Multiplier Effects in Local and Regional Development

Abstract

ABSTRACT. The aim of the paper is to outline demand-driven multiplier mechanisms, the theory behind them, and applicable quantifi cation methods (aggregate models and incremental methods). The authors discuss a number of key problems related to multiplier effects as fundamental mechanisms of local and regional development. The study of the magnitude, industry structure, spatial distribution, and key determinants of those effects can help understand growth mechanisms in local and regional economies and evaluate the advantages and disadvantages associated with new, e.g. foreign, investment. Furthermore, the results of earlier empirical studies of the magnitude, spatial distribution and determinants of multiplier effects are presented together with the outcomes of the authors' own study. KEYWORDS: multiplier effects, local and regional developmentBolesław Domański, Institute of Geography and Spatial Management, Jagiellonian University, ul. Gronostajowa 7, Poland, Multiplier effects are one of the fundamental mechanisms of local and regional development and occur when one type of economic activity affects another. Multiplier effects are driven primarily by market forces. An increase (or decrease) of one type of economic activity in a given city or region prompts an increase (or decrease) in demand for goods and services, which then triggers the development of other types of economic activity in the same region or city. An increase (or decrease) in income or employment in a local or regional economy triggered by the emergence of a new type of economic activity is called a multiplier effect. The multiplier is an attempt to quantify the power of a given economic trigger.The aim of the paper is to outline demand--driven multiplier mechanisms, the theory behind them, and applicable quantifi cation methods. The authors discuss a number of key problems associated with multiplier effects in the context of local and regional development. Furthermore, they show selected trends identifi ed empirically. Theory behind multiplier effectsMultiplier effects are part of several different theoretical approaches to urban and regional development, including the following:

The socio-economic impact of built heritage projects conducted by private investors

“…Some local expenditures will generate higher local returns than others. The strength of multiplier effects, including the tourism multiplier, is dependent on whether suppliers (generating indirect multiplier effects) and employees of heritage sites and tourist businesses (generating induced multiplier effects) are locally (regionally) recruited and embedded [9,10]. The scope of economic effects is also strongly dependent on the size and character of the main tourist market segments catered for, including the percentage of overnight visitors [11].…”

Shale gas and regional economic development: Enhancing local economic impact

“…Similarly, service sector firms tend to have a higher local impact than manufacturing companies, largely because employment costs are a more significant proportion of expenditure for the latter than the former, thereby anchoring a greater share of initial expenditure in the local economy. Furthermore, the larger the city-region, the less significant are the leakages from a given economic boost, and therefore the greater the resulting local income multiplier (Domanski and Gwosdz, 2010). Finally, the inter-relationship between firms has been found to be highly significant, in terms of delivering regional multiplier effects, as agglomeration effects, through the growth of clusters and resultant informational flow between firms, tend to spillover into skills development and local income growth (McCombie and Thirwall, 1994;McCann, 2013:169).…”

Economic Aspects of Increasing Value and Scope of Shared Services Centres

“…The increased need for the changes described above and other changes is an example of multiplier effect. Multiplier effects are one of the fundamental mechanisms of local and regional development and occur when one type of economic activity affects another (Domański, Gwosdz 2010). Possible impact of increased scope and value of SSC on economy of host country is presented in the figure below.…”