New Growth Theory, Globalization, and the Economic Prosperity of U.S. Cities
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Transcript of New Growth Theory, Globalization, and the Economic Prosperity of U.S. Cities
New Growth Theory, Globalization, and the Economic Prosperity of U.S. Cities
Barry BluestoneDean, School of Social Science, Urban Affairs, and Public PolicyNortheastern University
Prepared for the Institute for Local Governance and Regional GrowthUniversity of Buffalo (SUNY)
February 13, 2008
What is Responsible for the Economic Success of U.S. Cities
Key Factors Physical Capital Technology Human Capital Transportation & Communication
Revolution Globalization
Neoclassical Growth Theory vs. New Growth Theory
Changing Fortunes of U.S. Cities
Twenty (20) Metro Areas under study Measure of Metro Prosperity: Median
Household Income Compare 1969 and 2005 data (in
2005 dollars)
Austin
Tucson
Tacoma
St. Louis
Hartford
Raleigh
Buffalo
Map 1
Median Household Income 1969 Metro Areas ($2005 Dollars)
$27,369
$46,845
$54,892
$20,000
$30,000
$40,000
$50,000
$60,000
Most Prosperous Metro Areas: 1969
#1 Detroit, Michigan #2 Hartford, Connecticut #3 Chicago, Illinois #4 Milwaukee, Wisconsin #5 New York, New York
Least Prosperous Metro Areas: 1969
#1 Austin, Texas #2 Raleigh-Durham,Chapel Hill, North Carolina #3 Jacksonville, Florida #4 Tucson, Arizona #5 Phoenix, Arizona
Percentage Change in Median Household Income Metro Areas 1969-2005 ($2005 Dollars)
57%
40%
34%32%
23%
17% 16% 16% 14%12% 11% 11% 11%
6% 5%
-7% -7%-10%
13%
84%
-20%
0%
20%
40%
60%
80%
100%
Largest Percentage Change in Median Household Income (1969-2005) (in 2005 Dollars)
#1 Austin, Texas (+84%) #2 Raleigh, North Carolina (+57%) #3 San Francisco, California (+40%) #4 Jacksonville, Florida (+34%) #5 Boston, Massachusetts (+32%)
Smallest Percentage Change in Median Household Income (1969-2005) (in 2005 Dollars)
#1 Buffalo, New York (-10%) #2 Detroit, Michigan (- 7%) #3 Milwaukee, Wisconsin (-7%) #4 Chicago, Illinois (+5%) #5 St. Louis, Missouri (+6%)
Median Household Income 2005 Metro Areas ($2005 Dollars)
$41,521
$53,216
$65,382
$30,000
$40,000
$50,000
$60,000
$70,000
Prospering Metro Areas: 2005
#1 San Francisco, California (Up from #10)
#2 Boston, Massachusetts (Up from #8)
#9 Raleigh, North Carolina (Up from #19)
#12 Austin, Texas (Up from #20)
Declining Metro Areas: 2005
#20 Buffalo, New York (Down from #9)
#17 Milwaukee, Wisconsin (Down from #4)
#11 Detroit, Michigan (Down from #1)
Neoclassical Growth Theory Robert Solow: Capital Formation and
Technological Change responsible for productivity growth
Technological Progress: “Advances in Knowledge”
But technology is a “black box”: impact measured as a residual
Neoclassical Theory
Dale Jorgenson: Growth in capital input (tangible assets like
factories, machinery) is the most important source of economic growth
Growth in labor input is the next most important source of economic growth
Technological progress is the least important Law of Diminishing Returns dominates
New Growth Theory
Paul Romer, Richard Nelson, Sidney Winter
Technological Progress is at the center of economic growth
New Growth Theory – 4 Premises
Technological change provides the incentive for capital investment
Technological change is subject to various complementarities and feed-back loops
Technological change occurs as a result of intentional actions responding to profit incentives
Technology innovation provides increasing returns to scale
Evidence for New Growth Theory
Great Britain vs. U.S. (1870-1929) In 1870, U.S. per capita income only ¾ of
Great Britain In both countries, education per worker
increased about the same and savings rates were comparable
But by 1929, U.S. income levels were 30% higher than in Great Britain
Why?
U.S. vs. U.K. “Investments”
British investors took their saving and invested abroad
U.S. became technology innovator with Henry Ford, Thomas Edison, the Wright Brothers … and Americans invested at home
By the 1920s, these technological advances provided a booming economy in the U.S.
Decline in Transportation and Communication Costs
Jumbo jet, supertanker, the container ship reduced cost of transportation dramatically
Satellites, high-speed internet, fiber optics, teleconferencing, mobile phones reduced the cost of communications dramatically
The result: Thomas Friedman’s “Flat World” – Globalization of Production
The Key to 21st Century Prosperity?
Need to be a leader in technological innovation in order to survive and prosper in a global economy where workers and goods can move nearly at the speed of sound …. and information moves nearly at the speed of light.
Prosperous Cities Technology Leaders in the U.S.:
Boston, Massachusetts Austin, Texas Raleigh-Durham-Chapel Hill, North Carolina San Francisco, California Jacksonville, Florida Atlanta, Georgia Chicago, Illinois
Cities with a concentration of universities and medical centers
Cities with powerful international & domestic transportation hubs
The 21st Century City Centers for Business Services
Face-to-face contact opportunities supplemented by high-speed communications attract business
Centers for Consumption Cities that are good places to live with
lots of cultural amenities and recreational opportunities attract workers
The “Eco-System” for Urban Prosperity
Incubators of innovation and technology
Attractive locations for the “creative class” of scientists, engineers, architects & designers, writers, artists, musicians, and alike
Transportation and communication hubs
A Taxonomy of 21st Century Cities
Innovation Centers Austin, Boston, San Diego, Seattle,
Raleigh, Washington, D.C. Finance Centers
New York, Chicago; Charlotte, North Carolina; San Francisco
Transportation Hubs New York; Chicago; Denver; Atlanta;
Memphis, Tennessee; Louisville, Kentucky
A Taxonomy, con’t Cultural/Tourism/Recreation Centers
Las Vegas, Nevada; Orlando, Florida; Philadelphia, Pennsylvania
New Manufacturing Centers Evansville, Indiana (Toyota); Greensville, South
Carolina (BMW; Michelin) Natural Resource Centers
Aspen, Colorado (Skiing); Tampa, Florida (Beaches)
Retirement Centers Phoenix, Arizona; San Diego, California; Miami,
Florida
A Note of Caution: Cost of Living
Those metro areas that have attracted creative industries and creative workers are now in danger of “pricing themselves out of the market”
The high cost of living in many of these cities (Boston, San Francisco, San Jose) is beginning to discourage working families and businesses from settling in these regions
CURP Study of Housing, Employment and Population
Metro areas with highest cost of living are suffering slow employment growth or outright job loss
Metro areas with the highest cost of living are suffering net out-migration of domestic population
Paradox: The shortage of housing supply can lead to a future sharp decline in housing prices … as jobs and workers leave the state
A Tale of Two CitiesBasic Budget2 Parents, 2 Children
Boston
Monthly Housing $1,266
Monthly Food $ 587
Monthly Child Care $1,298
Monthly Transportation $ 321
Monthly Health Care $ 592
Monthly Other Necessity $ 500
Monthly Taxes $ 824
Monthly Total $5,388
Annual Total $64,656
Raleigh-Durham-Chapel Hill
Monthly Housing $ 779
Monthly Food $ 587
Monthly Child Care $ 866
Monthly Transportation $ 358
Monthly Health Care $ 368
Monthly Other Necessity $ 369
Monthly Taxes $ 350
Monthly Total $3,677
Annual Total $44,124
A Tale of Two Cities
Source: Economic Policy Institute, “Family Budget Calculator, 2005”
A Tale of Two CitiesBasic Budget2 Parents, 2 Children
Boston
Monthly Housing $1,266
Monthly Food $ 587
Monthly Child Care $1,298
Monthly Transportation $ 321
Monthly Health Care $ 592
Monthly Other Necessity $ 500
Monthly Taxes $ 824
Monthly Total $5,388
Annual Total $64,656
Buffalo-Niagara
Monthly Housing $ 648
Monthly Food $ 587
Monthly Child Care $1,195
Monthly Transportation $ 358
Monthly Health Care $ 514
Monthly Other Necessity $ 333
Monthly Taxes $ 326
Monthly Total $3,961
Annual Total $47,532
A Tale of Two Cities
Source: Economic Policy Institute, “Family Budget Calculator, 2005”
Cost of Living – 4-Person Family
#1 Boston #2 Washington, D.C. #3 Nassau-Suffolk Country, NY #4 Stamford-Norwalk, CT #33 Buffalo-Niagara, NY #71 Raleigh-Durham, NC #127 Detroit, MI #159 Milwaukee, WI
Employment Growth (%) (2000-2004)
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
1 2 3 4 5 6 7 8 9 10
Housing Price Decile
Per
cent
Cha
nge
Low Price High Price
Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of Labor Statistics
Universe: 245 U.S. Metro Areas
0.95%
2.91%
2.29%
0.86%
1.53%
0.68%
-0.68%
0.12%
-0.62%
1.49%
Employment Growth (%) (2000-2004)
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
1 2 3 4 5 6 7 8 9 10
Housing Price Decile
Per
cent
Cha
nge
Boston MSA (-4.9%)
Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of Labor Statistics
Universe: 245 U.S. Metro Areas
0.20
0.10
0.00
-0.10
-0.20
$1,600$1,400$1,200$1,000$800$600$400
Quadratic
Observed
Monthly Housing Cost
Employment Change (%) (2000-2004)
Boston MSA
%∆Emp(2000-2004) =
-.1466 +.0000396 Housing Cost (4.07) -2.291E-007 Housing Cost SQ (4.04)
N = 245 Adj. R Square = .056
Employment Growth (%) (2000-2004)
-1%
0%
1%
2%
3%
1 2 3 4 5 6 7 8 9 10
Cost of Living Decile
Per
cent
Cha
nge
Low Cost High Cost
Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of Labor Statistics
-0.21%
0.93%
-0.02%
0.84%1.06%
0.50%
1.09%
1.98%
0.62%
2.53%
Universe: 245 U.S. Metro Areas
Internal Net Migration (%) (2000-2004)
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
1 2 3 4 5 6 7 8 9 10
Housing Cost Decile
Decil
e P
erc
en
t
Boston MSA (-5.2%)
Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census
Universe: 304 U.S. Metro Areas
0.1500
0.1000
0.0500
0.0000
-0.0500
-0.1000
-0.1500
$1,600$1,400$1,200$1,000$800$600$400
Monthly Housing Costs
Quadratic
Observed
Internal Migration (% Change)
Internal Migration (% Change)
Monthly Housing Cost
Boston MSA
%∆Internal Migration =
- .146 + .000399 Housing Costs (7.03) - 2.475E-007 Housing Costs SQ (7.39)
N = 304 Adj. R Square = .153
0.1500
0.1000
0.0500
0.0000
-0.0500
-0.1000
-0.1500
$1,600$1,400$1,200$1,000$800$600$400
Monthly Housing Costs
Quadratic
Observed
Internal Migration (% Change)
Internal Migration (% Change)
Monthly Housing Cost
Boston MSA
%∆Internal Migration =
- .146 + .000399 Housing Costs (7.03) - 2.475E-007 Housing Costs SQ (7.39)
N = 304 Adj. R Square = .153
San FranciscoStamford-NorwalkSan JoseBostonOaklandNassau-Suffolk
Internal Net Migration (2000-2004)
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
1 2 3 4 5 6 7 8 9 10
Cost of Living Decile
Dec
ile
Per
cen
t
-2.12%
0.16%
1.54%1.40%
2.19%
1.04%
0.60%0.41%
0.19%
0.39%
Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census
Universe: 304 U.S. Metro Areas Boston
Conclusion A new hierarchy of metro areas is arising as
a result of technological innovation and globalization
Urban prosperity depends to a great extent on being a leader in technology and a transportation hub
But, those cities where the cost of living rises sharply are in danger of pricing themselves out of the market for new firms and working families