Regional Economics
Lecture 1
Sedef Akgüngör
Class Objectives
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The aim of the course is to explore and discuss the
problem of regional economic disparities.
Theories of migration, location and regional economic
growth will be introduced.
Techniques for analyzing aspects of the regional
problem, including cost-benefit analysis, regional
accounting, shift share analysis, multiplier analysis will
be presented.
The course will cover current issues on regional
economic policy and development particularly with
respect to Turkey-EU relations.
Reading Materials
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There is no specific textbook for the class, we will be
using articles and reports as well as parts from a web
text book :
Edgar M. Hoover and Frank Giarratani. An
Introduction to Regional Economics (1999). The Web
book of Regional Science. Regional Research Institute.
West Virginia University.
(http://www.rri.wvu.edu/WebBook/Giarratani/prefac
e.htm)
Additional Readings are available on the course web
site.
Regional Economics
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Economic systems are dynamic entities and they
affect the well being of the ndividuals as well as
social and political fabric.
Regional economics represents a framework
within which spatial character of an economic
system can be understood.
Regional science is a field of social science
concerned with analytical approaches to
problems that are specifically regional.
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Location theory
Spatial economics
Location modelling
Transportation
Migration
Location of economic activity
……
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Or any social science analysis that has a spatial dimension.
Origins of Regional Science
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Founded in the late 1940s.
Wide variety of disciplines
To promote the “objective” and “scientific”
analysis of settlement, industrial locaton and
urban development
Regional Science Association was founded in
1954 to expand this science beyond the
restrictive world of economics.
Regional Science is concerned with:
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The determinants of industrial location
The regional economic impact of the arrival or
departure of a firm
Immigration patterns
Regional specialization and exchange
Environmental impacts
Geographic association of economic and social
conditions
Spatial character of Economics
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What is where, why and so what?
What: refers to every type of economic activity
Where: refers to location and involves questions
of proximity, concentration, dispersion and
similarity/disparity of spatial patterns.
Why and so what refers to political implications.
Three Foundation Stones Underlying
The Pattern of Economic Activity
1) Natural resource advantages
 2) Economies of concentration
 3) Transportation costs
Or more formally:
• Imperfect factor mobility
• Imperfect divisibility
• Imperfect mobility of goods and services
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Discussion
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Why are some regions more developed than the
others? What factors affect differences in
regional development patterns??
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Write down three most important reasons that
first comes to your mind.
Analysis of Regions: Statistical
Foundations
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The Nomenclature of Territorial Units for Statistics
(NUTS) is defined and developed according to a
number of basic principles.
Favors institutional breakdown – according to
normative criteria and has three levels: NUTS 1, 2
and 3
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Normative regions are the expression of a political will;
according to the sizes of population necessary to carry
out these tasks efficiently and economically, and
according to historical, cultural and other factors;
Analytical (or functional) regions are defined according
geographical criteria (e.g., altitude or type of soil) or
using socio-economic criteria (e.g., homogeneity,
complementarily or polarity of regional economies).
NUTS 2 Regions in Turkey
Ön Ulusal Kalkınma Planında belirlenen 12 öncelikli Düzey 2 Bölgesi
Ranking of Cities on Socioeconomic
Development Indicators
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Five cities with highest socioeconomic development
index: İstanbul, Ankara, İzmir, Bursa, Kocaeli
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Contribution to GDP: %21.3, %7.6, %7.5, %5.2, %7.6
Per capita GDP index: 143, 128, 150, 117, 191
Unemployment rate: %12.3, %14.8, %14.3, %8.8, %12.0
Five cities with lowest socioeconomic development
index: Van, Ağrı, Mardin, Şanlı Urfa, Erzurum
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Contribution to GDP : %1, %0.6, %1.2, %2.2, %1.0
Per capita GDP index : 35, 34, 46, 54, 50
Unemployment rate : %11, %1.7, %6.1, %10.8, %4.1
Cities According to Socioeconomic Development Index
6
5
4
3
2
1
0
DÜZCE
KİLİS
YALOVA
ARDAHAN
ŞIRNAK
KIRIKKALE
BAYBURT
ZONGULDAK
VAN
ŞANLIURFA
TRABZON
TEKİRDAĞ
SİNOP
SAMSUN
RİZE
NİĞDE
MUŞ
MARDİN
MANİSA
KÜTAHYA
KOCAELİ
KIRKLARELİ
KASTAMONU
İZMİR
MERSİN
HATAY
GÜMÜŞHANE
GAZİANTEP
ERZURUM
ELAZIĞ
DİYARBAKIR
ÇORUM
ÇANAKKALE
BURDUR
BİTLİS
BİLECİK
AYDIN
ANTALYA
AMASYA
-2
AFYON
ADANA
-1
Basic Questions
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Some regions have higher income levels and
better job prospects than the others.Why should
this be so?
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What factors determine the income level and job
prospects of regions?
So then the next question is:
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Is it possible to construct general models that
can be used to explain the determinants of
income and employment in all types of regions
regardless of vast differences between them?
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Two main routes have been taken , one based on
the Keysnesian income-expenditure approach to
modelling the national economy, and the other
based on input-output analysis.
Kenesian Model
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The Keynesian approach to modelling the
regional economy is virtually identical to teh
simplest open economy version of the keynesian
income-expenditure model, the only difference
being that all the expenditure variables refer to
the regional or local economy instead of to
nation. The model begins with the familiar
income-expenditure identity:
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Y=C+I+G+X-M
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Y : Regional income
C : Regional consumption
I : Regional investment
G : Government
expenditure
X : Regional exports
M : Regional imports
I = I0 , G = G0 , X = X0
C = C0 + cDY
 M = M0 + mDY
 Where DY is disposable
income and given by
 DY = Y-tY
 Where t is the rate of income
tax
 Y = k (C0 +I0+X0+M0)
Where,
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k is the Keynesian regional multiplier and is
given by:
k=1/ 1-(c-m)(1-t)
(c-m) =the marginal propensity to consume locally
produced goods.
t= tax rate
The multiplier is clearly sensitive to changes
in c - m, rising quite rapidly as it increases.
 Since the marginal propensity to consume
locally produced goods (c - m) has a crucial
effect on the magnitude of the regional
multiplier.
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This model says that the regional income can be
magnified by the Keynesian regional multiplier.
To obtain higher regional income, we wish to have a
bigger multiplier.
The strategical implications from this model are to
lower the income tax rate and promote the propensity
to consume locally produced goods.
This model justifies the demand-side policies by
showing that promoting the demand, consumption of
locally produced goods in this case, can boost the
regional economy.
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These are the sorts of questions that regional economic
models are designed to address.
Regional models vary tremendously in detail and
complexity.
They range from very aggregative, demand-driven
explanations based upon simplistic interpreations of
the Keynesian macro model to more sophisticated
approaches which allow for the supply side to respond
to changes in capital and labour markets.
Export demand and cumulative
growth model
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This model says that if the world income grows,
the region's exports will increase which will lead
to the region's output to increase. The region
will be more productive in production. Thus, the
region's competitiveness will increase which will
decrease the region's price and increase the
exports. Another round of productivity increase
and competitiveness increase begin.
Other cumulative growth models
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Growth pole: Perroux (1950), Myrdal (1957), and Hirschman
(1958) The theory says that if an indstry is subject to significant
internal economies of scale, the firms grow quickly and will gain
a competitive advantage over rivals and growth will be
cumulative.
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Localization economies: Localization economies result from the
geographical concentration of plants in the same industry at the
locality. Located close to each other, the firms with input-output
ties can enjoy benefits, such as the low costs of transportation,
quick exchange of information, ideas and knowledge, and the
spillover effects of cross-fertilization. Clustering allows
individual plants to specialize more than they would if firms are
wildly apart. The increase in specialization will increase the
productivity and competitiveness of the industry.
Regional Competitiveness
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Economic growth; economic development and
innovation
Economists have recognized the central
importance of technological innovation for
economic progress
Adam Smith “Wealth of Nations”
 Marx’s model of capitalist economy
 Marshall considers knowledge as chief engine in
progress
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THE GLOBAL COMPETITIVENESS REPORT
Growth Competitiveness Index
Technology Index
Macroeconomic
Environment Index
Public Institutions
Index
Innovation Sub-Index
Macroeconomic
Stability Sub-Index
Contracts and
Law Sub-Index
Technology
Transfer Sub-Index
Country Credit
Rating
Corruption SubIndex
Information &
Communications
Technology Sub-Index
Government
Waste
Kaynak: WEF, 2003
THE GLOBAL COMPETITIVENESS REPORT
Business Competitiveness Index
Factor (Input)
Conditions
Company Operations
& Strategy
Demand Conditions
Related and
Supporting Industries
Context for Firm
Strategy and Rivalry
Kaynak: WEF, 2003
Business Competitiveness
Rank
Kaynak: WEF, 2003
Türkiye (65,52)
Growth Competitiveness
Business Competitiveness index (2001)
Kaynak: WEF, 2003
National Innovation Capacity Index (2001)
GDP Per Capita (2001) (PPP)
Kaynak: WEF, 2003
National Innovation Capacity Index (2001)