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Chapter 10 Cities and Urban Economies

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Chapter 10 Cities and Urban Economies. Relation between urban growth and capitalist development Central place theory (NOT IN TEXT) Economic base model Housing markets in urban areas Gentrification processes The development of global cities. A simple model of trade. Exports. Internal Goods

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Chapter 10 Cities and Urban Economies
• Relation between urban growth and capitalist development
• Central place theory (NOT IN TEXT)
• Economic base model
• Housing markets in urban areas
• Gentrification processes
• The development of global cities
A simple model of trade

Exports

Internal Goods

and Services

Imports

The Economic Base Model

ET = Total Employment

EX = Export Employment (Basic)

EL = Local Employment (Non-Basic)

ET = EX + EL (1)

Define a = EL/ET

Multiply by ET and substitute into (1):

ET = EX + aET

Solve for ET:

ET = ( 1/1-a)EX

Example, Economic Base Model

If a = .67

Then:( 1/1-.67) =( 1/.33) = 3

If EX = 500, then ET = 3 x 500 or 1500.

If EX rises to 750, ET becomes 3 x 750 or 2250

and if EX falls back to 400, ET declines to 1200

Alternative Formulation: Textbook p. 275

ΔT = m ΔB

Where m= 1 + NB/B

Or 1 +67/33 = 1 +2 or a multiplier of 3

If export = 500, then total impact is 1500

Measurement of the Economic Base Multiplier

Direct Surveys

“Short-cut” Approaches:

Assumption or Assignment

Minimum Requirements

Location Quotients

Industry Specific Models:

Input-output

Regional econometric models

Example of Minimum Requirements

(Thousands)

If total employment was 100,000, then minimum requirements

is 6%, or 6,000. If actual employment were 10,000, 4,000 would

be assigned to exports.

Repeat for all industries, sum local shares to obtain “a”

Example of Location QuotientApproach to Economic Base

Industry Jobs LQ Export Local

Agriculture 500 0.8 0 500

Mining 300 5.0 240 60

Manufacturing1000 2.0 500 500

Retail 1500 1.0 0 1500

Services 3000 1.2 500 2500

Total 6300 1240 5060

a = 5060/6300 = .803, so (1/1-.803) = 5.08

Size of Region and Size of Multiplier

1.0

.67

Wn.State

Mult. = 3

World - Mult =

Individual

Sells all labor

a = 0, multiplier = 1.0

Log Population

Regional Input-Output Models

Final Demand

Total Sales = Total Purchases

Total Sales = Intermediate Sales + Final Sales

Total Purchases = Intermediate Purchases + Value Added

+ Imports

Washington State Input-Output Model

Handouts: Transactions Table

Direct Requirements Matrix

Direct & Indirect Requirements Matrix

Direct, Indirect, & Induced Requirements

Matrix

Input-Output Notation

Impact Analysis Using I/O Models

Direct, Indirect

& Induced

Requirements

Matrix

Final Demand

=

X

Output

Employment Impacts calculated from Output Impacts

Impact Analysis with I/O Models

Key Inputs: Final Demand values for output, income, and jobs

Key modeling requirements: I/o model relevant to the problem

Results: usually reported for jobs, income, output, and taxes

Impact Analysis Examples
• ArtsFund – impacts of nonprofit arts and patron spending
• Technology Alliance – impact of high tech
• SAM – impact of the Gauguin exhibition
• Boeing Field – impact of King County International Airport
• UW – impacts of Husky athletics
• Seattle Center – impacts of Key Arena and of the wide variety of activities on the campus

Regional Models, continued

Regional Econometric Models

Interregional Input-output models

Structural Change

Regional Econometric ModelsThe Washington Projection & Simulation Model

Coefficient

Change

Consumption

National

Econometric

Model

Exports

Output

(I/O Relations)

Imports

State & Local

Government

Income

Employment

and

Population

Investment

Productivity Rates

Wage rates, tax rates, nonearnings income

Multiregional Models

Region B

Region A

Region D

Region C

Multiregional Input-Output Model(intermediate & final transactionsincluding interregional value added payments)

Feedback Loops

Structural Change in I/O Models
• Washington State is unique in having 8 largely survey-based input-output models
• They are benchmarked against 1963, 1967, 1972, 1982, 1987, 1997, 2002, and 2007
• Each of these is an economic census year
• The models have been aggregated to a common sectoring scheme, and transaction values have been benchmarked against the year 1972, to be able to compare their structure in constant \$.