Week 7: Class Reading - Hayley

Concepts and Theory of Local Economic Development by Blakely

The most traditional and commonly used definition of economic development is associated with the creation of wealth, which most often includes activities involved in increasing taxes, creating jobs, etc.  This is why economic development needs to be defined much differently.  The author offers a much more long-term focused definition to economic development that might be more suitable.  It focuses on local economic development based on a community’s standard of living, focuses on reducing inequality, and focuses on promoting sustainability.  The author also offers many brief overviews of theories related to economic growth and development, but explains further five theories that have been influential in understanding economic development.

The first theory is neoclassical economic theory.  This theory asserts that all economic systems will reach a state of equilibrium if capital flows without restrictions.  The issue with this is this model does not work perfectly.  The community must use its resources to attract capital, which it may not be doing, and disadvantaged communities should look to get resources to reach equilibrium of surrounding communities, which is much easier said than done.

The second theory is economic base theory, which focuses on export.  This theory poses the thought that economic growth is based on a community’s outside demand for certain goods, services, and resources.  If local resources produce goods that can be exported, then that community will achieve economic growth.  This theory is helpful in understanding how exportation affects local economy, but does not focus on internal community demands.

The third theory is the product cycle theory.  This theory says that there is a cycle, beginning in areas of greater wealth, where specialized labor is used to create a product.  This product stays in this area of greater wealth until it is standardized and can be produced in areas with less wealth and more standardized labor.  It is important to remember with this theory that different labor industries move at different speeds, therefore requiring different amounts of intensity.

Location theories are focused on how firms choose their location.  This choice is typically influenced by production costs, transportation costs, resources, and space.  It is much different for different firms; therefore this theory is used more specifically.

Central place theory asserts the idea that a central area (typically an urban center) is supported by smaller places that provide it with resources.  It is most easily associated with retail and helps us to pick viable centers for supporting communities.

The author also introduces models in which economic development has affected practice.  The first is through attraction models which are used in development-seeking communities that are viewed as products.  It is focused on marketing communities to attract entrepreneurial firms.  The second is through New Market Models, which are focused more on poor and rural areas.  This model believes that these communities have potential for economic opportunity, but are not being utilized appropriately.  It focuses on the long-term, community assets, and finding ways to share the wealth, which is something we want to strongly influence economic development theory.

Finally, the author presents more modern components of economic development, which includes locality, business and economic base, employment resources, and community resources.  These concepts have been reformulated to focus on the community’s long-term standard of living, focus on reducing inequality, and focus on promoting sustainability.  Economic development theory must continue to change and evolve to keep up with the changing society and its challenging trends.