EXPORT-BASE THEORYRegional Policies and Rural Areas Prof. Dr. Von Cramon María A. Rovayo A. June, 2006 1 /17 History 3. Introduction 2. Conclusion: Advantages and Disadvantages 5. Theory 4. References 2 /17 . CONTENTS 1. z Developed from “without” rather than form “within” (resource-based regions in North America) z The basis of economic growth: firms and industries that exports goods and services to other regions. 3 /17 . INTRODUCTION z Neoclassical Approach of Regional Growth z Economic historians. Andrews 1953. History z Innis 1920. Duesenberry 1950 z Case in North America (northwestern): Region A Other Regions World demand Natural Resources Capital and Market labor infrastructure = ECONOMIC GROWTH OF REGION A 4 /17 . North 1955. z Application: how local economy works? z Two sectors: “Basic Sector” (Export): goods and services outside the local area. EXPORT-BASE THEORY: Bases z Impulse for development of a region: from outside. “Non-basic sector” (local): that mainly serve local markets. 5 /17 . 2000) 6 /17 .(Figure from: Mulkey. EXPORT-BASE THEORY: Two sectors z Connection between the two sectors: export multiplier z The income of a region: 1) Y = Yx + YL z Dependency of demand: 2) YL = (c – q) Y z c = propensity to consume 0 < c < 1 z q = propensity to import 0 < q < = c 7 /17 . c + q) 5) Y= 1 / (1 – c + q) Yx Export multiplier 1 / (1 – c + q) 8 /17 . EXPORT-BASE THEORY: Two sectors z 1 and 2 together: 3) Y = Yx + (c – q) Y 4) (1 – c + q) Y = Yx z Divide both sides by (1. EXPORT-BASE THEORY: Export Multiplier Export Yx Business Y = YL + Yx Local Business (c-q) Y qY 9 /17 . 54 10 /17 .35 z Export multipliers = 1.7 z Propensity to import (q) = 0. EXPORT-BASE THEORY: Example z Region A z Propensity to consume (c) = 0. EXPORT-BASE THEORY: Example Leaking Resources? Graph from: Mulkey. 2000 11 /17 . (GRAPH) 7) Yx (1 + (c-q) + (c-q)2 + (c-q)3 + …….) z = 1+(c-q) µ z µ = 1+(c-q) µ z µ -(c-q) µ = 1 z µ -(c-q) µ = 1 z µ (1-c+q) = 1 z µ = 1 /(1-c+q) Export multiplier 12 /17 .) We can write this as: z µ = (1 + (c-q) + (c-q)2 + (c-q)3 + …….) z = 1+(c-q) (1+ (c-q) + (c-q)2 + ……. EXPORT-BASE THEORY: Explanation This can be explain by: 6) Y = Yx + Yx (c-q) + Yx (c-q)2 + Yx (c-q)3 + ……. z Not every region can export. z It assumes perfectly elasticity of the supply. z Export demand is exogenous. CONCLUSIONS: Weakness of the theory z Mono-causal theory: every thing depends on exports. (Change in prices) 13 /17 . Definition of region. z Does not apply to all regions and situations: small regions and specialized regions. 14 /17 . CONCLUSIONS Weakness of the theory z The model does not explain how specialization happens. z It ignores internal factors: local entrepreneurial activity and government development programs. z Simplest form: raw material exports. z Shows the effect of a change in the important sector. 15 /17 . CONCLUSIONS: Strengths of the theory z Important economic relations between sectors in practical meaning. land-based activities. More extended forms: z Advantage over the Neoclassical approach: influence of demand and supply. z Kaldor (1970): manufacturing vs. z In high specialized regions: explain the importance of the sector. Edward Elgar Publishing. Wien. Edward Elgar Publishing Limited UK. A. z Maier. z Thirlwall. (1996): Regional-und Stadtökonomik 2. z Mulkey. USA. Inc. Regionalentwicklung und Regionalpolitik.P. Österreich. SpringerWienNewYork. (2002): The nature of Economic Growth. Southern Rural Development Center.P. Gunther. (2002): The Nature of Economic Growth: An Alternative Framework for Understandig the Performace of Nations. An alternative framework for understanding the performaces of nations. Thirlwall. University of Florida. Franz. UK. 16 /17 . David (2000): Module for: Understanding the Local Economy. Tödtling. REFERENCES z A. THANK YOU FOR YOUR ATTENTION! 17 /17 .