Steven DellerSteven DellerDepartment of Agricultural and Applied Economics
University of Wisconsin‐Madison/Extension
Stephan GoetzDirector, The Northeast Regional Center for Rural Development
Pennsylvania State University
Tom HarrisDirector, University Center for Economic Development
University of Nevada‐RenoUniversity of Nevada‐Reno
Targeted Regional Economic DevelopmentTargeted Regional Economic Development
Targeted Regional Economic Development
Today’s Objectives:y j
Review the notion of cluster development;
The concepts of industrialThe concepts of industrial targeting;
Overview some of the tools at our disposal.
Targeted Regional Economic Development
Community and regional organizations vested with the promotion of economic growth and development are constantly searching for effective tools and methods to d h ffadvance their efforts.
The interest in cluster developments that has been spurred by the work of Michael Porter has renewed interest in targeted
i d l t ff teconomic development efforts.
Targeted Regional Economic Development
There has been a concerted movement There has been a concerted movement away from the old philosophy of “shoot anything that flies and claim anything that y g y glands” to more strategic behavior in identifying the specific types of industry to promote at the local and regional levels.
Policymakers and economic development Policymakers and economic development practitioners are now asking the more focused question; in what types of industry does ourquestion; in what types of industry does our region have a competitive advantage?
Targeted Regional Economic Development
1960s 1980s 1990s1960s
to early
1980s
to mid
1990s
to
1980s 1990s Today
•Attraction• Tax Incentives• Subsidies
•BRE•Business start‐up support
• Targeted Investment •Workforce Development
• Lower production cost
• Targeted Investment
• Infrastructure Investment
•Quality of Life• Local Firm Growth• Local & Regional ProgramsInvestment Programs
Targeted Regional Economic Development
What is a cluster?
Porter (2000, p254) “A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementaries.”
Rosenfeld (1997, p4) “A cluster is very simply used to represent concentration of firms that areused to represent concentration of firms that are able to produce synergy because of their geographic proximity and interdependence, even g g p p y pthough their scale of employment may not be pronounced or prominent.”
Targeted Regional Economic Development
What is a cluster?
Roelandt and Den Hertog (1999, p9) “Clusters can be characterized as networks of producers of t l i d d t fi (i l di i li dstrongly independent firms (including specialized suppliers), linked to each other in a value‐adding production chain ”production chain.
Feser (1998, p20) “Economic clusters are not just ( p ) jrelated and supporting industries and institutions, but rather related and supporting institutions that are more competitive by virtue of their relationships.”
Targeted Regional Economic Development
What is a cluster?
Governance
Innovation/learningInter‐firm relationships
Targeted Regional Economic Development
The California Wine ClusterGrapestock BarrelsBarrelsBarrels
Winemaking Equipment
State Government AgenciesState Government AgenciesState Government Agencies
Grape HarvestingEquipment
BottlesBottlesBottles
Caps and CorksCaps and CorksCaps and Corks
(e.g. Select Committee on WineProduction and Economy)
(e.g. Select Committee on WineProduction and Economy)
(e.g. Select Committee on WineProduction and Economy)Fertilizer, Pesticides,
Herbicides
q p
Irrigation Technology
Public Relations and Advertising
Public Relations and Advertising
Public Relations and Advertising
Growers/Vineyards Wineries/ProcessingFacilities
LabelsLabelsLabels
Specialized Publications (e.g. Wine Spectator, Trade
Journal)
Specialized Publications (e.g. Wine Spectator, Trade
Journal)
Specialized Publications (e.g. Wine Spectator, Trade
Journal)
Educational, Research, & trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Educational, Research, & trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Educational, Research, & trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)California
Agricultural Cluster
Tourism Cluster
Food Cluster
Targeted Regional Economic Development
Why focus on clusters?
1. Strengthens Localization Economies
2. Facilitates Industrial Reorganization
3 E N t ki A Fi3. Encourages Networking Among Firms
4. Results in Larger Local Economic Impacts
5. Facilitates Entrepreneurial Activity
Targeted Regional Economic Development
Why focus on clusters?
1. Picking “winners”?
2. “Late comers”?
3 O i li d i th it t i k?3. Overspecialized exposing the community to risk?
4. Regional approach difficult “sell” in a community setting.
Targeted Regional Economic Development
Data Analysis
Knowledge
Innovation
Information
Knowledge
Data
Creativity Pyramid (Fig 8.3 p.145 Shaffer, Deller and Marcouiller)
Targeted Regional Economic Development
• Mechanism to Stimulate Discussion Data Analysis
• Challenges Local Perceptions
• Identifies Strengths
• Identifies WeaknessesIdentifies Weaknesses
• Identifies Threats
• Identifies Opportunities
• In the end helps you understand what is• In the end, helps you understand what is happening locally…..
Targeted Regional Economic Development
Data Analysis
• Looking for Patterns
L ki f C i• Looking for Comparisons
• Looking for Challenges – Surprisesg g p
• Looking over Time
• Looking for Insights, Not Precision
• Many Sources – Formal and Informal
Targeted Regional Economic Development
Data Analysis
It is VITAL to keep in mind that undertaking a
TRED analysis is part of a process and is NOT the y p p
foundation of a consultant’s report.
The community discussions that occur as theThe community discussions that occur as the
analysis unfolds can be just as important if not
more so than the analysis itself.
Targeted Regional Economic Development
Δ LQ
Strength and Weakness and gGrowing: Potential Cluster
Growing
LQ
Strength and Weakness and gDecliningDeclining
Targeted Regional Economic Development
Sources of Employment in Dane County
% of local employment in sector iLQ =
% national employment in sector% national employment in sector
Targeted Regional Economic Development
Targeted Regional Economic Development
Targeted Regional Economic Development
Finance & Insurance
Targeted Regional Economic Development
Table 1: Location Quotients for Outagaime WIPercent
Change in LQ Percent of LQ 2005 2001-2005 Employment
Construction 1.518 -3.5% 8.6% Manufacturing 1.055 1.2% 16.1% Retail trade 1.172 -1.1% 13.7% Information 0.518 -5.1% 1.8% Finance and insurance 3.603 13.2% 6.0% Real estate and rental and leasing 0.447 6.7% 2.2% Professional and technical services 1.558 3.5% 4.4%
Management of companies and enterprises 0 206 27 3% 0 9% Management of companies and enterprises 0.206 27.3% 0.9% Administrative and waste services 4.964 -4.6% 6.2% Educational services 0.322 -10.2% 1.5% Health care and social assistance 4.908 -2.6% 8.6% Arts, entertainment, and recreation 0.137 28.7% 1.5%ts, e te ta e t, a d ec eat o 0 3 8 % 5% Accommodation and food services 3.948 1.9% 7.3% Other services, except public administration 0.746 0.5% 5.3% Government and government enterprises 1.687 -2.9% 8.9% Federal, civilian 0.028 15.8% 0.4% Military 0.492 -6.9% 0.4% State government 0.030 -3.8% 0.3% Local government 2.634 -1.1% 7.8%
Targeted Regional Economic Development
Why focus on clusters?
Can it really be that simple?
NONO
Targeted Regional Economic Development
Regional Economic Development Research Laboratory (REDRL) of Clemson University
This approach focuses on identifying industry clusters with
(1) a high potential for prospering in the study area andthe study area and
(2) significant positive economic impacts on the local economy.
Targeted Regional Economic Development
Regional Economic Development Research Laboratory (REDRL) of Clemson University
Step 1. Identify industry concentrations for which the region has experiencedfor which the region has experienced recent employment growth.
This could be the LQ analysis…..
Targeted Regional Economic Development
Regional Economic Development Research Laboratory (REDRL) of Clemson University
Step 2. Construct value chains (linkages to input suppliers and product(linkages to input suppliers and product markets) for the industry clusters selected in Step 1, and identify p , yindustries in the value chains with the greatest linkages to the local industry concentrations.
Targeted Regional Economic Development
Regional Economic Development Research Laboratory (REDRL) of Clemson University
Step 3. Rank the selected industries from Steps 1 and 2 by expectedfrom Steps 1 and 2 by expected economic and fiscal impacts on the local economy.y
Targeted Regional Economic Development
Import Substitution
Originally developed as a national economic development tool post‐WWII primarily in Central and South AmericaCentral and South America.
Generally dismissed over time: lack of id f i ifl d l ievidence of success; protections stifled learning
and innovation; “Washington Consensus”
At sub‐national level the notion of Porter’s clusters promotes stronger inter‐industry li k f l th h i tlinkages, for example through import substitutions
Targeted Regional Economic Development
Input‐Output Based Models
One approach is to look at imports and exports to follow an import substitution strategy through “gap” and “disconnect” analysis.y
IMPLAN based.
Targeted Regional Economic Development
Targeted Regional Economic Development
Multi‐step educational process:
1. Identification of general economic trends gusing BEA‐REIS data.
2 Use IMPLAN base report to identify largest2. Use IMPLAN base report to identify largest industries in region.
3 Use IMPLAN to identify import export levels3. Use IMPLAN to identify import‐export levels.
4. Use IMPLAN to focus on group selected core industries.
Targeted Regional Economic Development
Targeted Regional Economic Development
Targeted Regional Economic Development
The California Wine ClusterGrapestock BarrelsBarrelsBarrels
Winemaking Equipment
State Government AgenciesState Government AgenciesState Government Agencies
Grape HarvestingEquipment
BottlesBottlesBottles
Caps and CorksCaps and CorksCaps and Corks
(e.g. Select Committee on WineProduction and Economy)
(e.g. Select Committee on WineProduction and Economy)
(e.g. Select Committee on WineProduction and Economy)Fertilizer, Pesticides,
Herbicides
q p
Irrigation Technology
Public Relations and Advertising
Public Relations and Advertising
Public Relations and Advertising
Growers/Vineyards Wineries/ProcessingFacilities
LabelsLabelsLabels
Specialized Publications (e.g. Wine Spectator, Trade
Journal)
Specialized Publications (e.g. Wine Spectator, Trade
Journal)
Specialized Publications (e.g. Wine Spectator, Trade
Journal)
Educational, Research, & trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Educational, Research, & trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Educational, Research, & trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)California
Agricultural Cluster
Tourism Cluster
Food Cluster
Targeted Regional Economic Development
Community-Business Matching (CBM) ModelUniversity of Neveda Reno WRDCUniversity of Neveda-Reno, WRDC
A community can use CBM to prioritize their goals and identify the assets they have to help them achieve their goals.
The CBM fits these goals and assets to business profiles in order to assist inbusiness profiles in order to assist in development decisions that reflect the desires of community members.y
Targeted Regional Economic Development
Community-Business Matching (CBM) Model
• Involvement of community leaders is crucial
• It is important to incorporate environmental and social aspects of economic developmentp p
Environmental It is more
EconomicSocial
than just “jobs, jobs, jobs”EconomicSocial jobs
Targeted Regional Economic Development
Community-Business Matching (CBM) Model
• Desirability measures how likely abusiness is to meet community goals.
• Compatibility measures how likely thebusiness is to locate-start-expand in thebusiness is to locate start expand in the community.
Targeted Regional Economic Development
Community-Business Matching (CBM) Model
Targeted Regional Economic Development
Community-Business Matching (CBM) Model
Targeted Regional Economic Development
Community-Business Matching (CBM) Model
In short run, communities can attempt to attract investment in highly “Compatible”attract investment in highly Compatible sectors
“Desirability” score equips the community with negotiation power
In long run, an examination of the components of the “Compatibility” scores cancomponents of the Compatibility scores can reveal “assets” for investment.
Targeted Regional Economic Developmenthtt // bl /h l /d f/l hthttp://www.bls.gov/help/def/lq.htm
Targeted Regional Economic Development
Targeted Regional Economic Developmenthttp://nercrd psu edu/TRED/index htmlhttp://nercrd.psu.edu/TRED/index.html
Targeted Regional Economic Developmenthttp://www.headwaterseconomics.org/eps/
Targeted Regional Economic Developmenthttp://www.bea.gov/regional/reis/
Targeted Regional Economic Development
Targeted Regional Economic Development
In the end, Targeted Regional Economic , g gDevelopment (TRED) is as much a learning process as it is technical analysis.
The analysis serves as the foundation for a broader community discussion.
The end goal is to help local citizens better understand their local and regional geconomy.
Targeted Regional Economic Development
TTHANKHANK YOUYOU FORFOR YOURYOUR TIMETIME ANDAND ATTENTIONATTENTION……
WWOULDOULD YOUYOU LIKELIKE TOTO HAVEHAVE MOREMORE WEBINARSWEBINARS ONON
THETHE DETAILSDETAILS OFOF DIFFERENTDIFFERENT EMPIRICALEMPIRICAL METHODSMETHODS??