

Outdoor recreation opportunities

Public swimming pools, golf courses, area of inland water and coastline per capita; Hike and bike trails per-capita.

Major Influence

3. Potential Associations between Specific Amenities and

Growth of New Economy Activities

Once we delineate a list of amenity factors that could potentially influence firm and worker location decisions, especially in new economy industries, we have one final conceptual issue to consider. If our primary concern is how amenities might influence growth in second and third tier cities, we need to consider how they influence the dynamics of the growth process through time. This

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involves conceptualizing a model that accounts for growth stages and causality.

In the bold argument put forward by Richard Florida the

presence of specific place based amenities, especially certain urban and environmental amenities, implicitly cause in-migration of skilled “creative class labor.” Once some critical mass of “creative class” individuals are located in a region, this will spark new business formation by creative class entrepreneurs and attract new economy firm location to tap a growing talent pool. While Florida does not explicitly claim direct causation, his strong and widely promoted policy advice to local governments clearly implies the above causal chain. Amenity strategies are put at the heart of local economic development as in his 2000 report for Pittsburgh where he argues for local development officials to:

Make quality of life a central element of regional economic

development efforts;

Integrate amenities and natural assets into all aspects of regional economic development;

Invest in lifestyle amenities that appeal to talented workers;

Upgrade areas surrounding major universities and colleges

and make them centers for just-in-time recreational amenities;

Encourage smart growth and sustainable development on a

regional basis, particularly sustainable use, preservation and revitalization of natural assets (Florida, 2000).

Florida does recognize that job opportunities are also crucial to

the attraction of talented workers, but he claims that many regions are working from more of an amenity deficit (vis-a vis the attraction of creative class workers) than an employment opportunity deficit. They should, hence, prioritize investments in local amenities.

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Many authors have criticized the implicit causal relationships lurking in Florida’s argument (Scott, 2006; Storper and Manville, 2006; Markusen, 2006). There is also considerable evidence that labor migration is strongly influenced by wages and employment opportunities (Gustavus and Brown, 1977; Greenwood and Hunt, 1989; Clark and Hunter, 1992). The strongest case against a predominantly amenity-based explanation for regional growth based on expansion of new economy sectors is one of simple plausibility.

Highly skilled workers are attracted to places that provide

attractive and competitive wages, offer other employment opportunities in their fields to reduce job search and relocation costs, and provide rapid learning opportunities to enhance skills and wage increases over time (Glaeser, 1999). Employment and lifetime earnings potentials are paramount especially for young skilled workers. To the extent that a number of locations offered similar job and earnings growth potential, a worker might indeed pick a region with higher amenities. But it is plausible to assume that a preexisting and evolving production complex in one or more new economy industries must be present to trigger a significant flow of highly skilled in-migrants.

This then raises the question of why firms in new economy

sectors would locate in a region with a dearth of skilled labor. Recalling the product cycle theory of industry development, at certain stages of the product life cycle the production of the product, or parts of the product, becomes more routine and exportable to lower cost locations. It then becomes more profitable to site new production and service facilities in lower cost regions away from the costly innovative core or primary city. In new economy sectors, migration of more routine production may still call for a technical labor force with reasonably high levels of skills.

Therefore, preferred locations for these secondary activities

might be places with above average amenities to encourage the migration of branch plant management and skilled employees from the headquarters region and/or regions that had a well educated reserve of workers not tied to pre-existing private sector activity. The later condition would present itself in regions with major universities

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where young educated workers were being turned out who would be forced to migrate outside the region if new private sector demand was not forthcoming.

Based on this story we can tentatively propose a dynamic and

cumulative process whereby amenities beget initial employment opportunities, and small industrial complexes form bringing in a more independent migration of skilled workers. The region then has to build-up both extra-firm infrastructure to support the nascent industries and to preserve and improve amenities to meet new demand from in-migrants, to retain recent movers, and to encourage subsequent new migration to meet growing industry needs. This qualitative account of how innovative industries might take root and grow in new regions suggests that industry growth and growth in employment opportunities interact with local amenities in a dynamic growth process. In another way, initial industry growth might foster a certain level of migration of skilled workers and their increased demand for certain amenities might increase public and private amenity investments.

If this account has salience, it suggests that an amenity-based

economic development strategy must be specific to place and be considered as one part of a broader strategy; how do the amenity mixes of one place compare to cities of similar size with somewhat similar industrial compositions and with similar institutional assets? (Gottlieb, 1994). In the Korean context, for example, Deajon would compare its amenity mix to Daegu or Ansong rather than Seoul. Moreover different amenity mixes might be important at different stages of development; neighborhood and environmental amenities may have a more prominent role in earlier stages than urban amenities. To understand more clearly these complex interactions we will now turn to a review of the empirical evidence on links between amenities and firm and worker location.

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C · H · A · P · T · E · R · 4

IV

Empirical Evidence of the Role of Amenities in Regional Growth

In this chapter we thoroughly review a range of empirical studies on the effects of amenities on economic behaviors and outcomes. A large number of survey based studies that delineate specific attributes of place that are deemed important for firm location and labor migration or retention are reviewed and synthesized. With some variation, specific neighborhood amenities (school quality, housing affordability, low crime and mobility) are strong influences on both firm and worker location.

1. Survey based amenity rankings

There are a large number of studies that survey firms, workers and residents about the importance of various amenities in their location decisions or their quality of life. These studies examine a wide variety of amenity types, and categories and definitions used differ significantly across the studies. To make some sense of this large set of findings we first must collapse some of the categories included in the detailed amenity list outlined in Table III-2 (A-C) above. For example, one study may ask a survey respondent to rank local environmental conditions in general and another might ask about the importance of a specific environmental amenity such as air quality.

A related complication is the number of amenity types

surveyed and scored in each survey. Some studies focused on one or two amenity types and other studies ranked multiple amenity types (one study surveyed 37 amenity types). It is important to recognize that a series of assumptions and judgments were made to synthesize

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these studies in a useful way. We are confident that in broad terms we provide a reasonable estimate of amenity rankings, but more detailed differences are sensitive to the judgments and assumptions that were employed.

To address the main questions in the study we break out

rankings into four categories: amenity factors that affect all firm location decisions; amenity factors that affect high technology firms; amenity factors that affect all workers location decisions; amenity factors that affect high tech or high income workers location decisions. Broader categories of new economy workers in sectors such as cultural and media industries and producer and financial services were only surveyed in one study. We therefore use high tech firms as a proxy for new economy firms and high tech or high income workers as a proxy for skilled new economy workers. Finally, to generate tentative rankings we use the following formula:

Σ Amenities surveyed, 1…n /Average rank amenity, 1…n

This measure accounts for the comprehensiveness of the surveys and the number of total survey queries about a specific amenity in establishing a rank. For example, if 10 studies queried about school quality, and those 10 studies together ranked 80 different amenities, the numerator of the above term would be 80. If the average ranking of school quality was 2, school quality would get a total amenity score of 40. If two studies queried about parks and open space, those two studies ranked 10 different amenities, and the average ranking of parks and open space was 5, the amenity score would be 2.

When interpreting these tables, it is important to recognize that

all of the ranked amenities could have some potential influence on firm or worker location. Those ranked higher obviously would be thought to have somewhat more influence, although inferring the degree of difference and the relative influence on location decisions is not really possible given survey approaches and our method of ranking results from multiple surveys.

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Table IV-1: Amenity Rankings All Firm Locations (11 Studies) Specific Amenity Rank Quality of Elementary & Secondary and University Education

1

Personal Safety 2 Environmental Quality 3 Affordable Housing 4 Cultural Facilities/Events 5 Personal Mobility 6 Recreation opportunities 7 Climate 8 Health care 9 Parks and open space 10 Entertainment* NR Dining* NR

* None of the surveys specifically queried about these amenities

Table IV-2: Amenity Rankings High Tech Firm Locations (8 Studies) Specific Amenity Rank Environmental Quality 1 Affordable Housing 2 Quality of Elementary & Secondary and University Education

3

Personal Mobility 4 Recreation opportunities 5 Climate 6 Cultural Facilities/Events 7 Personal Safety 8 Health care 9 Parks and Open Space 10 Entertainment* NR Dining* NR

*None of the surveys specifically queried about these amenities

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When comparing the amenity ranks for all firms--in comparison to high tech firms--several interesting facts stand out. First there are some notable consistencies; environmental quality, quality of educational opportunities and affordable housing are ranked high by both groups. Cultural amenities are, somewhat surprisingly, ranked higher in the all firm sample, despite the attention in some literature about the demand of high tech firms and workers for cultural and other urban amenities.

On the other hand, high tech firms seem somewhat more

concerned with natural conditions and outdoor recreation opportunities. The different rankings for personal mobility (transportation access and commute times) and personal safety (freedom from crime) might be due to different inter and intra-regional location patterns between the two firm groups. High tech firms are more likely to be more scattered in suburban areas of metro regions where crime may be lower, but commute times more of a concern. Also these firms are more likely to consider location in more rapidly growing regions where traffic congestion and environmental problems are worsening more rapidly (Gottlieb, 1994).

The overall picture suggests that neighborhood amenities and

environmental quality may be more important to firm location in general than certain urban amenities thought to be important for new economy firms. However these surveys did not query the broader universe of new economy firms (media and cultural firms, producer and financial services, fashion) that tend to favor central city locations and who may place higher value on urban amenities. Also, certain privately provided consumer urban amenities such as dining and entertainment were not offered as choices in any of the firm surveys.

Surveys of worker or household location decisions are more

diverse in structure and their results somewhat more challenging to interpret and synthesize. Moreover, there are a very limited number of surveys that differentiate high tech workers. It is clear that neighborhood amenities dominate both surveys of all workers and high tech and high income workers. This is unsurprising in that migrating workers would place a strong emphasis on residential choices and qualities of residential neighborhoods.

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Table IV-3: Amenity Rankings, All Workers (14 Studies) Specific Amenity Rank Quality of Elementary & Secondary and University Education 1

Personal Safety 2 Affordable Housing 3 Health care 4 Personal Mobility 5 Entertainment 6 Recreation Opportunities 7 Environmental Quality 8 Cultural Facilities/Events 9 Climate 10 Parks and Open Space 11 Dining 12

Educational opportunity and affordable housing rank in the top

three for all workers and high tech/high income workers. Personal safety is less important for high tech/high income workers while personal mobility is a higher priority relative to all workers. This is consistent with the prior firm rankings and suggests that higher income workers can typically afford to live in higher-income, low crime neighborhoods, but may face more difficult commutes as a result. Table IV-4: Amenity Rankings, High Tech Workers (4 Studies) Specific Amenity Rank Quality of Elementary & Secondary and University Education 1

Affordable Housing 2 Personal Mobility 3 Entertainment 4 Personal Safety 5 Recreation Opportunities 6 Cultural Facilities/Events 7 Environmental Quality 8 Climate 9 Dining 10 Parks and Open Space NR Health Care NR

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It is surprising that business firms seem to value environmental quality more highly than workers/households. This may reflect “income elastic’ preferences of firm owners or managers of firms and the fact that workers must consider good job opportunities and good residential settings when locating in a region prior to environmental qualities. It is also interesting that both groups of workers rank entertainment (more private consumption) above cultural facilities and events. Cultural activities, more influenced by public sector investment, are ranked only slightly higher by high tech high income workers. The final somewhat surprising finding from these surveys (both firm and worker) is that climate is not highly ranked in location decision making. This is contradictory to much econometric literature in the U.S. that suggests that warm, dry climate explains the post WW-II migration from the north and northeast to the southern and western states of the U.S.(Glaeser and Shapir, 2003).

From this survey information some tentative but useful

conclusions can be drawn. First, with some variation, specific neighborhood amenities (school quality, housing affordability, low crime and mobility) are strong influences on firm and worker location. Environmental quality is more important for firm location than worker migration, but this suggests than regions that want to develop new high tech or new economy industries by attracting outside investment are more likely to succeed if they have relatively attractive environmental conditions. This may help explain why older industrial cities with a legacy of heavy manufacturing have difficulty building up high technology or new economy sectors. While most urban amenities are not as highly ranked, cultural facilities and entertainment are factors that influence firm and worker location. We might speculate that once key neighborhood amenities and environmental conditions are considered, regions that have richer cultural and entertainment opportunities would be preferred by firms and workers/households.

This survey information also has a number of limitations for

understanding the broader relationships between amenities or qualities of place and regional growth processes. First, we get little insight about the relative importance of employment opportunities

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and amenities or the questions of causality that are central to this analysis.

Second, the survey results give us little insight about how

different combinations or mixes of amenities might influence firm or worker location decisions. Would a high tech worker move to a place with poor schools if the region had very high quality amenities in other areas? Amenities are considered jointly in location decisions and we have little information about what combinations of strong and weak amenities influence particular types of firms or workers to select locations. We hence cannot really know what role “qualities of place,” or the specific mix of amenities in specific places, plays in location and regional growth.

Third, the surveys do not distinguish between types of regions-

-large primary cities, second or third tier cities, or smaller towns. Recalling our product cycle based theory of new economy growth in second or third tier cities, this survey data does not allow us to distinguish between amenity mixes that might be crucial to initial firm location in a new region and those that might be important to spur subsequent investment and labor migration as the region evolves and matures as a “new economy” center. The first and second limitations of the basic amenity survey data is in part addressed in empirical models that attempt to isolate the value of local amenities in interregional differences in wage rates and residential property values.

2. General equilibrium models of local amenity valuation

A number of studies going back several decades have

attempted to indirectly estimate the amenity value of a metro region through a general equilibrium framework (Roback, 1982; Gyourko and Tracy, 1989; Glaeser et. al, 2001; Gabrial and Rosenthal, 2004). The basic concept common to these models is that location can be understood in economic terms as an ensemble of wages, land rents, and amenities. Workers or residents will trade off wages, land rents (housing prices) and qualities of place or amenity mixes. A worker may accept lower wages and pay higher housing costs to live in a

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high amenity area. Firms would be able to hire workers at lower real wages in a high amenity area, but would incur higher costs for commercial or industrial rent.

Studies in this framework assume general equilibrium

conditions of zero mobility costs and identical utility maximizing households (or workers) and profit maximizing firms. In equilibrium conditions, households and firms have no incentive to move and the premiums or discounts on wages and land rents (or housing or commercial and industrial property prices) reflect the influence of local amenities taken in combination or in aggregate. In general, high amenities will decrease wages and increase land rents, disamenities will increase wages and decrease land rents.

In considering firm location in general equilibrium models it

would also be important to consider unit labor costs or productivity. Increases in wages would imply increases in productivity; if a region had above average wages and below average productivity, firms would exit. As Glaeser and Gottlieb note, in this framework, income growth (not adjusted for housing prices) suggest worker productivity growth, land or housing price growth suggests that households are putting a greater value on local amenities, and population growth captures general demand to live in an urban region (Glaeser and Gottlieb, 2006). As they summarize:

“No measure on its own implies success but, taken together,

the combination of rising population, income and housing prices suggests urban health. Moreover the three measures tell us something about the nature of success. High wages accompanied by stagnant housing prices and rising population suggest an increase in productivity. Housing prices that rise faster than nominal wages suggest that consumption amenities are increasing in the city.” (Glaeser and Gottlieb, 2006, p.1277).

These types of general equilibrium models can generate an

aggregate measure of amenity values in a large set of urban regions. They are very amenable to the study of U.S. urban regions because there are a large number of metro areas for cross sectional analysis. These models would be more difficult to implement in smaller

35

countries (such as South Korea) because the number of city region observations is limited and econometric estimation would be problematic. Most deal only with the household side and not with the firm amenity valuations. One recent analysis attempts to estimate separate amenity values for 37 U.S. cities for firms and workers/households (Gabriel and Rosenthal, 2004). In their article they offer the following specification (equations from Gabriel and Rosenthal, pp 439-440). They assume typical general equilibrium conditions (no location costs, identical workers and firms).

Workers seek to maximize utility:

In these expressions, “w j in the age in city j relative to a given

reference city where the wage is normalized to 1; and r j is the land rent in city j relative to the reference city, for which the land rent is also normalized to 1. The vector of amenity attributes that describe city j is given by A j, and u and π are the equilibrium levels of utility and profit in the entire set of cities. In order for workers not to move, higher wages must be offset by higher rents and for firms higher wages must be offset by lower rents (for commercial and industrial land)”. (Ibid, p.439)

An implicit profit function for firms can be written as:

).,(),()3( jjjjjj ArwxcxqArw −=π

Where xq is the total revenue and jj rwc ,( jA ) is the cost

function. Differentiating the indirect profit equation they derive the

following expression where - w

A

cc is the impact on production costs of

).,()2(

:profits maximize seek to firms and

),()1(

jjj

jjj

Arw

Arwuu

ππ =

=

36

a unit change in change in A, or the additional input costs that a firm is willing to incur for an increase in A amenities.

.)4( *

*

j

j

j

j

j

j

w

A

dAdw

dAdr

NL

cc

+=−

*

*

j

j

NL

is the optimal amount of land per worker; normalizing this

value to 1 and pre- multiplying both sides of equation (4) yields:

.)5( jFjF wrQ

j+=

Here “ rF is the amenity adjusted rent for commercial and industrial property and represents the additional input costs firms are willing to pay to locate in city j relative to a reference city.” (Ibid, p. 440)

For workers/households they derive a similar expression (6) where rH is the amenity adjusted rent on residential land and QH is the wage increment families would be willing to forgo to live in city j:

.)6( j

HjHj wrQ +=

Gabriel and Rosenthal then estimate these relationships for 37

cities where Z is a control for worker traits (age, number of children, levels of education, race, and husband and wife earnings) and X controls for characteristics of buildings (housing type, number of bedrooms, bathrooms, air conditioning and heating etc.)

ijt

ijt

rijtrjtijtrrijr

wijtwjtijtwwijr

uDX

uDZw

+++=

+++=

γαα

γαα

1201

1201

r log (8)

and;

log(7)

Unlike many general equilibrium studies, they did not include specific amenities, instead they used “residual differences” in wages

37

and rents to derive a composite fixed effect for each metro area, ijtD . To derive this, equations (7) and (8) are estimated for each time period (1977-1995) and a panel of fixed effects are derived to estimate amenity adjusted wages and rents.

In (9) and (10), Z , X , and D are set to the sample means in

the 1980 estimating year so that the only variation in jtw and jtr is through

jtwγ̂ and jtrγ̂ . Substituting these adjusted wage and rent

estimates into equations (5) and (6) yields estimates of HjQ and

jFQ for each city and each year. (Ibid, p. 440)

Estimating this model, the authors derive a dollar estimate of positive or negative average quality of life variables for 1977-1995 for firms and for workers for the 37 cities. This estimate gives a picture of aggregate amenity values in each city and ranks all 37 based on the estimated value for each city for workers and firms. They conclude based on their estimates and rankings, that firms and workers/households prefer different cities. Indeed, the correlation coefficient between the HjQ and

jFQ values is only 5% (Gabriel and Rosenthal, 2004). This is roughly consistent with the significant differences in amenity rankings noted in the firm and worker survey analysis presented above. The authors also break out households between retirees and active workers. These results suggest that retirees prefer relatively attractive low cost cities with low land rents, low wages and relatively high amenities.

This study was outlined in detail because it puts into relief the

logic of general equilibrium models and is one of the more recent and

).ˆˆˆexp(ˆ)10(

and

)ˆˆˆexp(ˆ)9(

11r01

11w01

jtrjtrrjt

jtjt

jtwjtwwjt

jtjt

DXDr

r

DZDw

w

jtjt

jtjt

γααγ

γααγ

++=∂

∂≡

++=∂

∂≡

38

sophisticated of a large set of general equilibrium amenity analyses. These studies are useful because they implicitly estimate composite values of the full, or aggregate, mix of amenities that constitute the quality of place. They suggest that land or housing price differences and wage difference between regions give important clues about amenity values for workers. They can further provide general information on high amenity versus low amenity cities and, in the case of the Gabriel and Rosenthal study, try to differentiate between firm and worker valuations.

However, these types of studies have several limitations. First,

the general equilibrium assumptions are highly restrictive. Mobility for firms and workers is not frictionless; firms and workers have significant relocation costs and risks (Blair, 1995). Second, these models cannot fully account for interregional productivity differentials because they do not include direct productivity data disaggregated to the metropolitan level. Further, significant productivity advantages may be related to externalities that are not accurately valued in the market.

Third, while these models do yield a composite estimate of

amenity values, they do not give information about specific values of specific amenities. They are thus not helpful in setting local policy as they give no guidance about which amenities should be prioritized for local investment or development. Finally, because these studies are cross sectional or pooled estimates, they don’t allow us to distinguish the effects of amenities on cities of various sizes. These studies cannot, therefore, tell us much about how different amenity mixes might influence regional growth in second tier cities.

3. Hedonic price models Hedonic price models have a logic similar to general equilibrium

models but are somewhat less restrictive and provide explicit values for specific sets of amenities. Once amenity values for each region are estimated, these studies can also provide amenity rankings for a large set of cities based on aggregations of the individual amenity estimates. These models are easier to apply to household and labor location

39

behavior than to firm behavior (Strover and Leven, 1992; Blomquist et al., 1988; Berger and Blomquest, 1988).

These models can be expressed in the terms provided by

Strover and Leven 1992, again assuming that wages and housing prices across regions will vary to different levels of regional amenities to equalize household utilities across space.

amenities. local ofindex land of price rental

rate wage:where

),,(

===

=

arw

arwvv

Marginal changes to account for changes in amenity values can be expressed as:

(1) .dd

dd

aw

ar

vv

vv

w

r

w

a −−=

Strover and Leven’s model assumes that labor and real estate

markets are interrelated; high real estate prices can put upward pressure on wages to retain or attract labor to a region (with a given level of local amenities) and high wages can put upward pressure on real estate prices (with a less than perfectly elastic supply of land) (Strover and Leven, 1992). Hence, if wages are a function of land rents (housing prices) then:

0 and 0 such that ),( <∂∂

>∂∂

=aw

rwarww

And the full equation is: (2) .dd),(d awrwarw ar +=

40

Also, rents are a function of wages and amenities:

0 ar and 0 that assuch ),( >

∂∂

>∂∂

=wrawrr

And the total differential is:

.dd),(d(3) arwrawr aw +=

Given this theoretical formulation, we can estimate equations

that account for wages, rents and specific amenities. Where:

He = Local household housing costs

Cihi = Characteristics of Individual housing units (age of

structure, number of bedrooms, bathrooms, etc.)

Aj = Individual amenity types

(4) He = f ( Cih1…. Cihn, A1…… An)

And where:

W = Local wage rate

Iwc = Individual worker characteristics (age, race, education

nal attainment, etc.)

Aj = Individual amenity types

The age equation would then be estimated in the form:

(5) W = f (Iwc1…. Iwcn, A1…… An)

41

In these models we would expect wages to be negatively related to amenity values (workers would accept lower wages in high amenity areas, demand higher wages in low amenity areas) and housing costs to be positively related to amenity values (people are willing to pay higher housing prices in high amenity areas and lower prices in low amenity areas.

To demonstrate how hedonic price models can provide useful

estimates of individual local amenity values, we present the results of a study dome by Blomquest et al. in 1988, where the authors estimated the value of 16 local amenities in 253 U.S. Counties (Blomquest et al., 1988).3

This hedonic estimate focuses mostly on environmental amenities (climate, pollution) but considers two neighborhood amenities (school teacher pupil ratios and violent crime). Humidity is a classic disamenity, with a negative effect on housing prices and a positive (compensatory) effect on wages. High teacher/student ratios are a clear amenity, with higher housing prices and a negative effect on wages. Some measures are inconsistent such as air particulates which are linked to lower housing prices (a disamenity) but also to lower wages (a positive amenity value). In the last column of table IV-5, the authors estimate the annualized value of the amenity (positive) and disamenity (negative) for the average household. This estimate adds the housing and wage effects. So in the case of air particulate matter, the negative housing effect is more valuable that the negative wage effect (positive amenity value) suggesting that it is a net disamenity when both effects are considered together. The results in the third column yield results that are roughly consistent with intuition about these local amenities and disamenities. Pollution, poor climate and crime measures yield negative amenity values, while coastal and central city locations have positive values. Consistent with the amenity ranking studies above, superior school quality (high teacher student ratios) are very highly valued by households. 3 Note that the specification in the Blomquist, Berger and Hoehn study is slightly different than what was outlined form the Strover and Leven study above.

42

Table IV-5: Blomquest, et al : Parameter Estimates of Implicit Prices of 16 Local Amenities

Local Amenity Variable

Parameter Estimates: Monthly Housing

Expenditures

Parameter Estimates:

Hourly Wages

Full Implicit Price of Amenity (U.S. Dollars $)

Precipitation (inches per year)

-1.047 -0.0144 23.50

Humidity -2.127 0.0065 -43.42 Heating degree days -0.0136 -0.0001 -.08 Cooling degree days -0.0760 -0.0001 -.36 Wind speed 11.88 0.0961 -97.51 Sunshine days 2.135 -0.0091 48.52 Coastal Location 32.51 -0.0310 467.72 Violent Crime 0.0434 0.0006 -1.03 Teacher/Pupil ratio 653.3 -5.451 21,250.00 Visibility -0.8302 -0.0026 -3.41 Total air particulates -0.5344 -0.0024 -.36 Effluent discharges -7.458 -0.0051 -76.68 Landfill waste 0.0095 0.0001 -.11 Superfund sites 13.42 0.1069 -106.07 Wastetreatment, storageand disposal sites

0.2184

0.0013

-.58

Central City 40.75 -0.3138 645.02 R2 .6624 .3138

Source: Blomquist, G.C., and M. Berger and J. Hoehn. 1988. “New Estimates of Quality of Life in Urban Areas,” American Economic Review, Vol. 78, pp. 89-107.

These hedonic price type models could be extended in a

variety of useful ways. Given the kind of estimating procedure described above, the individual values could be summed to derive an aggregate amenity score for each city, providing an estimate of the relative importance of individual amenities and composite or quality of place estimates for individual cities. Furthermore, these studies could be extended to incorporate a larger number of amenities,

43

including the urban amenities that are ignored in the Blomquist et al estimates. Finally, some control for relative city size could be added as an independent variable to account for different size cities at different levels of development. We did not however find any studies that incorporated these elements.

One very recent study takes a different approach than either

the classic equilibrium models or the hedonic price models. Shapiro develops a version of a general equilibrium model to estimate the contribution of human capital to employment growth, then controls for land prices to estimate the relative contributions of human capital and local amenities on employment growth through a 2 Stage Least Squares Estimate (Shapiro, 2005). In a series of estimates for U.S metro areas, this author argues that high human capital (a college educated labor force) accounts for a major share of growth through regional productivity effects, high human capital also influences employment growth through quality of life improvements.

While the estimates in this study are very tentative, Shapiro’s

estimates further suggest that high human capital stimulates growth in amenity values. This evidence contradicts, to some extent, Florida’s implicit causal assumption because it suggests that highly educated workers influence the subsequent increase in amenities. This implies that local amenities increase due in large part to increased demands for local amenities from highly educated skilled workers; skilled workers draw amenity investments rather than amenity investments drawing skilled labor.

44

45

C · H · A · P · T · E · R · 5

V

Qualitative Evidence on Amenities and Growth of Second-Tier Cities

The empirical information reviewed provides helpful insights on the role of amenities in regional growth processes. In this chapter, we will focus in detail on the very compelling U.S. case of Austin, Texas. Austin is an ideal case because it has grown in the course of 35 years from a small university town and state capital city to a major second tier center of high technology and broader new economy sectors. This case supports the proposition that local amenities were an important regional advantage in the initial attraction of high technology or new economy firms and workers. But amenities are only one part of the story and certainly would not have stimulated the birth and subsequent evolution of the complex on their own.

1. The Austin Texas Case: Initial Development of a High Tech Base

Population and job growth in the Austin-San Marcos MSA4

over the past 35 years have been remarkable, with the population of the region growing from 399 thousand in 1970 to about 1.5 million by 2005. In light of our discussion of amenities in economic development, we need to understand the high tech evolution of this region: how high technology firms were first attracted; the specific roles of technology, market forces and the actions of the local state in building up the extra-firm infrastructure and preserving and enhancing local amenities.

4 The Austin-San Marcos MSA will be the main regional designation referred to in this essay. It includes Bastrop, Caldwell, Hays, Travis and Williamson Counties and is a reasonably good approximation of an "economic" region defined by commutable distances to workplaces and density patters.

46

In the late 1960s Austin was a sleepy, small city whose economy was based almost entirely on the income generated by state government functions and by a large state university (University of Texas). In 1970, total employment in the region was roughly 145,000 with 20 percent of total employment in state government, while regional population was 399,000. Manufacturing employment was negligible and concentrated in low tech sectors (Greater Austin Chamber of Commerce, 1997; Engelking, 1996). The region had essentially no private sector growth poles--major private companies growing through export of products outside the region. At the onset of the 1970s, Austin could also not claim to have a particularly strong research and development base, despite the presence of the University of Texas.

The first major event that shaped Austin’s subsequent

development was the opening of two major manufacturing facilities in Austin--IBM's 1967 opening of a large plant producing Selectric typewriters and other electro-mechanical products and groundbreaking for a Texas Instruments facility the same year (Davis, 1994; Gibson et al., 1991; Glasmeier, 1991). Each of these establishments was initially a typical branch plant operation, dependent on external product development and management direction. Through the 1970s, a number of smaller branch manufacturing facilities were established, including a large manufacturing facility opened in 1974 by the Motorola corporation. The initial Austin plant was a fabrication and assembly satellite of the Phoenix division headquarters of Motorola.

Why was Austin successful in attracting these branch

facilities? Their early attraction to Austin appears to be based on a combination of amenities and classic location factors: low land costs; availability of an educated, trainable (although not necessarily technical) work force at relatively low wages; and good infrastructure and access to growing Southwestern markets (Davis, 1994; Glasmeier, 1991). In particular, because production process technologies of these early facilities was relatively complex, the educated, technically literate labor pool available in the government and university sectors, and basic amenities including climate, housing prices, schools and recreational opportunities, privileged Austin over other lower-cost

47

regions. Because Austin offered cheap housing, good human capital, low wages and other business costs and had compelling urban and environmental amenities, the major branch plant firms could assign facilities managers and engineers to their Austin operations without too much resistance.

Figure V-1. Austin Time Line: Stages and Tech-Firm Locations

or Expansions

48

The Austin economy at the end of the 1970s did look substantially different than the picture a decade earlier. The region now had a significant private sector manufacturing base constituting almost 9 percent of total employment (Austin Chamber of Commerce, 1996). Employment was centered in a half-dozen large plants which operated as electronics and computer fabrication and assembly sites of large, external multinational firms. There is little evidence in this period of human capital or productivity spillovers to local supply companies or that the presence of these branch plants opened market access for other local firms. Moreover, because research and product development were not centered in Austin, these branch facilities were not fertile beds for local spin-off or start up firms or local technology transfer.

What specific developments or other aspects of local learning were important to the subsequent evolution of the Austin tech complex? The rapid growth (and in a few cases, upgrading) of tech-oriented branch plants created for the first time a significant pool of skilled operatives, process engineers and managers of technical operations in the region. While there was little cross fertilization or spillover, it became possible for science and engineering students at the University of Texas to find local employment in their field and it became easier to attract outside talent due to the more extensive employment choices within the local economy. In the first instance, growth in private sector employment stimulated the immigration of additional skilled labor.

Local leaders aggressively courted the early tech companies

who moved to the region. In this phase, important learning processes were established within the labor force and between the companies and local political and civic leaders (Smilor et. al 1988; Engelking 1996). These learning processes, although hard to specify in discrete terms, formed an important foundation for subsequent actions by the “local state.”

However, local amenities certainly played a complementary

role. High quality neighborhood and environmental amenities, especially compared to other cities of similar size, encouraged plant or division managers to tout Austin’s qualities to corporate leaders outside the region and to promote expansion of local facilities. In

49

addition, while the region did not have a rich portfolio of urban amenities common to larger and richer metro areas it did have a major local music scene based on rock and country musicians and live music venues. This relatively strong portfolio of local amenities aided in the attraction and retention of skilled personnel to the region.

2. From Branch Plant Center to Advanced Manufacturing

In the 1980's, the region's high tech economy began to move to a decidedly higher level. First, Austin got its first major Silicon Valley branch plant when Advanced Micro Devices (AMD) opened a major chip fabrication facility in 1979. This was followed by the opening of a number of small and large plants from Silicon Valley companies which propelled the region's semiconductor manufacturing base to higher levels of scale and scope. Another noteworthy addition to the local tech complex was the founding of Dell computers in 1984. Dell grew from a custom personal computer assembly shop--literally located in Michael Dell’s university dorm room in 1984--to the largest maker of personal computers 16 years later. In addition several of the earlier branch plant establishments dramatically expanded and transformed their Austin operations into major product development and advanced manufacturing centers.

In the 1980s, IBM steadily expanded and upgraded its local

plants, and Motorola dramatically expanded its Austin facilities, opening its Oak Hill complex in 1983 and making Austin the center of its semiconductor R&D and manufacturing activities. By the late 1980s, IBM and Motorola together employed nearly 15,000 in their Austin facilities, and were beginning to center major R&D and new product development efforts in the region. Their expanded activities included employment of large numbers of skilled scientific and engineering personnel.

By the onset of the 1990s, these relocations and expansions

created sufficient scale in the microelectronics and computing sectors to stimulate some growth of product and service supplier companies to serve the local market. Our research suggests the shift of Austin's high technology base from a branch plant platform into an advanced

50

manufacturing center was related to three key factors: (1) changes in the structure and competitive strategy of major firms in the electronics and computing industries; and (2) extra-firm factors including the build-up of UT science and engineering departments, government sponsored research institutions, and very intensive support from the local business and government communities and (3) an initially favorable mix of local amenities that began to respond to the new demands of in-migrating skilled workers. Local amenities and quality of place were a part of the story, but not the primary driver of high technology growth.

Perhaps most critical to the regional economic transformation

were the more classic economic development actions of local and state government actions to invest in R&D infrastructure and small business development initiatives. The first "extra-firm" factor that boosted Austin's status was the steady growth and improvement of the University of Texas at Austin (UT). Two decades of generous investment transformed UT into a major research university with strong, nationally recognized science and engineering departments. In addition, local and state government leaders secured the location of the Microelectronics and Computer Technology Corporation (MCC), the first private sector consortium to get specific antitrust waivers from the U.S. Justice Department.

Austin’s civic and political leadership offered an impressive

incentive package to lure MCC to the area. A facility and laboratory were built and leased to MCC for a nominal charge, thirty-two $1 million endowed chairs would be created in University science and engineering departments, and a package of other incentives and benefits equaling $20 million were offered (Engelking, 1996). Winning the MCC competition not only brought recognition and status, but it expanded University R&D assets and emboldened the fledgling high tech growth coalition to build upon this success. The rapid expansion of the region's research and development base seems crucial in explaining the expansion and upgrading of major branch plant facilities and the region's continued success recruiting high-tech firms in rapidly changing microelectronics and computing sectors.

51

Another crucial initiative was the founding of the Austin Technology Incubator (ATI) in 1989. Focusing on technology start-ups, this initiative also benefited from timing its services to emerging industry needs. As the large branch firms began more product development and R&D in their Austin facilities, the foundation was set for more prolific formation of small, entrepreneurial firms. Once these functions grew in local establishments, product ideas and process innovations by individuals and groups within large firms became exportable outside firm walls. When these activities are present, individuals and groups take ideas rejected by management, or more easily developed outside the strictures of a large corporation, outside to form new firms. By offering space, technical assistance and networking opportunities to such fledgling entrepreneurs, ATI began to operate as an important transmission belt moving technology and talented workers from the large firms into the regional economy.

By the early 1990s, after a decade of strong growth and with

the construction and opening of another national research center, Sematech, the Austin complex definitively graduated into the ranks of significant second-tier high-tech cities. Based on an attractive blend of classic location advantages and the presence of what could now be considered a unique R&D base, the region continued to attract major high technology manufacturing during the 1990s

The data in Table V-1, below, underscore the basic amenity

advantages that Austin still enjoyed in the 1990s. Despite extremely rapid growth over the 1980-1990 period, the Austin region retained an attractive cost structure with relatively low wage and income characteristics, and attractive non-labor costs (composite cost index and housing costs). More significantly, Austin now had an adult population with the fourth highest educational attainment level in this group of high tech centers. These generic advantages correlated with Austin’s exceptional growth performance over the 1990s.

But as growth continued, the regional demand for numerous

types of urban amenities increased. By the mid-1990s local government and private philanthropists began to fund cultural facilities and activities. In the 1990s a local opera company was founded, the local symphony orchestra upgraded and series of

52

museum projects were launched. The region only began to seriously build up cultural assets once there was a dramatic increase in the highly educated population due to immigration. Furthermore, privately provided urban amenities such as diverse dining, entertainment (in areas other than live music) and downtown districts began to fully develop on the basis of increasing demand from the new population. Table V-1: Characteristics of Nine High Growth Regions Table 1: Characteristics of Nine High-Growth, High Technology Regions

Population ACCRA Median Value Percent ofGrowth* Composite Owner Occupied Adult

1980-1994 (a) Cost Index** (b) Housing (c) Population1993 1990 College Graduate (d)

1990

Boston 8.5% 139.5 247,441 32.9%

San Jose 20.2% 141.6 289,400 32.6%

Albuquerque 33.2% 102.7 85,300 26.7%

Dallas/Ft. Worth 43.2% 100.8 76,761 25.4%

Portland 35.8% 109.3 73,882 24.7%

Raleigh/Durham 45.1% 98.3 93,821 34.8%

Salt Lake City 29.5% 96.8 77,904 23.9%

San Diego 29.3% 130.4 186,700 25.3%

Austin 64.8% 88 77,455 32.2%

U.S. Average 14.9% 100 79,100 20.3%

* PMSA or MSA Total** Composite index of business costs compiled by the American Chambers of Commerce. Includes housing, commercial real estate, energy and utilities

Sources: (a) U.S. Department of Commerce, Bureau of the Census, City County Data Book, 1994 , andStatistical Abstract 1995-1996 ,(b) American Business Climate & Economic Profiles, Detroit; Gale Research Inc. 1994(c) City County Data Book, 1994(d) City County Data Book, 1994

53

3. Endogenous Growth and Innovation

From this basis, the regional economy expanded rapidly in the 1990s, paced by growth in computing, microelectronics, engineering and research services and a new, burgeoning software sector. Over the 1990s, there was considerable growth and "thickening" within high tech manufacturing. Both employment and the value of most industry location quotients increased over the period.5 Within the high-tech manufacturing segment, there seemed to be an increasing basis for local inter-firm trade. There was a basis for forward linkages from electronic components and accessories into the electronics intensive communications equipment, computer and instruments industries. Moreover, the local supply industries to microelectronics and computer manufacturing gained significant strength over this period.

Table V-2: Utility Patents Issued per 10,000 Population, major U.S. High-

Tech Regions

Source: U.S. Patent and Trademark Office 2005, http://www.uspto.gov/

.

Year Austin (MSA)

Boston/Route 128

Research Triangle Silicon Valley

1990 4.08 2.80 2.64 5.61 1991 4.52 2.84 3.25 6.29 1992 4.94 3.17 3.24 6.82 1993 5.59 3.18 3.58 7.35 1994 5.97 3.34 4.01 8.30 1995 6.55 3.08 3.86 9.33 1996 7.61 3.52 4.66 11.23 1997 7.91 3.97 4.73 12.15 1998 12.26 5.17 7.28 18.19 1999 12.49 5.22 8.03 20.06 2000 12.21 5.04 8.23 21.07 2001 12.51 5.37 8.54 22.61 2002 12.02 5.31 7.86 23.29 2003 12.91 5.96 8.30 24.76 2004 12.12 5.55 7.55 24.71

54

The growing fertility of the region's public and company research base is underscored by the remarkable increase in patents registered by companies and institutions in the Austin MSA. While the Austin region registered about 350 patents in 1990, by 2000 this figure had risen to nearly 1,600, greater than those registered by larger regions such as Seattle and nearly double those of Raleigh-Durham. Normalizing for population, Austin becomes one of the most fertile center of innovation in the U.S (Table V-2).

The expansion of venture capital financing of local start-ups is

another factor. Small high technology companies began to lure small amounts of venture investment for the first time in the mid-1990s. But total venture investment in Austin grew from $42 million by 1995, to $2.2 billion by 2000. By 1997, there were eleven venture capital firms in Austin (Hawkins, 1997b). The largest, Austin Ventures, has invested over $3 billion in tech companies over the last 12 years. The rapid growth of venture investment is a strong indirect indicator of innovation and vibrant small company formation, again suggesting that the growth process is becoming more endogenously driven. It must be noted, however, that Austin's venture investments are still a small share of national venture investment which remains concentrated in Silicon Valley, New York, Boston and Los Angeles (Hawkins, 1997a).

Table V-3: Venture Capital Investments in Austin MSA

Source: 2004 PricewaterhouseCooper/Venture Economics/NVCA MoneyTree Survey

Year Number of Deals

Investment Millions$

Austin Share of Total U.S. VC

Total U.S. VC Millions $

1994 9 16 0.22% 7,288 1995 18 42 0.54% 7,868 1996 41 132 1.20% 11,017 1997 56 232 1.58% 14,651 1998 55 260 1.24% 20,906 1999 128 1,060 1.98% 53,532 2000 179 2,203 2.10% 105,004 2001 116 1,075 2.63% 40,809 2002 63 411 1.90% 21,681 2003 72 492 2.54% 19,395 2004 71 551 2.58% 21,345

55

Overall the build up of the Austin complex was a story of initial basic location and amenity advantages. As the complex evolved, local urban and co-location agglomeration economies became more powerful and increasingly important. As diverse combinations of firms and skilled labor accumulated in the region, new amenity investments were made by both the public and private sectors in response to growing demand. By the early 21st century urban amenities that were scarce in the early phases of the growth process became more abundant. The challenge for the region going forward was more preserving the amenity qualities of the region in light of decades of rapid growth. By 2000 the region had the trifecta of rapid population growth, wage growth and housing price growth that signals a healthy dynamic region in general equilibrium models of growth. (Glaeser and Gottlieb, 2006.)

But such rapid regional growth began to threaten important

qualities of place that contributed to the growth advantages of Austin, especially intensifying transportation and environmental problems associated with sprawl and lack of transportation alternatives. These challenges are knife edge problems--if transportation, environmental and economic discrimination issues are not managed, a threshold is reached where the amenity/cost mix rapidly deteriorates and this support for the growth process, so crucial to the Austin story, is undercut.

By 2000, the reputation of Austin as an affordable place with

unique environmental amenities was somewhat sullied as environmental stresses accumulated and housing prices escalated (Breyer, 1997; Tanamachi 1997; Shaw and Mueller, 1999). Traffic congestion increased significantly over the decade of the 1990s, air quality was close to out-of-attainment standards set by the U.S. Environmental Protection Agency, and groundwater pollution increased due to development (Texas Transportation Institute, 2005; Central Texas Sustainability Indicators Project, 2004). The rapid immigration of new workers and families to fuel the 1990s boom stressed both physical infrastructure and the environment.

The Austin case supports the proposition that local amenities

were an important regional advantage in the initial attraction of high

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technology or new economy firms and workers. When regions possess key amenities that define quality of life such as affordable, safe neighborhoods with good schools, some initial level of music and entertainment options, and clean air and water with interesting opportunities for outside recreation, they are better positioned to compete for technology-oriented firms and skilled labor. Because of quality of life advantages, branch plant managers and engineers could be successfully transferred or recruited to Austin--the region was not seen as a “hardship posting” by professionals in the large tech firms establishing new operations in the area. Yet the amenities that provided Austin with some initial advantages (the University, environmental amenities, local music scene supported by university student enthusiasts) were not the result of explicit economic development planning by local government.

As branch plants were upgraded and more local R&D activity

was seeded, the attractive amenity/cost frontier and the presence of a major research university made is feasible to attract high skilled R&D personnel and talented managers and financial specialists to the region from places like Silicon Valley and Boston. The Austin Chamber of Commerce and high tech companies famously recruited high tech talent in frigid Boston in February, by setting up a booth showing real time picture of Austin streets full of causally dressed workers in short sleeve shirts. Amenities and unique qualities of place were also important later, when local R&D and innovation took off. These attributes helped the region hang on to innovative spin-off or start up firms that may have been tempted to migrate to larger, but more costly centers such as Silicon Valley.

But amenities are only a part of the story and certainly would

not have stimulated the birth and subsequent evolution of the complex on their own. The attraction of initial firms and the subsequent build-up for the regional production complex involved heavy strategic local investment to build up the local R&D base, attract investments in advanced private R&D and product development, and encourage local start up and spin off firms. At the beginning of the tech development path, Austin development leaders understood that the region had certain general advantages (highly educated workforce, quality

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amenities, cheap land and labor costs) that could be attractive to technical branch plants.

Evolution to an advanced manufacturing center and later

innovation center, required that the region build up new location assets that would encourage more product development and R&D in local facilities (local R&D institutions incentives for private innovation activity). The build up of the local complex offered attractive employment opportunities for high skilled workers. Once a critical mass of high skilled workers emerged specific urban amenities responded to increasing demand.

4. Other International Cases The Austin story seems broadly consistent with the

development history of other new second tier centers. Cambridge in United Kingdom grew from a small university town into a major high tech/ new economy center over a similar time frame as Austin. It benefited from many of the basic “unplanned” amenities that support early development in Austin. Cambridge hosted a much more advanced research university and the university had a much larger role in early and subsequent development. Much of the technology development in the region grew up around a technology park planned by and associated with the university.

This research park and associated extra-firm infrastructure

hosted university based spin-offs and external firms that located there to draw upon the formidable R&D base of Cambridge University. However, good environmental amenities, local schools, relatively affordable housing played a role in attracting firms and workers from more expensive and congested London. As the regional production complex grew so did the local population of highly educated workers. This in turn stimulated the growth of local urban amenities. The close proximity of Cambridge to greater London (about 100 Km or a one hour commute) presents some unique issues not found in the Austin case.

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On the one hand, local residents can readily enjoy the rich urban amenities of London. Yet on the other hand the region faces greater difficulties in attracting and retaining residents who have greater opportunities to work in Cambridge and live in London. In this regard, the city must maintain and improve amenities such as local schools, recreational and cultural assets and entertainment to encourage residential settlement of high tech workers.

Daejeon is another case that shares elements of the

evolutionary trajectory of Austin. In this case the central government had a more direct role in seeding the initial high technology base of the region, through directed investments in the national university and a series of national research centers. It was these public investments that stimulated the migration of skilled labor and the subsequent, but limited influx of private sector high tech firms. Local amenities per se were not a significant factor in the early development of this complex, but may be playing an increasing role as the region evolves and grows with more private sector location and investment. Similar to Cambridge, Daejeon must operate alongside and compete with a nearby primate city (Seoul). The region has very appealing environmental amenities, in contrast to Seoul. At this stage it may be crucial for Daejeon metropolitan city and the central government in invest in primary and secondary education and a range of urban amenities to increase the share of high skilled workers who reside permanently in Daejeon rather than commuting form Seoul.

All of these case studies suggest that amenities must always be

considered together with classic location advantages and the range of more traditional local economic development strategies to attract firms and workers and promote small business development in regional complex building. The cases also suggest that different amenity mixes come into play at different stages of development. A “three stage process” seems to capture the complex interaction between local amenities, other location advantages and public sector intervention to encourage firm location and skilled worker migration.

In the first stage of development, neighborhood amenities

(schools, low crime relative to primary cities, affordable housing and low congestion) and natural environmental amenities (clean air and

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water, natural recreation possibilities) give advantages to certain second or third tier cities over both primate cities and other smaller regions for initial new economy sector investment. In all three cases the presence of a major university (a type of urban amenity) was also a crucial factor. But in some sense these initial amenity advantages are “unplanned” in that they were not the result of specific investments related to a high tech economic development strategy.

Once the initial base of technology development takes hold,

the importance of urban amenities(cultural assets, entertainment, dining and interesting urban districts) rises in retaining skilled labor and attracting additional labor and firm migration. The growth in these urban amenities must respond to increasing demand from the growing cadres of high skilled workers in order to keep the growth dynamic going. As the complexes mature and grow to larger scales, a third stage involves preserving neighborhood amenities (especially affordable housing, transportation mobility and good schools) and environmental amenities (clean air and water) becomes the crucial challenge.

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C · H · A · P · T · E · R · 6

VI Conclusions

This chapter sums up the quantitative and qualitative information from our extensive review of the literature on amenities and economic development. The balance of evidence does suggest that local amenities are an important factor in regional economic development in general and in regional development based on new economy sectors in particular. We can identify combinations of amenities that are likely to be important at crucial stages in the growth of new economy sectors in second-tier cities, but the promotion and upgrading of specific amenities is not the crucial or determining factor behind the evolution of local complexes. To spark and sustain the growth of knowledge based industries in a region, amenities must be viewed as one necessary but insufficient element in a broader and more complex local economic development strategy.

1. Summary of the Evidence

Richard Florida has put forward a very influential argument

that if a region successfully draws in talented knowledge workers, growth in new economy sectors will likely follow through innovation and new business creation by skilled, creative class entrepreneurs and through the attraction of new economy firms attracted by the pool of skilled workers. Other researchers have taken a more nuanced approach where local amenities are part of a larger process involving classic location advantages (market proximity, attractive labor costs, access to technology and know-how) and broader economies of agglomeration. Highly skilled workers are attracted to places that provide attractive and competitive wages, offer other employment opportunities in their fields to reduce job search and relocation costs,

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and provide rapid learning opportunities to enhance skills and wage increases over time. To the extent that a number of locations offered similar job and earnings growth potential, a worker might indeed pick a region with higher amenities. But an evolving production complex in one or more new economy industries must be present to trigger a significant and durable flow of highly skilled in-migrants.

Our review of the literature is consistent with the findings of

other authors who have evaluated multiple amenity and quality of life studies – there is no single model that can demonstrate with reasonable levels of confidence the association between amenities and economic growth for all regions. However we can identify a long list of local attributes (neighborhood, urban and environmental) that make up the quality of place and may influence firm and worker location.

In our review of firm and worker amenity surveys we found

that specific neighborhood amenities (school quality, housing affordability, low crime and mobility) are strong influences on firm and worker location. Environmental quality is more important for firm location than worker migration, but this suggests than regions that want to develop new high tech or new economy industries by attracting outside investment are more likely to succeed if that have attractive environmental conditions. While most urban amenities are not as highly ranked, cultural facilities and entertainment are factors that influence firm and worker location. We might speculate that once key neighborhood amenities and environmental conditions are considered, regions that have richer cultural and entertainment opportunities might be preferred by firms and workers/households. This is especially true once a critical mass of skilled workers emerges to create the effective demand for more specialized urban amenities

This survey information however has a number of limitations

for understanding the broader relationships between amenities or qualities of place and regional growth processes. More formal econometric studies based upon general equilibrium assumptions are useful because they implicitly estimate values of the full, or aggregate, mix of amenities that constitute the quality of place. They suggest that land or housing price differences and wage differences between regions give important clues as to amenity values for workers and

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they can provide general information on high amenity versus low amenity cities. However, they suffer from reliance on highly restrictive assumptions and a limited ability to distinguish between amenity types and hence offer little specific guidance to policy makers. Hedonic price type models can provide more valuable insights and could be extended to address the key questions of interest in this paper. They provide information on individual values that can be summed to derive an aggregate amenity score for a city, providing an estimate of the relative importance of individual amenities and composite or quality of place estimates for individual cities. Furthermore, these studies could be extended to incorporate a larger number of amenities including the urban amenities that are not evaluated in existing studies. Also, some control for relative city size could be added as an independent variable to account for different scales of cities at different levels of development.

2. Local Economic Development Policy Implications

The case study evidence provides richer, more context specific information that can relate the importance of amenities in igniting regional growth in high technology and new economy sectors to their role in supporting the build up and continued development of regional clusters and complexes. The results of this study can be summarized in four propositions for regional policy makers.

• First, local amenities must always be considered together with

classic location advantages and local economic initiatives to directly stimulate local firms and attract external investment. Amenities and investments in amenities are complements rather than substitutes for more traditional economic development.

• Second, basic neighborhood (schools, housing, crime and

transportation mobility) and environmental amenities (clean air and water and outdoor recreation) are important concerns of local policy and investment. This is especially true at early stages of development and at later stages when rapid growth can threaten these core qualities of place.

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• Third, the type of urban amenities highlighted by Florida (restaurants, entertainment districts and other cool things) seem less important and are driven by demand that expands as new high skilled workers move to an area. These amenities are more an effect than a cause of growth, but prudent investment in cultural assets during later phases of regional development may help sustain in-migration and firm growth and dampen the attraction of larger primate cities.

• Finally, amenity strategies should always be only one component

within a broader local economic development strategy that incorporates investments in human capital, research and development, technical assistance and small business development. Public sector action must be directed at a range of common market failures in a logical and disciplined way to spur healthy economic growth.

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R · E · F · E · R · E · N · C · E

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Stafford. H. 1983. “The Effects of Environmental Regulations on Industrial Location,” Working Paper, University of Cincinnati, 1983 as reported in Rees and Stafford, “Theories of Regional Growth and Industrial Development: Their Relevance f for Understanding High Tech Complexes,” in J. Rees ed., Technology Regions and Policy, Totowa, New Jersey: Rowan and Littlefield.

Stover, Mark Edward and Charles L. Leven. 1992. “ Methodological Issues in the Determination of the Quality of Life in Urban Areas.” Urban Studies. 1992, Vol. 29, No. 5, pp. 737-754.

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S · U · M · M · A · R · Y

KOREAN SUMMARY

지식기반산업이 성장하는데, 지역의 어메니티와 장소의 질이

점점 강조되고 있다. 몇몇 저명한 학자와 실무자의 글, 특히

창조적 계급을 강조하는 Richard Florida의 글에서 보면 높은

질의 지역 어메니티가 급속한 지역성장의 견인차가 되어간다는

것을 강조한다. 이 연구의 가장 중요한 집필 목표는 지역경제

개발에 있어서 어메니티의 역할에 대한 이론적 및 경험적

문헌들을 체계적으로 검토하고, 지역개발정책에 대한 구체화된

정책적 시사점을 제공하는 것이다. 또한 지역경제개발에 있어서

어메니티의 역할에 대한 좀더 깊은 이해를 도모하고 정책

결정자로 하여금 2차 계층 지역의 성장을 촉진시킬 수 있는 좋은

정책적 지침을 제공하려고 하는 것이다.

.

제 1 장 서론

이 장에서는 본 연구의 주제, 연구과제 그리고 정책적

시사점을 간략하게 소개한다. 지식기반산업의 성장에서 지역의

어메니티와 장소의 질이 점점 강조되고 있다.

지역 어메니티와 지역성장과의 일반적인 관계를 살펴 볼

것이다. 하지만 신 경제산업과 연계하여 지역 어메니티의 역할에

더욱더 초점을 둘 것이다. 신경제 산업이란 전통적인 첨단

산업뿐만 아니라 지식집약적인 고성장 산업을 말한다. 예를 들면,

생산자 및 재정 서비스업, 미디어, 문화 기반 산업 (패션, 예술,

디자인) 등이다. 이와 같은 산업들은 숙련된 노동과 장소의 질에

크게 영향을 받을 수 있으며 지역화된 기술 이전에 특히

의존적이다. 이 논문에서는 지역 어메니티가 이와 같은 신경제

산업의 발전동력인 높은 기술 노동력과 사업가를 끌어들이는 가장

결정적인 요소라는 논의를 진행한다. 지역성장과 지역 어메니티에

관한 좀 더 단순한 인과관계를 살펴보면서 주요과제를 발췌하고,

장소의 질에 대한 역할을 좀 더 이해할 수 있도록 광범위한 내

78

용과 중요한 사실들을 밝히도록 한다.

제 2 장 신지역성장이론과 장소의 질

이 장에서는 본 보고서의 이론적 틀을 제시한다. 선진화된

시장 경제에서 지역의 균형성장 다이나믹스를 설명하는 광범위한

이론에서부터 지역 어메니티와 성장과의 관계에 대한 해답을

구하고자 하였다. 전통적인 입지 요인들의 변화, 급속한 교통과

통신 비용의 감소, 그리고 지식기반산업을 선호하는 산업부문의

성장 등으로 주요 수위도시와 떨어진 외부지역에서 투자와 성장을

촉진시키는 새로운 메카니즘들이 발전되어왔다. 첨단기술개발

그리고 첨단기술센터를 만드는 정부정책의 영향에 대한

연구들에서는 1990년대 소외되고 미개발된 지역에서의

첨단산업활성화 전략에 관련된 다음과 같은 내용들을 제시하고

있다. 이 목록의 내용은 주요대학, 공공연구기관, 기술노동자를

위한 특별훈련기관, 중소기업 창업지원, 공식 또는 비공식

기업협회, 그리고 벤처캐피탈 같은 특별한 재정 프로그램들이었다.

그러나 새로운 기술센터를 만드는 데에 있어서 이와 같은

노력들은 복합적인 성공요인의 일부분이다. 많은 새로운

기술도시들은 공공부문의 관료들이 만들었지만 수직적으로

통합되고 기업의 지사만 남긴 경우가 많다. 지역경쟁력에 관한

현재의 논의는 신경제 부문에 있는 기업과 기술 노동자들이

과거보다 입지가 자유로우며 시장과의 인접성 및 교통 허브와

같은 전통적인 입지요인들에 자유롭다는 것이다. 그리고

지역성장과정을 설명하는 데 있어서 지역 어메니티와 장소의 질이

더 큰 역할을 한다는 것이다. 계속적인 기관 형성과 지역

어메니티에 대한 주의를 기울이지 않는다면 신경제 산업의 발전을

뒷받침하는 기술 노동력과 기업의 다양하고 다이나믹한

네트워크를 계속하여 끌어들이고 보유하는 것은 더욱 더

어려워진다. 그러므로 장소의 질이 가져오는 영향력에 대해

이해하는 것이 중요하다. 그리고 이것은 2차계층 혹은 3차계층

중심도시의 발전과정을 설명하는데 간과할 수 없는 요소이다.

제 3 장 장소기반 어메니티와 경제적 성과와의 관련성 분석

이 장에서는 지역 어메니티를 정리하고, 삶의 질에 대한

개념과 장소의 질에 대한 개념 사이를 구별 하며, 구체적인

어메니티, 지식기반기업에 의한 투자, 그리고 고기술 노동력의

79

이주와 보유 사이의 잠재적인 영향경로를 제시한다. 지역

어메니티와 지역의 경제적인 성과와의 관계에 대한 연구는 이

과제의 초점이지만 이보다 훨씬 이전의 긴 역사를 가지고 있다.

광범위한 어메니티와 삶의 질에 대한 척도와 경제적 성과와의

관계에 대한 경험적 증거는 뚜렷하지 않다. 문헌검토는 모든

지역에서 신뢰할만한 수준에서 어메니티와 경제 성장과의 관계를

보여줄 수 있는 하나의 모델은 없다는 것을 보여준다.

이런 점을 수용하여 이 논문에서는 일련의 중요한 정의와

분류를 통해 어메니티의 범위를 정하였다. 세개의 어메니티

범주로 구분하면 근린주구 어메니티(예: 주택의 질, 저렴한 주택,

학교의 질, 안전한 커뮤니티), 도시 어메니티 (예: 문화적 자산과

문화활동, 독특한 건축양식과 도시 디자인, 다양한 오락과

음식문화 경험), 환경 어메니티 (예: 기후, 대기 및 수질, 공원,

해변 및 오픈 스페이스, 야외성 레크레이션)이다.

그리고 이 논문은 2차 계층 및 3차 계층 지역들이 신경제

산업의 발전을 도모하기 위하여 응용가능한 기업과 개인의 입지

결정요인들을 탐색하였다. 그 목적은 이 세 범주의 어메니티와

기업및 개인의 행태와의 관련성에 대해 구체적이고 합리적으로

이해하는 것이다. 신 개발지역에 어메니티 위주의 설명에 대해

배치되는 가장 강력한 예는 고용과 생애수입의 잠재성이 숙련

노동자의 입지 결정에 무엇보다도 중요하다는 것이다. 그러므로

높은 질의 지역 어메니티 전략은 고도의 숙련 노동자의 유입을

촉진하기 위한 하나 또는 그 이상의 기존전략과 병행할 때

작동된다.

제 4 장 지역성장과 어메니티 역할에 대한 경험적 증거

이 장에서는 경제적 유형 및 성과에 어메니티가 미치는 영향을

광범위한 경험적 연구들을 통해 검토한다. 기업의 입지와 노동의

유입및 보유에 중요한 장소적 특성을 밝히는 많은 조사연구를

검토하고 종합하였다.

다소 차이는 있지만, 근린주거 어메니티(학교의 질, 저렴한

주택, 낮은 범죄율과 인구이동)는 기업과 노동의 입지에 모두

강한 영향을 미친다. 환경의 질은 노동의 이동보다는 기업의

입지에 더 중요하다. 그러나 이것은 훌륭한 환경적 조건을 가질

때 더욱 더 성공할 가능성이 있는 외부투자를 유치함으로써

새로운 하이텍이나 신경제 산업을 발전시킬 수 있다는 것을

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의미한다. 대부분의 도시 어메니티가 높게 평가되지는 않지만

문화적 시설과 엔터테이먼트는 기업및 노동의 입지에 영향을

미치는 중요한 요소이다.

그래서 다음과 같은 결론을 내릴 수 있다. 즉, 근린지역

어메니티와 환경적 조건이 일정하다면 더 풍부한 문화적 및

엔터테이먼트 기회를 가지는 지역이 기업과 노동및 개인의 입지에

유리하다는 것이다. 하지만 이와같은 기업과 개인에 대한

조사연구는 어메니티와 지역성장과의 광범위한 관계을 이해하는

데 많은 제약점을 가지고 있다. 예를 들면, 어메니티에 대한

하나의 혼합및 조합이 또 다른 어메니티의 혼합및 조합보다 더

중요하다고 확실하게 말할 수는 없다는 것이다.

이와 같은 한계는 노동임금과 주거자산 가치를 설명하기

위하여 지역 어메니티의 가치를 분리하는 경험적 모델들에서

보여진다. 특히 헤도닉 가격유형 모델은 어메니티의 개별가치를

평가하는데 이용될 수 있으며, 특정한 도시나 지역에 대한

어메니티 총 점수를 도출하여 합산하는데 이용될 수도 있다. 또한

이론적으로는 도시의 규모가 도시의 발전정도를 설명하는

독립변수로써 사용될 수 있다. 하지만 이와 같은 변수들을 통합한

연구는 찾아 볼 수 없었다.

제5장 어메니티와 2차계층 도시의 성장에 대한 질적인 증거

검토된 경험적 정보는 지역성장에 대한 어메니티의 역할에

대한 통찰력을 가지게 한다. 따라서 장소의 질을 만드는 다면적인

어메니티에 대한 좋은 정보를 갖게 된다. 그리고 각기 다른

어메니티가 모든 산업부문 또는 첨단산업 부문에서 노동자와

기업에게 어떻게 평가되는 가에 대해서는 어느 정도 알려져 있다.

헤도닉 가격모델을 통해서 각각의 어메니티의 가치와 장소의 질에

대한 통찰력도 얻을 수 있다. 한편 각기 다른 발전 단계에서,

각기 다른 도시유형에서 어메니티의 역할을 설명하는 모델을

개발할 수도 있지만 여기에 대한 경험적 평가는 없었다. 사례에

대한 질적이고 역사적인 분석을 통해 첨단기술의 성장이나

신경제산업에 기반을 둔 지역진화 과정에서 어메니티가 어떻게

영향을 미칠 수 있었는가에 대한 통찰력을 얻을 수 있다. 미국

오스틴의 발전사례를 조명하였다.

오스틴은 상기한 측면에서 보면 이상적인 사례이다. 왜냐하면,

대학과 주정부가 있는 작은 도시에서 35년만에 첨단기술과 광범

위한 신경제산업을 소유한 세계적인 2차계층 주요센터로 탈바꿈

81

했기 때문이다. 이 사례는 지역 어메니티가 신기술이나 신경제

기업과 노동자들을 유치하는데 중요한 장점이라는 것을 입증한다.

그러나 어메니티는 지역발전요인 가운데 단지 일부분일 뿐이며

혼자서는 첨단복합도시의 출현과 발전을 가져오지는 못한다.

오스틴에서 기업의 유치와 그에 따른 지역생산 컴플렉스의 건립은

지역 연구개발기반을 형성하기 위한 많은 전략적인 투자,

민간연구 개발및 생산개발에 대한 투자유치, 그리고 지역창업및

분리기업의 촉진에 힘입은 바가 크다. 일단 고도 기술 노동자의

수가 어느정도 확보되면 증가된 수요에 대응한 도시의 특정

어메니티가 나타난 것이다. 마지막으로 영국 캠브리지, 한국

대전과 같은 2차계층 도시와 비교하여 간단한 분석과 시사점을

언급하였다.

제 6 장 결론

어메니티와 경제발전과의 관계에 대한 광범위한 문헌검토로

부터 얻은 질적이고 양적인 정보들을 먼저 요약하였다. 지역

어메니티는 일반적으로 지역 경제개발에서 중요한 요소이며, 특히

신경제 부문에 기반을 둔 지역개발에 중요한 요소이다. 2차계층

도시에서 신경제부문의 성장단계에서 중요한 어메니티의 조합을

식별은 할 수 있으나 특별한 어메니티의 향상과 업그레이드가

지역컴플렉스의 발전에 결정적인 요소는 아니었다. 한 지역에서

지식기반 산업을 발전시키기 위하여 고려하는 어메니티는 하나의

필요요소로 보아야 하며, 광범위하고 복합적인 지역 경제개발

전략에서의 충분요소는 아니다.

첫째, 지역 기업을 고무시키고 외부 투자를 유치하기 위해서

지역 어메니티는 고전적인 입지잇점 및 지역 경제전략과 함께

고려되어야 한다. 어메니티와 어메니티에 대한 투자는 전통적인

경제개발에서 주로 발생하는 대체관계보다는 보완관계에 있다.

둘째, 근린주구 어메니티 (학교, 주택, 범죄, 교통의 흐름)와

환경 어메니티 (깨끗한 공기와 물)는 지역의 정책과 투자의 가장

중요한 목표다. 이것은 급속한 성장이 장소의 핵심적인 질을

위협할 수 있을 경우, 특히 개발의 초기와 후기단계에서 중요하다.

셋째, 플로리다에 의해서 특히 강조된 도시의 어메니티 유형은

(식당, 유흥지역,다른 유흥꺼리) 크게 중요해 보이지 않으며,

그와 같은 도시 어메니티는 새로운 고도숙련노동자들이 한

지역으로 이주해옴에 따라 늘어난 수요에 대응한 것으로

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나타난다. 이와 같은 어메니티는 성장의 원인이라기 보다는

결과로 나타난 효과이다. 그러나 지역개발의 후기 단계에서

문화적 자산에 대한 투자는 인구의 유입과 기업의 성장을 도울 수

있고 외부의 더 큰 대도시에 대한 상대적 매력을 감소시킬 수

있다.

마지막으로 어메니티 전략은 인적자본의 투자, 연구개발,

기술지원 그리고 중소기업 개발과 함께 더 광범위한 지역

경제개발전략 가운데 단지 하나의 요소이어야 한다. 공공부문의

조치는 건강한 경제성장을 펼쳐나갈 수 있도록 논리적이고 통제된

방법으로 시장실패의 범위 내에서 이루어져야 한다.

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