By Lynn Roberson
In
today’s virtual world, it’s easy to downplay the significance of place. Yet,
when it comes to regional prosperity, geography matters. Income and job growth
are not random; they spill over from one region to another. Being next to a
prosperous region will make one’s own economy more vibrant.
While
intuitive, it has been hard to prove this statistically until recently. Using
new models that factor in location and blending microeconomic ideas with macro
ones, researchers at the Edward Lowe Foundation’s Institute for Exceptional
Growth Companies (IEGC), UNC Charlotte and Northern Illinois University (NIU)
have advanced the longstanding theory of regional income convergence — and
revealed new insights about the geographic dynamics of the U.S. economy.
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| Harrison Campbell |
According
to Harrison Campbell, UNC Charlotte associate professor of geography and public
policy and principal investigator of the study, although income convergence is
a geographic process, most studies have ignored geographic relationships. “Some
have looked at industry composition, and a few have looked at how neighboring
regions affect each other, but none have looked at how individual companies
affect convergence.”
Using
data from IEGC, Campbell and fellow researchers Ryan James and Gary Kunkle
studied 177 regions during a 20-year period (1990-2010). They used a
traditional model and one with spatially explicit tools, which yielded two sets
of results to compare. Key findings include:
· - Convergence is happening, but at a
slower rate than previous studies have indicated — about one-third slower (or
1.3 percent per year as opposed to 2 percent per year)
· - The economic health of one region has a definite
spillover effect on neighboring regions
· - Particular kinds of establishments,
known as sustained growth companies, accelerate the convergence process through
their ability to create jobs
· - The presence of these sustained growth
companies has a bigger impact in rural areas than non-rural areas.
“Sustained
growth companies are the hidden allocators of new jobs in the economy,” stated
Kunkle, an IECG research fellow. “This paper shows that they also play a
significant role in allocating income growth as well — and help determine which
regions experience faster income growth than others. Thus, income growth is not
limited just to owners and employees of sustained growth companies, but extends
throughout their neighboring communities.”
The fact that sustained growth companies have
a larger impact in rural areas was a surprise, Campbell noted. “Previous
literature suggests that these firms will perform better if they cluster in
urban areas. Yet our results reveal the opposite — they had a negligible or
slightly negative effect on income growth and convergence in metro areas.”
The
researchers’ findings provide statistical evidence that spatial relationships
are extremely significant to regional prosperity. “So there’s basis, at least
for certain projects, for regions to start to think beyond their own borders
and work more cooperatively,” said Campbell.
Connecting
the dots between sustained growth companies and regional prosperity is equally
important. “This study begs a whole new set of questions about how firms manage
themselves,” Campbell stated. “If we can understand what makes the sustained
growth companies tick, we may be able to reorient our approach to economic
development and introduce policies that positively impact these important
firms.”
Other policy implications revolve around
regional income convergence. “For example, many Southern states are
right-to-work states — states that were poor and are now starting to catch up.
A question arises about how policies such as right-to-work status might impact
a state or region’s ability to grow its economy,” explained Campbell.
The
researchers’ paper “Firm Growth and Regional Income Convergence: Is There a
Connection?” can be read on the Web.
