Spatial Development Patterns –
Implications for the MediumTerm Economic Strategy
Dr Edgar Morgenroth
Edgar.Morgenroth@esri.ie
Introduction
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Development is not evenly spread in any country - there is
significant heterogeneity across Irish counties and regions.
Spatial patterns have developed over a long period through
the decisions of individuals, firms and government – the
patterns are significantly shaped by market activity.
An extensive research literature has shown that spatial
patterns impact on macroeconomic performance.
The objective of the paper is to identify the impact of these
spatial patterns on overall economic performance.
This is done with reference to the international and the more
limited Irish literature.
2
Population and Job Densities, 2011 (Jobs
scaled to the population)
Job Density (No. per Sq.km)
Population Density (No. per SQ. km)
1 - 10
11 - 50
51 - 150
151 - 1000
0 - 10
11 - 50
51 - 150
151 - 1000
1001 - 36909
1001 - 19575
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Employment (location of Jobs) by
County 2006 and 2011
Population Growth 1986-2011
ed_lcd
6% - 10%
pd8691
11% - 15%
-7% - 0%
1% - 5%
16%+
Index of Gross Value Added per Capita
(100% =National Average)
6
Regional Share in the Recession
(real GVA change as share of national)
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Cavan
Donegal
Leitrim
Louth
Monaghan
Sligo
Laois
Longford
Offaly
Westmeath
Galway
Mayo
Roscommon
Dublin
Kildare
Meath
Wicklow
Clare
Limerick
Tipperary NR
Carlow
Kilkenny
Tipperary SR
Waterford
Wexford
Cork
Kerry
Total Income per Capita, 1991, 2000
and 2010 (100% = National Average)
140%
120%
100%
80%
60%
1991
40%
2000
20%
2010
0%
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What Drives Growth?
Factor accumulation:
- Population,
- Private capital,
- Public capital (infrastructure),
- Human capital (education and skills),
- Knowledge (R&D, innovation),
- Social capital (institutions, laws, trust, leadership etc.).
 Factors that facilitate factor accumulation
- Finance (needed to invest)
 Factors that increase the efficiency of production factors
- Trade (scale and specialisation benefits)
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Factors are not evenly distributed!
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What drives the location patterns?
What are the macroeconomic implications?
Maps (and graphs) cannot answer these
questions – econometric analysis is required.
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Firm Demography and Location
Decisions
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Research on business start-up rates for Ireland including Irish
counties found that fast growth in the 2001-2004 period did
not lead to higher start up activity nationally but there was a
degree of convergence across counties, particularly for
counties close to Dublin (Anyadike-Danes et al, 2011).
In 2011 49% of IDA supported jobs were located in the Dublin
and Mid-East regions (population share is 39%) and this share
has been steadily growing.
Multinationals appear to have a positive impact on firm entry
in manufacturing (Görg and Strobl, 2002) and the firm survival
rate (Görg and Strobl, 2003), which suggests that these
location patterns are reinforcing the overall spatial pattern of
economic activity.
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Firm Demography and Location
Decisions
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New firm formation rates in the USA are higher in areas of
higher industrial density (firms per capita) and faster
population growth (Armington and Acs, 2002).
There is a strong correlation between the location of venture
capital firms and research-intensive biotech firms in the USA
(Powell et al 2002).
Headquarters cluster disproportionately in larger cities due to
the availability of more differentiated business services in
larger centres and also because of knowledge spillovers
across headquarters (Davis and Henderson, 2008).
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Density and Specialisation
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Areas with higher employment densities (cities) have higher
productivity (e.g. Ciccone and Hall, 1996, Ciccone, 2002).
This is due to the same type of production externalities that
generate agglomeration economies e.g. shorter transport
distance, increased supply and demand for skilled labour
(competition).
Firm selection is not a factor in explaining these productivity
differences (Combes et al. 2012).
Diversity leads to improved local supply linkages, which in
turn leads to growth (Quigley, 1998).
Regions with declining levels of specialisation tended to grow
faster (Krieger-Boden, Morgenroth and Petrakos , 2008).
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Impact of the Scale Urban Centres
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Doubling the size of a city increases productivity by between
3% and 8% (Rosenthal and Strange, 2004).
Doubling industry scale increases productivity by 4.5%
(Nakamura, 1985).
Thus, the particular spatial configuration impacts on
aggregate economic performance.
Take a hypothetical country with one million workers equally
distributed across two cities. The estimates by Rosenthal and
Strange (2004) and Nakamura (1985) would suggest that if
instead there were just one city, total productivity would rise
by between 3% and 8%.
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Rank-Size Relationship for Urban Centres in
Selected European Countries
Spatial Extent of Agglomeration
Economies
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Agglomeration economies are subject to rapid spatial decay
i.e. they are very localised. For example Graham (2009) found
that such externalities are confined to a 10 kilometre radius.
This implies that agglomeration economies, or critical mass
(NSS), cannot be achieved by including the employment or
population of a wide hinterland. It also means that simply
aggregating a number of urban centres that are some
distance apart, such as the Midlands gateway, will not
generate the additional productivity due to increased scale.
What really matters is the contiguously dense part of the
agglomeration.
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Innovation, R&D
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Knowledge spillovers are spatially restricted and thus create
agglomeration economies (Audretsch, 1998)
Industries in which knowledge spillovers are important have a
greater propensity to cluster (Audretsch and Feldman, 1996).
Informal contacts are an important source for knowledge
spilover - the volume and range of such contacts is
significantly greater in agglomerations (e.g. Dahl & Pedersen,
2004).
Research intensive sectors tend to locate close to universities
(Zucker et al, 1998).
Innovation per capita has been found to be positively related
to density of employment (Carlino, 2007).
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Infrastructure
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Infrastructure promotes growth, but the context is important
– existing stock, demand, cost.
The cost of providing infrastructure also tends to be lower in
agglomerations once this cost is measured on a per capita or
per job basis (Büttner et al. 2004, Hortas Rico and Sole-Olle,
2010).
Peripherality matters but cannot be eliminated!!
An improved road (N2/A5) between Letterkenny and Dublin
would reduce the travel time significantly. However, it would
still take much longer to get to Dublin than it does from most
other places.
A focus on links to Belfast would help more than links to
Dublin!!
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Real Per Capita Public Capital
Expenditure by Region
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Population & Urban Hierarchy
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Many countries have an urban hierarchy characterised by a
rank-size rule such that the second largest city is roughly half
the size of the largest city, and the third largest city is roughly
half the size of the second largest city (Garbaix, 1999).
However, in Ireland the scale of urban centres declines faster
than in most other countries, i.e. the second, third, fourth...
cities are smaller than one would expect.
A more typical urban structure would imply that Cork would
have a population of 550,000 rather than just under 200,000.
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Skilled Labour Force
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High skills individuals agglomerate in the larger, denser and
more skilled labour markets (Combes et al., 2008).
It is also easier to get a job that is commensurate with the
level of qualification in larger centres, particularly for two
earner families where both earners have a university degree
(Costa and Kahn, 2000).
High skills individuals choose their residential location on the
basis of quality of life characteristics (Glaeser et al., 2001).
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Number of persons
with a Doctorate,
2006
PHDs 2006
6-8
0
9 - 12
1
13 - 19
2
20 - 33
3
34 - 150
4-5
Number of persons
with a Doctorate,
2011
PHDs 2011
6-8
0
9 - 12
1
13 - 19
2
20 - 33
3
34 - 245
4-5
Policy Implications (1)
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Agglomeration forces are strong and efficiency enhancing up
to a point where areas are excessively congested. Policies to
counteract these forces should therefore be avoided as they
are likely to be ineffective and damaging to national welfare.
Efficiency enhancing agglomerations also imply that regional
balance i.e. equal levels of economic activity and population is
not going to be achieved. Rather, the focus of policy should
be to ensure that the resources of all regions are fully utilised.
The size distribution of urban centres in Ireland is
characterised by relatively small second tier centres. It would
be particularly desirable to increase the scale of these centres
as this will have significant productivity benefits.
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Policy Implications (2)
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Scale in second tier urban centres cannot be created by a
mere redrawing of boundaries or by pairing up towns that are
some distance apart. What matters is the size of the
contiguously dense area. This also implies that policy should
aim at increasing this contiguous density.
Infrastructure investment should support the development of
the second-tier centres, but should also ensure that
diseconomies do not arise in Dublin and that other areas are
able to benefit from spillovers from the larger centres.
Infrastructure development in relatively sparsely populated
areas is unlikely to have significant returns unless it is directly
linked to economic development through local resources.
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Policy Implications (3)
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Policy instruments to reduce sprawl are needed. However,
given the locational preferences of individuals, policies to
reduce the disamenities of density, for example measures to
make dense areas more family friendly, need to be found.
While development is likely to centre on agglomerations,
linking these with their rural hinterland will be important to
ensure that the benefits of agglomeration are spread more
widely. Such linkages should however avoid additional sprawl.
A focus on a single development factor tends to be misguided
as underdevelopment tends to be due to multiple
interrelated factors. In particular remoteness is difficult to
overcome even with additional transport infrastructure. Thus,
more remote regions will need to focus on other factors and
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try to build on their strengths such as quality of life.
Policy Implications (4)
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Social capital broadly defined is an important factor in
mobilising resources at a local level and is a key factor in
successful regions. However, this is often lacking in less
developed areas. A limited competitive fund that contributes
to innovative actions could incentivise local leadership and
closer co-operation across stakeholders.
Development plans should pay more attention to the drivers
of economic development. As spatial patterns change only
slowly, development plans should be realistic about what is
achievable. In order to achieve proper co-ordination, the
conformity of local and regional development plans to the
national spatial strategy should be approved centrally.
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Policy Implications (5)
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Remote areas have been suffering persistent population
decline. This trend is unlikely to be reversed, given the
underlying drivers of development. This implies that spatial
development plans need to also take account of and plan for
depopulation.
Policy should primarily address the negative spatial
externalities. As these are typically local, it is at the local scale
that these are more effectively addressed. Nevertheless,
regional development issues, and the effect of national
policies on these issues should be considered across all levels
of government.
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Other Issues
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A lot of the relevant literature is concerned with other
countries and particularly the USA.
What are the effects in Ireland e.g. what is the elasticity of
productivity with respect to density in Ireland?
What are the wider costs of the dispersed settlement pattern
in Ireland (transport, infrastructure, flood defences etc.)?
The Local Government Reform Bill, 2013 requires that the
Regional Assemblies prepare Regional Spatial and Economic
Strategies – what are these to be based on? Up now national
(NSS) regional (RPGs) and local plans have not been based on
rigorous economic analysis.
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Thank You!
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