Chapter 10 Cities and Urban Economies Relation between urban growth and capitalist development Central place theory (NOT IN TEXT) Economic base model Housing markets in urban areas Gentrification processes The development of global cities

A simple model of trade Exports Internal Goods and Services Imports

The Economic Base Model ET = Total Employment EX = Export Employment (Basic) EL = Local Employment (Non-Basic) ET = EX + EL (1) Define a = EL/ET Multiply by ET and substitute into (1): ET = EX + aET Solve for ET: ET = ( 1/1-a)EX

Example, Economic Base Model If a = .67 Then:( 1/1-.67) =( 1/.33) = 3 If EX = 500, then ET = 3 x 500 or 1500. If EX rises to 750, ET becomes 3 x 750 or 2250 and if EX falls back to 400, ET declines to 1200

Alternative Formulation: Textbook p. 275 ΔT = m ΔB Where m= 1 + NB/B Or 1 +67/33 = 1 +2 or a multiplier of 3 If export = 500, then total impact is 1500

Measurement of the Economic Base Multiplier Direct Surveys “Short-cut” Approaches: Assumption or Assignment Minimum Requirements Location Quotients Industry Specific Models: Input-output Regional econometric models

Example of Minimum Requirements (Thousands) If total employment was 100,000, then minimum requirements is 6%, or 6,000. If actual employment were 10,000, 4,000 would be assigned to exports. Repeat for all industries, sum local shares to obtain “a”

Example of Location Quotient Approach to Economic Base Industry Jobs LQ Export Local Agriculture 500 0.8 0 500 Mining 300 5.0 240 60 Manufacturing1000 2.0 500 500 Retail 1500 1.0 0 1500 Services 3000 1.2 500 2500 Total 6300 1240 5060 a = 5060/6300 = .803, so (1/1-.803) = 5.08

Size of Region and Size of Multiplier 1.0 .67 Wn.State Mult. = 3 World - Mult =  Individual Sells all labor a = 0, multiplier = 1.0 Log Population

Regional Input-Output Models Final Demand Total Sales = Total Purchases Total Sales = Intermediate Sales + Final Sales Total Purchases = Intermediate Purchases + Value Added + Imports

Washington State Input-Output Model Handouts: Transactions Table Direct Requirements Matrix Direct & Indirect Requirements Matrix Direct, Indirect, & Induced Requirements Matrix Input-Output Notation

Impact Analysis Using I/O Models Direct, Indirect & Induced Requirements Matrix = Final Demand X Output Employment Impacts calculated from Output Impacts

Impact Analysis with I/O Models Key Inputs: Final Demand values for output, income, and jobs Key modeling requirements: I/o model relevant to the problem Results: usually reported for jobs, income, output, and taxes

Impact Analysis Examples ArtsFund – impacts of nonprofit arts and patron spending Technology Alliance – impact of high tech SAM – impact of the Gauguin exhibition Boeing Field – impact of King County International Airport UW – impacts of Husky athletics Seattle Center – impacts of Key Arena and of the wide variety of activities on the campus

Direct & Indirect Output Multipliers

Direct & Indirect Labor Income Per Dollar of Final Demand

Direct & Indirect Jobs Per $ Million Final Demand

Output Multipliers

Labor Income Multipliers – Total Labor Income /$ Direct Labor Income

Employment Multipliers – Total Jobs Per Direct Job

Regional Models, continued Regional Econometric Models Interregional Input-output models Structural Change

Regional Econometric Models The Washington Projection & Simulation Model Coefficient Change Consumption National Econometric Model Exports Output (I/O Relations) Imports State & Local Government Income Employment and Population Investment Productivity Rates Wage rates, tax rates, nonearnings income

WPSM Simulation of Change in Aerospace Exports

Multiregional Models Region B Region A Region D Region C

Multiregional Input-Output Model (intermediate & final transactions including interregional value added payments) Feedback Loops

Simulation of Columbia Basin Irrigation Project Development Project Region Other Washington

Estimate of Employment Impacts from Multiregional Model

Structural Change in I/O Models Washington State is unique in having 8 largely survey-based input-output models They are benchmarked against 1963, 1967, 1972, 1982, 1987, 1997, 2002, and 2007 Each of these is an economic census year The models have been aggregated to a common sectoring scheme, and transaction values have been benchmarked against the year 1972, to be able to compare their structure in constant $.

Output Change (1)

Output Change (2)

Gross Washington Output Level to Deliver 2007 Final Demand

Employment Required to Deliver 2007 Washington Final Demand

Share of Output Washington State

Composition of Exports

Share of Inputs Washington State