Location, location, location: Economists document key role of spatial component in economic growth

December 19, 2011

(Chicago, IL) - Location and other geographical factors play an important role in supporting economic growth and development in emerging markets, a new study from the Consortium on Financial Systems and Poverty has found.

The study, which examines growth in the Thai economy between 1986 and 1996, shows that a high concentration of enterprise in an area predicts high subsequent growth in and around that area. Entrepreneurial activity decreases virtually by the mile the further away one gets from centers of economic concentration.

In addition, other geographic conditions, such as flat topography and proximity to transportation, also show a strong correlation to enterprise growth.

These are the findings presented by Robert M. Townsend and John S. Felkner in a article in the current issue of Quarterly Journal of Economics, "The Geographic Concentration of Enterprise in Developing Countries."

Townsend, a professor of economics at the Massachusetts Institute of Technology and principal investigator of CFSP, and Felkner, a research scientist at the University of Chicago's National Opinion Research Center, used extensive economic and physiographic data down to the village level in Thailand. Their conclusions are drawn from an economic model that was tested against actual developments over time.

Thailand, the subject of intensive research by Townsend, is largely considered an Asian success story. It has shown consistently strong growth despite military coups, tsunamis, and the Asian financial crisis.

In the 10-year period studied, village wealth doubled, and by 1992 the ratio of money-like-assets to GDP, which indicates the level of financial intermediation, exceeded the level in the United States. At the same time, the country industrialized, with the fraction of GDP in manufacturing rising from 23 to 35% and the number of households in non-farm enterprises increasing by 27%.

However, this growth is not taking place uniformly throughout the country. Among the key findings of the study, which may suggest insights to other developing countries, are: "We think these findings are important because we establish that concentrations of enterprise across space in a developing country play a crucial role in the larger process of development," notes Townsend.

"This could have important implications for developing economies, particularly for financial intermediaries, transportation planning, and industrial organization."
-end-
Robert M. Townsend is the Elizabeth and James Killian Professor of Economics in the Department of Economics at MIT. Prior to that, Townsend was the Charles E. Merriam Distinguished Service Professor in the Department of Economics at the University of Chicago, where he remains a Research Associate. Since 1997, Townsend has undertaken large scale village surveys in Thailand to analyze the interaction between household decisions and community behavior at different levels of aggregation including families, villages, regions, and country-wide. John S. Felkner is a research scientist at the National Opinion Research Center, University of Chicago.

The Consortium on Financial Systems and Poverty (CFSP) is a research organization comprised of leading and emerging economists. Their goal is to improve the lives of the world's poor and to reduce poverty through helping to identify, design, and implement more efficient financial systems.

Consortium on Financial Systems & Poverty

Related Economics Articles from Brightsurf:

A century of misunderstanding of a key tool in the economics of natural resources
In the past few weeks, oil prices have fallen to record lows.

What comes after COVID-19? Special issue in the journal Population and Economics
At this alarming time, when the COVID-19 pandemic is on everyone's mind, a new special issue in the open-access peer-reviewed journal Population and Economics provides a platform for discussion on the impact of the pandemic on the population and economics, both in Russia and worldwide.

Challenges for Russia's agriculture: new special issue in Russian Journal of Economics
While Russia seems to have tackled its historic problem: food shortage -- with the agri-food sector becoming one of the most steadily developing of the national economy in the last decade -- there is a new set of challenges.

Brief entrance test can predict academic success within first year of study in economics
German researchers at Johannes Gutenberg University Mainz (JGU) and Humboldt-Universit├Ąt zu Berlin found that even a short test can reliably predict students' success within their first year of study in economics -- much better than an intelligence test or predictions based on school grades.

The case for economics -- by the numbers
In recent years, criticism has been levelled at economics for being insular and unconcerned about real-world problems.

Scientists develop open-source software to analyze economics of biofuels, bioproducts
Perennial grasses can be converted into everything from ethanol to bioplastics, but it's unclear which bioproducts hold the greatest potential.

Life data economics: calling for new models to assess the value of human data
After the collapse of the blockchain bubble a number of research organisations are developing platforms to enable individual ownership of life data and establish the data valuation and pricing models.

SCAI and ACVP release consensus statement on cardiovascular catheterization laboratory economics
A newly released expert consensus statement provides recommendations for optimizing the financial operations of the cardiovascular catheterization laboratory (CCL) while providing cutting-edge patient care.

Shocking economics
Understanding economies in times of crises? Modern macroeconomics failed so far.

When does one of the central ideas in economics work?
Many situations in economics are complicated and competitive; this research raises the question of whether many theories in economics may suffer from the very fundamental problem that the key behavioral assumption of equilibrium is wrong.

Read More: Economics News and Economics Current Events
Brightsurf.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.