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ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT:

CONCEPTS AND MEASURES

Emil E. Malizia*

Early Work (1990) and Flammang (1990 and 1979) is important. The
authors synthesize alternative theories in order to pose new
As Arndt (1981, 1987) demonstrates, the tenneco- meta-theory or conceptual frameworks and, in so doing,
nomic development, as a subject of scholarly work has advance our understanding of economic development.
rather recent origins. The tenn is closely affiliated with This author draws on their concepts and frameworks to
planned investments and intentional development efforts. define economic growth and economic development more
Thus the verb, to develop, is used in its transitive sense: clearly and to suggest face-valid measures of these con-
people make development happen. cepts. With better measures of these basic concepts,
Arndt reviews the diversity of opinion about the alternative theories and models of economic development
process of economic development in relation to desired may be tested more rigorously.
outcomes. Neoclassical theories and models focused on
ways to mobilize resources to achieve economic growth. The Meanings of Growth and Development
Most early writers considered increases in gross domestic
product (GDP) per capita or in income per capita as Amos (1990) combines growth pole, long wave and
adequate measures of good results. On the other hand, utility theory to propose a useful and interesting conceptual
theories inspired by Marx or Schumpeter paid greater framework for understanding societal development He
attentiontotheunderlyingstructureofthepoliticaleconomy. argues for the existence of approximately 100 year devel-
As criticisms of intentional development efforts in opment cycles containing two equal long waves. The first
the Third World grew, scholars began to look more closely is a polarizing cycle focused on a new growth pole producing
at the welfare implications of economic growth. Celso innovations, and the second is a spreading cycle stimulated
Furtado, while pointing out the accomplishments of the by innovation diffusion. As part of these development
Brasil ian economy, noted that the Brasil ian people were cycles, Amos considers the role of changing tastes, infra-
doing rather badly. Dudley Seers (1969) captured the spirit structure investment and spatial growth and change.
of this criticism by defining development in human re- Amos describes innovations in production and trans-
source tenns. Economic development occurs when pov- portation that generated growth through concentration
erty, unemployment and inequality are reduced while from about 1880 to 1930 followed by spread from 1930 to
income per capita increases. Jan Drewnowski and others 1980. U.S. corporations were the dominant poles of
under UN auspices developed direct measures of consumption growth during this long wave. During the long wave that
to substitute for income measures. In a similar vein, some may have begun around 1980, the growth poles may be
U.S. scholars who were focused on regional development shifting to Japanese companies, and Pacific Rim countries
contrasted indicators of social well-being, for example, may become the growth centers over the next 50 years.
health and mortality indicators, to average income mea- Flammang ( 1979) reviews a considerable amount of
sures. development literature. He discusses economic growth
Although addressing the nonnative implications of and development as related processes based on the struc-
economic development, the early work failed to resolve the ture and functions of the political economy. He summa-
central problem. In the absence of a consensus theory of rizes nine different approaches to economic growth and
economic development, consistent measurement was dif- economic development including approaches that define
ficult. During the 1970s, in fact, the neoclassical paradigm neither tenn or use the tenns interchangably. He offers
itself was called into question (Arndt 1987). clarifications by drawing an analogy between biological
Given the inconsistencies among theories used to growth and development. He notes the positive association
explain economic development, the recent work by Amos between growth and development in most instances:

*Professor of Real Estate and Economic Development, When we refer to economic growth, are not most
Department of City and Regional Planning, University of North of us thinking in tenns of increase, in tenns of the
Carolina at Chapel Hill. quantity of something measurable? But when we

30
Economic Growth and Economic Development
Concepts and Measures 31

use the tenn "development," are we not trying to related but different processes based on the following
imply something in the way of change, something distinctions:
qualitative? These usages seem reasonable, and
the quantitative-qualitative distinction is implied, Growth theories take economic structure as given
if not stated explicitly, in many of the definitions and focus on short-tenn changes in the economy.
just surveyed; I suggest that, to most of us, eco- ...The quantity of production, consumption, in-
nomic growth is a process of simple increase, come, employment or trade is important. Devel-
implying more of the same, while economic de- opment theories focus on changes in economic
velopment is a process of structural change, im- structure over the long tenn. Structural changes
plying something different ifnot something more. may refer to changes in industry mix, product mix,
(p. 50) occupation mix, patterns of ownership or control,
fmn size and age, technologies in use, degree of
Flammang elaborates a broad, ecological model of competitiveness and the like. The quality of
development where necessity due to population pressures production and the distribution of consumption
encourages people to derive more sustenance from the are emphasized. (p. 490)
environment. This pressure stimulates human inventive-
ness and leads to structural change. Flammang argues that Many urban economists and regional scientists have
this ecological model supports the idea that growth and drawn similar distinctions. For example, regional scien-
development may be "alternating processes" (p. 53). tists often distinguish economic flows from economic
Importantly, Flammang points out that development structure and tend to focus on structure. Urban geogra-
(structural change) can lead to growth, stagnation or de- phers and sociologists have long studied spatial structure
cline. From an ecological perspective, we attempt to adapt and structural change over time- morphogenesis. Yet the
to our environment by doing things differently as well as macroeconomic theories that are applied most frequently
more efficiently. But our environment may or may not in national and regional econometric models focus on flow
adopt the changes we initiate. Moreover, there is consid- variables and near-tenn projections. Such econometric
erable variability in the adaption-adoption process which models are far more prominent than models based on
gives rise to winners and losers. The author agrees with theories of economic development.
Flammang that Neo-Marxists make a contribution by The measurement of economic development de-
pointing out the two-sidedness of the process: develop- serves more attention especially as a concept different from
ment in one place often leads to underdevelopment in economic growth. Although the two are interdependent pro-
another. cesses, economic development as described by Amos and
Flammang also suggests "a hierarchy of growth and Flammang appears to be the more fundamental and basic
development" (p. 55) moving from the individual to the process. As the level of development increases, welfare
finn to the industry and to the economy as a whole. Thus, indicators such as per capita personal income should im-
we can observe and possibly measure growth and develop- prove. Over the long tenn, growth depends more on
ment at different levels of aggregation and with different development than the reverse; in the near tenn, develop-
units of analysis. He encourages us to dispel our images of mentis usually supported by growth. If economic devel-
development which almost always reflect our cultural opment is themorefundamental,longer-tenn process, then
biases and to look at the fundamental and practical prob- it should change more slowly than growth and therefore
lem-solving that leads people to adapt their economy to fit prove more useful for examining change over time. Thus,
their environment forecasts based on differences in economic growth and
Flammang (1990) elaborates his framework by dis- economic development among spatial units in the U.S.
tinguishing niche changing from niche filling activity. The should be more accurate than predictions based on growth
fonner requires softening of structures and greater internal alone. This conclusion deserves further elaboration.
differences to respond to external changes. The latter As the global economy becomes more integrated and
requires less differentiation and hardening to accomplish the Japanese economy becomes the major growth pole, all
internal adaption. Successful softening leads to dynamic areas in the U.S. will be increasingly vulnerable to external
efficiency while successful hardening results in static political and economic events-events that cannot be
efficiency. Flammang applies this framework to discuss easily predicted. Daniel Gamick measures the spatial
cyclical development, differences in market and planned variation in economic activity over several decades. He
systems, and the philosophical roots of his ideas. fmds that metro area economies have become more vola-
Following Flammang, the author (1986) has argued tile in tenns of changes in population, income and employ-
that economic growth and economic development are ment Gamick (1985, 1989). Robert Hopkins and David
32 The Review of Regional Studies

Shulman(1987)studythevolatilityinmetroareaemployment cally at the industry level, it appears more useful to focus


growth from 1976 to 1987 and reach similar conclusions; on the relationship between comparative costs and income.
employment rankings for the 86largest metro areas are not The assumption is that trade, based both on comparative
stable and cannot be used to predict future rankings. Given and absolute advantage, will lead to increased welfare. In
the conceptual distinctions drawn between economic growth empirical terms, regional differences in personal income
and economic development, the basic assumption here is may be explained by regional differences in productivity
that the growth performance of local economies in the and unit costs. Such differences may also reflect differ-
future will be determined by factors other than previous ences in level of development as noted above. Measures
growth experience. This assumption has particular merit if useful for testing models of economic growth and indus-
1980 marks the beginning of a new polarizing long wave. trial structure deserve greater attention.
The key factors should include the fundamental attributes
of the area's economy that are related to economic devel- Measures of Growth and Development
opment, which in turn should be useful in forecasting the
relative performance of these areas. Applying the meanings ascribed to growth and de-
Over the long term, economic development and velopment in the previous section, various measures of the
economic growth should be positively associated since concepts can be proposed. The following discussion
both effect the economic prospects and potential of a local emphasizes measures that logically correspond to the un-
area. In most places, greater economic development through derlying concepts, yet recognize data limitations in U.S.
successful external adaption will lead to sustained eco- regional information. Nodal regions are viewed as the
nomic growth as internal adaption takes place. Yet at any most appropriate units of analysis, either Bureau of Eco-
point in time, softening or the differentiation of economic nomic Analysis (BEA) areas, labor market areas as defined
structure may dominate hardening or the integration of by the Economic Research Service, Consolidated Metro-
economic structure, hardening may dominate softening, or politan Statistic Areas, Metropolitan Statistical Areas,
neither process may be occurring on a noticeable scale. In Primary Metropolitan Statistical Areas, or New England
metro areas becoming more economically viable, adaptive Combined Metropolitan Areas.
change should lead to growth in certain sectors of the
economy and decline in others as internal differences Growth Measures
increase. Or at a more disaggregated level, restructuring
within local firms may increase dynamic efficiency and Following the practice at the national level, eco-
growth potential without immediately stimulating the area nomic growth may be measured by examining various
economy. As a result, the aggregate size of the local outcomes of the production system. GDP is an appropriate
economy may not change very much when softening growth measure, and BEA has recently published estimates
dominates. However, when hardening dominates subse- for all states and D.C. The second best measure currently
quently, metro growth should accelerate as certain facili- available for metro areas is employment. BEA, the Bureau
ties or capabilities become obsolete and more competitive of Labor Statistics (BLS) and the Small Business Admin-
activities achieve success in the market. Thus, a great deal istration (SBA) maintain and publish employment statis-
of difference exists between stable metro areas in which tics based on place of work although not with consistent
flexible restructuring and adaption are taking place and definitions or coverage. Personal income and, in some
stagnant metro areas experiencing no growth because of cases, earnings are performance measures which comple-
weak, rigid economic structures. ment employment change and have significant economic
Clearly, industrial structure is central to models of welfare implications. The revised income series recently
economic growth as well as development. Interindustry published by BEA at the county level can be used, for
models, viewed as an elaboration of an export-base growth example, as a measure of average material well-being. For
model, give the fullest articulation of industrial structure most purposes average annual figures adjusted to account
and provide estimates of economic growth in terms of for business cycle influences are pertinent for regional
output, employment or earnings. Sector theory predicts growth studies. Growth measures tend to be aggregate
sectoral shifts to tertiary industries or, more generically, measures. Total employment by work-place, for example,
the expansion of income-elastic export industries as pro- is an aggregate measure summed over all reporting establish-
ductivity improves in established industries. ments in the constituent metro counties. Personal income
Interregional trade theory is different in two major is an aggregate measure of flows to households residing in
respects. It focuses on commodities instead of industries the area.
and views substitution effects as comprising its essential Another concept related to economic growth may be
dynamic. Although trade theory can be applied empiri- introduced at this juncture-economic stability. Since the
Economic Growth and Economic Development:
Concepts and Measures 33

work of Conroy (1975), regional scientists have examined distributions for establishments by metro area. The U.S.
growth and stability in a portfolio context (e.g. Brewer Establishment and Enterprise Microdata (USEEM) file
1984) or with other measures of diversification (e.g. Kort available from SBA can be used to generate complemen-
1981, Keinath 1985 and Attaran 1986). It appears useful tary establishment measures. With special tabulations of
to consider growth as the return to the region and stability these data, one can identify single establishment fmns,
as the risk related to that reward. With time series data on headquarters, branches, or subsidiaries among manufac-
employment, income and earnings available for appropri- tures and other sectors across metro areas. The dominance
ate units of analysis, the analyst may construct several ofbranches and, to a lesser extent, subsidiaries are evidence
stability measures. Kort, for example, used smoothed of standardized products and routine production. The
quarterly employment data to measure relative fluctuations preponderance of headquarters implies the presence of
from the trend line for his sample of metro areas. products in earlier stages of development. TheseCBP- and
USEEM-based measures should be considered reasonable
Development Measures expressions of the product cycle hypothesis if they turn out
to be correlated significantly with metro area income and
Unlike economic growth which may be measured as significant wage levels. However, in an era of corporate
economic outcomes occurring over time and resulting restructuring, headquarters may be less significant than R
from production and consumption activities in metro areas, & D facilities and expenditures as an indicator of new
economic development is more complicated. It must be product development.
measured more broadly to account for the relevant qualita- Recent work by Wilbur and Philip Thompson (1985)
tive and structural features of the local economy. Absent may shed additional light on the measurement of economic
a consensus theory of economic development, the analyst development. They pose five functional types of metro
cannot propose a definitive set of measures. Yet Amos' areas largely related to occupational structure. Cities are
framework and Flammang's ecological approach as elabo- centers of entrepreneurship, central administration, R & D,
rated previously are suggestive. precision production, or routine production. They point
Although the metro area or nodal region remains the out that industry mix may change considerably without
appropriate unit of analysis, few measures are actually altering fundamentally the functional-occupational orien-
attributes of metro units. Most measures of economic tation of the area. (The same point may be made with
development discussed below focus on establishments and respect to product cycle theory.) Using census information
fmns and, to a lesser extent, on the metro labor market. The on occupational structure, the Thompson approach sug-
measures address the structure of industries, products, gests several useful occupational measures that may be
companies and occupations in the metro area. related to productivity and growth due to differences in
Clearly, shift-share analysis is a useful way to exam- comparative costs. Metro areas dominated by either rou-
ine the influence of industrial structure on economic growth tine or precision occupations which include laborers, op-
and to measure the growth potential of industry mix. The eratives and technicians, may have lower relative costs and
industry mix term is clearer than the residual effect which higher efficiency. The percentage of adults with high
is often used as an indicator of competitive advantage. school education or less should be correlated with these
Productivity measures are more difficult to create. GDP occupational measures. Technical and professional oc-
per employee would be interesting if state estimates could cupations associated with R & D centers should indicate
be "stepped down" to the metro level. Value-added in places generating newer products as suggested by product
manufacturing per production hour or wage dollar has cycle theory. However, the author has tested the relation-
reasonable face validity although differences in capital ship between occupational mix in 1970 and 1980 and
intensity introduce confounding effects. Regional scien- subsequent employment change without getting encour-
tists should collaborate and propose best available mea- aging results.
sures of industrial structure and productivity at the metro Neo-Marxist theories offer interesting insights about
level as indicators of static efficiency. the economic development process but few good measures
Product cycle theory is widely used to explain re- given available data. For example, the concentration of
gional growth from a structural perspective but poses power as reflected in the distribution of wealth among
difficult measurement problems due to ambiguities about metro area residents may deserve attention, but these data
the proper level of disaggregation. The simplest approach are not available subnationally.
is to focus on manufacturing, where the hypotheses most Entrepreneurship theories, including Schumpeter,
easily apply, and examine the structure of establishments. are more promising. The qualitative structural change
With County Business Patterns (CBP) data, theanalystcan associated with economic development may be related to
develop overall and industry-specific employment size resilience and innovation potential in the metro area which
34 The Review of Regional Studies

in turn may be associated with creativity and initiative- the author calculated the per capita measure to reflect the
taking at the individual level (Shapero 1981). In the R & D orientation of the area. It is also possible to track
temporal process of creative destruction innovative areas federal R & D expenditures by metro area. Finally, the
should predominate among the winners. Jacobs (1969), percentage of single establishment firms may be measured
with her concept of developmental work, contrasts Bir- from the USEEM data. Some argue that this measure is
mingham and Manchester in the 19th century-the inno- associated with degree of local innovativeness.
vative city versus the efficient city-and argues for the From an ecological perspective, the supportiveness
long-term viability of the former. Clearly, the concept of of the metro area environment to both dynamic and static
resilience is quite consistent with the ecological model and efficiency should be measured directly. For this purpose,
the contrast between dynamic and static efficiency put the literature on human ecology has more to offer than the
forward by Flammang. The author sees resilience depend- concepts of agglomeration economies and the urban incu-
ing on the differential abilities of individuals and firms to bator hypothesis because measures presented in the literature
respond to threats or seize opportunities, abilities which for the latter concepts are minimal and weak. Regional
vary from area to area. scientists should give the measurement of these concepts
Unfortunately, resilience is difficult to measure. The more serious attention.
author has tested the rate of reduction in absolute unem- From the classical ecology concern with functional
ployment across larger metro areas after the recessions of specialization comes the concepts of industrial mix, which
1974-75 and 1981-82. In both instances, the measure was dealt with above, and diversity. This literature also
appears more related to industry mix than to long term presents the related concepts of dominance and centrality.
innovation potential (Victor and Vemez 1981). A more Finally, another literature discusses the issue of quality of
promising approach may be to use the USEEM database to life at the metro level. (See Myers (1988) foran overview).
add job gains to job losses across all establishments in each Taking each concept in tum, diversity which is an
metro area. Higher rates or absolute values would indicate attribute of a metro economy (not diversification which
greater turbulence which may be an important aspect of should be considered the process that changes the level of
resilience. Clearly, a face valid measure reflecting an diversity) has been measured in several ways. The portfo-
area's capacity to bounce back from economic adversity lio approach (Conroy 1975) is suggestive but quite data
would be quite useful. intensive. The entropy measure is consistent with the
On the opportunity side, the author considers a mea- ecological work and easier to formulate (Kort 1981 ). The
sure developed by David Birch reasonably good. Using the author has experimented with the coefficient of specializa-
Dun & Bradstreet data comparable to the USEEM database, tion, ogive and other measures without achieving encour-
he calculates the percentage of relatively new firms that are aging empirical results.
rapidly growing by metro area (Inc. 1988). High survival The author argues that these measures, while very
and expansion rates are evidence of support for initiative useful, are much too narrow because they only deal with
taking. Establishment birth rates or incorporation rates industries. Diversity, considered generically as the degree
may also be used but are inferior in this regard because of variety or internal differences in the local economy, can
amount of start up activity is less important than the success be measured for occupations, products and companies as
of new companies. As an alternative, CBP data may be well as for process technologies or forms of production.
used to analyze employment change by establishment size One can apply the entropy measure, for example, to indi-
controlling for industry mix in each metro area. One cate the diversity of occupational mix. The percentage of
approach would be to compare metro employment change single establishment firms and the establishment size dis-
over time for a smaller establishment size range to U.S. tribution noted above may reflect diversity in business
change among the same cohort of establishments using ownership and control. It is also possible to use Duns
shift-share analysis. Mter accounting for industry mix Market Identifiers data to determine the concentration of
effects, the remaining local effect term would be used as an employment controlled by major employers (say compa-
indicator of entrepreneurial vitality. nies with at least 2% of total labor force), but the data are
As for innovation potential, the author would nomi- very expensive. More work is needed to identify broader
nate the percentage of adults with at least college education measures of economic diversity conceived as indicators of
and percentage of management, professional and research variety and internal differences. As such, more diverse
occupations to support innovation, following Thompson's areas should support adaptive innovation while less di-
work and others. Drawing from a dissertation which verse places may be compatible with efficient production.
tabulated employment in technology-based firms from Dominance is supposed to reflect the economic im-
Duns data by metro area in the mid 1970s (Graham 1981), portance of a place. In a world consistent with central place
Economic Growth and Economic Development
Concepts and Measures 35

theory, the highest order center is most dominant In cators which may be generally useful in empirical and
growth pole theory, it is the growth center. In the real policy analysis and particularly helpful to understand long-
world, headquarter centers and other centers of central term metro area growth and welfare performance. Mea-
administration play this role. Following Noyelle (1983) sures related to productivity and industrial composition
the author fmds that the number of accountants, directors should be useful in testing hypotheses about economic
and principals associated with the "Big Six" accounting growth outcomes. Measures of resilience and innovation
ftrms is an excellent measure of dominance. This measure potential are indicators of adaptive innovation that should
is highly correlated with headquarters employment, per- be related to economic welfare and sustained growth.
centmanagers,andmore importantly, the various producer Measures of the local environment such as diversity,
services thought to be essential for innovation. Thompson dominance and centrality are important for understanding
and Thompson (1985) calls these developmental services. a metro economy's long-term viability and fundamental
Physical linkages support these economic linkages strength.
as discussed by Amos (1990). In the global economy of the This paper does not contain a new theory of eco-
1980s and 1990s, air transportation and telecommunica- nomic development But drawing on the ecological-
tions reflect the centrality of a metro area. Moss ( 1986) has structural approach, it offers numerous measures of eco-
shown that the latter are primarily centralizing and rein- nomic development which can be distinguished from mea-
forcing the importance of the largest cities. Air transpor- sures of economic growth. With these measures, regional
tation is the key mode in the global economy, and major scientists may be better able to examine secular change in
hub areas are the more central, especially in the wake of metro economies with hypotheses drawn from structural
airline deregulation in the U.S. Hubs with non-stop access theories of economic development. For short-run analysis
to the Paciftc Rim may be the most important. Air and near-term forecasting, economic growth measures
transportation and telecommunications appear more criti- may well sufftce. But for understanding the economic
cal for adaptive innovation. Efftcient highway, rail and fundamentals of metro economies and forecasting long-
water transport plus good telephone service should support term performance, hypotheses fleshing out aspects of
efficient production. economic development are essential.
Finally, quality of life is viewed as an important
related aspect of economic development However, the References
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