GEO 3502 Quiz 4 Study Guide Urban Economics Economic Base Theory The economic base of a region is the part that exports goods and services achieves comparative advantage with another region Economic base theory sees the economic base as the engine of the economy Economic specialization in the US Basic vs Nonbasic These are the two broad segments of the urban economy The basic sector B economic base is export oriented Examples universities export education LA exports films and entertainment The nonbasic sector NB recycles incomes to meet local demands Note Total employment T equals B NB The relative sized of the basic and nonbasic sectors vary across the urban hierarchy Generally economies of small towns have larger basic sectors In large metropolitan areas there are diverse economies and large internal markets the relative proportion of the basic sector in terms of the economy is smaller Multiplier The effect on total employment or output wages and profits generated by changes in an industry including interindustry linkages and expenditures resulting from changes in personal income There are many types of multipliers and ways of estimating them The multiplier reflects the degree to which the basic sector drives the economy m T B Substituting B NB for T m B NB B 1 NB B Direct Effects changes in employment in basic sector Indirect Effects changes in firms that sell goods and services to the export base through subcontracts the backward linkages of companies in the basic sector These can vary depending on where the firm sources its supplies Induced Effects changes in consumer spending E g more jobs more income more consumption typically in the nonbasic sector Global cities where major institutions are based banks TNCs IMF UN They have a global impact with many linkages stretching across the planet Examples are London New York and Tokyo They are centers of creative innovation metropolises for raising managing investment capital centers of specialized expertise control centers for corporations and NGOs Urban hierarchy At the top are global cities Spatial division of labor generates unequal geographical development and division of labor within each city is shapes by interaction with other cities Hence the development of the urban hierarchy Industrial restructuring is changing the global urban hierarchy Cradle to cradle Residential space Involves the residential location decision most important criterion is accessibility In general people with higher incomes live further from work Poor people tend to live in more expensive areas in urban small spaces They cannot afford the transportation to live further Filtering Model As income rises the ability to purchase more space of a higher quality also rises Lower income groups tend to rely on housing that has been previously occupied Thus the population filters up through the housing stock or conversely the housing supply filters downward through the population Supply and demand factors Demand number of people in a city and average household size price of housing inflation adjusted or real income per household home owners expectations of future changes in pricing Supply construction of new homes construction standards and zoning Availability of financing may be a demand or a supply factor Financing for consumers vs developers Suburbanization and factors encouraging it It dates to the late 18th century when urban elites built country homes on the outskirts of town Movement outward social movement upward The Post WWII suburban boom reflected pent up demand after the depression and war Government policy and the highway system encouraged it Encouraged by market forces and non market forces Federal highway system constructed and maintained by trust fund monies and general funds helped reduce the differential of transportation costs between urban vs suburban locations federal loan guarantee programs and veterans benefit programs and tax reductions for owner occupied homes There was also cheap land and cheap transportation Exurbs outermost edges of metropolitan areas 50 150 miles beyond metropolitan fringe The result of the move to the exurbs is an urban geography dominated by sprawling conurbations continuous urban networks that encompass thousands of square miles and tens of millions of people Proportions of where Americans live in table below Federal highway trust fund it ushered in the development cycle of sprawling metropolis and the development cycle shown below Gentrification Resurrection of growth in downtown areas often at the expense of current residents Explanations producer services jobs accompanying globalization subsidized office hotel complexes waterfront developments convention centers sports stadia urban homesteaders locating in expensive lofts changing demographic structure of the family back to the city movement There are problems associated with displacement of low income families previously residing in the affected areas Economic factors wealthy middle class move to deteriorated urban neighborhoods Social factors changing familial structure Political factors long term development plans revitalization in favor of the clean jobs in service industry Urban decay process begins with urban affluent moving to suburbs Suburban property values increase supply and demand Then the urban poor cannot afford to move There are lower incomes and an increase in public assistance Eroding urban tax base forces local governments to cut local services and raise property taxes Phantom cities cities strategically use subsidies and tax regimes to attract encourage businesses Example Vernon CA Commuter ration of 500 1 Population of 112 Spatial mismatch disjunction between employment opportunities and skills 1 Private and public discrimination 2 Reverse commuting 3 Unemployment levels rise with increasing commuting distances especially for youths The lack of transportation is closely related to poverty it affects people s access to various job markets Reverse commuting round trip regularly taken from a metropolitan area to a suburban one Work in the suburbs and home in the city Consumption and waste Consumption the use of goods and services to satisfy individual and collective needs and wants Economic importance of consumption extremely important it constitutes the bulk of economic activities of most countries 55 of the US GDP is made of household purchases business spending is 15 foreign trade is 18 and government spending is 12 Even just small changes