Factors Associated with Local Economic Growth

In a literature search for another project, I recently ran across a thought-provoking article by Stats Canada on factors influencing the growth prospects of communities, especially those located in rural areas. Here are the highlights of what they learned from their 1999 analysis, along with my commentary on the study's findings:

* A higher education level in a community provided only a weak boost to employment growth during the 1980s. (This finding runs counter to what we have been preaching in the recent years.)

* Communities that were relatively specialized in primary sector employment and traditional manufacturing employment were relatively disadvantaged in the 1980s. (This is consistent with the findings of many other studies. I would argue that low-tech manufacturing better fits this finding than high-tech manufacturing, which actually boosts local economic growth through its multiplier effects.)

* The type of region in which a community was located had a substantial impact on the rate of local economic growth. Communities in regions influenced by metropolitan centers benefited relative to other communities. (I think this is a major argument on why regional approaches to economic development should be followed in both urban and rural areas.)

* A higher unemployment rate in a community in 1981 did not indicate an excess supply of labor that would attract employers. In fact, wage rates grew less in these communities and thus these communities fell further behind during the 1980s. (I think both labor market dynamics and industry site selection parameters have changed since the 1980s. Now, more companies are locating where they can find workers--not just any type of worker but trained and skilled workers.)

* Communities with a higher share of population with low incomes experienced higher economic growth in the 1980s, relative to the average community. These communities were catching up to the average community during the 1980s. (This finding may be peculiar to rural economies where industry location has increased in the past two decades. Companies see low incomes as lower wage potential, which is seen as an advantage to locating in rural areas that badly need jobs.)

* There was a wide variability in community growth patterns in the 1980s. Many communities achieved economic growth in spite of the factors identified here that constrained growth for the average community. (This reinforces the findings of a recent London School of Economics' study that finds that industry location patterns are more random in nature than linked to any overall driving force, such as industry clustering.)

We need more of this type of research to inform economic development policy and practice.

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