Why does place matter? What are the underlying mechanisms that create spatial variations in the efficiency of economic and social interactions and how we can include them in the analysis?
Maryna Ramcharan, data lead for the Local Policy Innovation Partnership Hub discusses what makes a place unique and how data can be used to reflect such uniqueness.
The main features of a place which determines the effects of local productivity can be grouped into three categories: place fundamentals, place agglomeration, and place sorting.
Place Fundamentals
Place fundamentals. This includes local culture, infrastructure, local governance, geography and the presence of educational institutions in the area. The importance of including these features in policy interventions was raised by the OECD. They argued that the place-based approaches offer a greater possibility of harnessing untapped potential in all regions in a coordinated and systematic way.
| Place fundamentals: |
| Local culture shapes community trust and cohesion, and results in public perception and attitudes. |
| Local governance addresses a call for central government for investments and funding. |
| Local infrastructure shapes context and indirectly influences economy and social behaviour. |
| Educational institutions directly impact the attraction of skilled workforce and graduates. |
| Educational institutions directly impact attraction of skilled workforce and graduates. |
Place-based theories assume that geographical context really matters for all aspects of economic and social behaviour. In particular, the generation, acquisition and exchange of knowledge, the lifeblood of all firms and commercial sectors, are mediated and reflected in geography. The outcomes of all apparently non-spatial activities are almost always spatial, as are their component elements and processes. In particular, sector-based space-neutral policies with little or no recourse to the regional context may have important spatial implications (Hurter and Martinich, 1989) and that context may also end up being a key element of these policies.
Some place fundamentals cannot be measured directly, but a mix of direct and proxy variables can be employed to describe them (Table 2).
| Geography*: Is the place a coastal place? Highlands? Is it an island or a remote location? Is it rural or urban, predominantly rural or predominantly urban? Is it a big city? Small town? Village? Density of population Number of tourists’ visit per year/month/season *These metrics can be binary yes/no variables | ||
| Governance: Participation in elections in the local area. %age ballot box turnout. Local council performance. Complaints upheld, compliance with ombudsman recommendations, satisfactory remedies provided by the council | HE & FE presence: University Rankings, University Sustainability Measures, HE Estates Information, Graduate Outcomes | |
| Infrastructure: Digital: Internet use, Internet access. Indoor 4G coverage from all providers, %age of people who can access broadband above 30 Mb, %age of premises that have access to broadband speeds above 30 Mb, outdoor 4G coverage from all providers, average speed available (Mbps), Internet speed median by LAD Transport. Driving licences and access to vehicles, Travel, distribution of EV charging points, total area reachable within 30/60 minutes by public transport, trips made per person annually. | HE & FE presence:University Rankings, University Sustainability Measures, HE Estates Information, Graduate Outcomes | |
Place agglomeration
Place agglomeration – From a spatial perspective, an agglomeration can be described as a local densification that comprises a certain concentration of people, infrastructure and institutions.
There are two main types of agglomerations which are the cost advantages that businesses experience when they are located close to each other:
Diversified agglomeration is the concentration of economic activity in an area, and
Specialised agglomeration is the concentration of firms in the same industry.
Diversified agglomeration benefits the productivity of firms by sharing infrastructure and common areas and being able to market and sell to customers who visit the area. Specialised agglomeration benefits the productivity of firms from the co-location of a number of specialised firms in an industry in one place.
Place agglomeration influences various processes in the economy in different ways. For the labour market, specialised agglomeration fosters a local pull of specialised workers who may also choose to work in the area due to developed infrastructure, transport links and more opportunities in the case where there is also a high concentration of economic activity in the area (diversified agglomeration). Companies that share infrastructure or supply networks operate more efficiently due to specialised agglomeration in the area.
While agglomerations offer the advantage of spatial proximity, access to networks enables relational proximity. The positional and relational perspective is considered an interplay of functional and spatial logic (or in terms of agglomerations, specialised and diversified agglomerations) and specialised agglomerations become an interdependent hub in the network of an urban system (diversified agglomeration). Examples of these interactions are trade relations, transport and traffic systems, in-house company networks within multi-branch businesses or external interlinked value chains (Amin and Thrift, 1992).
In terms of the green economy, industrial agglomeration impacts CO2 emissions, albeit with variations based on the type of agglomeration. Empirical study suggests that specialized agglomeration exacerbates CO2 emissions, while diversified agglomeration substantially contributes to their reduction. Moreover, regarding spatial spillover effects, specialised agglomeration not only increases CO2 emissions locally but also elevates nearby emissions, whereas diverse agglomeration not only reduces local CO2 emissions but also radiates carbon reduction in adjacent areas. To fully realise the benefits of agglomeration in reducing carbon emissions and promoting regional development, the government should thus support diversified agglomeration, remove any barriers preventing the flow of production factors, and fortify interregional industrial division and cooperation.
| Type of agglomeration | How to measure it |
| Diversified agglomeration is the concentration of economic activity in an area | City size based on population or employments Productivity which can be represented by (1) wages or (2) total-factor productivity (TFP) which measures residual growth in the total output of a firm, industry or national economy that cannot be explained by the accumulation of traditional inputs such as labour and capital. Since this cannot be measured directly the process of calculating derives TFP as the residual which accounts for effects on the total output not caused by inputs |
| Specialised agglomeration is the concentration of firms in the same industry | Location Quotient (LQ) measures the concentration of a specific industry, occupation, or type of employment in a geographical area compared to the national average. An LQ is computed as an industry’s share of a regional total for some economic statistic (earnings, GDP by metropolitan area, employment, etc.) divided by the industry’s share of the national total for the same statistic |
Place sorting
Place sorting is a trend when people self-sort across a space to live and work alongside others who are like themselves. Place sorting manifests in the co-existence of very deprived and very affluent neighbourhoods with clear demarcation lines between them. Sorting then amplifies pre-existing inequalities and agglomeration, and they further reinforce each other.
To bring place sorting to quantifiable grounds we can answer the following questions. If a place has a high share of low-income residents in past and in present? Is there a trend of falling rents in previous months/years? Is there a coexistence of very deprived and very affluent neighbourhoods with clear demarcation lines between them? These are indicators of a highly self-sorting place and in turn, they may be indicative of other processes such as better/worse graduates’ retention, poverty and deprivation pockets, agglomeration and inequality.
All three components of a place’s uniqueness can be measured by qualitative or quantitative metrics with more or less accuracy for different metrics. By pulling a selection of appropriate metrics we can then define which metrics are most influential by, for instance, running factor analysis or principal component analysis. These methods will help to reduce the dimensionality of the analysis if needed. Further, some aggregated metrics (e.g. overall score) can be produced with weights assigned to each component metric based on their influential power.
It is important to approach the measuring of a place’s uniqueness systematically to understand the nexus of processes and patterns of economy in this place. The possible approach to help understanding the links pertinent to a place is building a causal loop diagram depicting connections between economy domains.
References
Amin, A.; Thrift, N. (1992): Neo-Marshallian nodes in global networks. In: International Journal of
Urban and Regional Research 16 (4), 571-587.
This blog was written by Dr Maryna Ramcharan, Policy and Data Analyst at City-REDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.