CHAPTER EIGHT

LOCAL AND REGIONAL DEVELOPMENT STRATEGIES AND POLICIES

Introduction

Governments design rules and regulations to facilitate efficient distribution and

allocation of resources, enhance the welfare of people, and make markets
flourish. It puts the necessary policies that provide important institutional
infrastructure such as laws that protect property rights and maintains public
order without which long term investment and sustainable development are
impossible. In this chapter you will study strategies and policies to be adopted
by government in order foster local and regional economic development.

Objectives of the chapter

After studying this chapter students will be able to:

 Discuss the main dimensions of local and regional development

interventions and policies.

 Understand government priorities (employment generation,

business support and entrepreneurship, and human resource
development, industry cluster) of regional and local economic
development;

 Understand the major policy implications of the different local and

regional economic development priorities.

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8.1. Introduction; Some Insights

Governments have a large stake in the results of locational development; they

have great power to influence that development, and a correspondingly heavy
responsibility for influencing it in a socially desirable direction. There is a
distinctly persistent rural dimension and growing urban dimension to many of
the regional problems. Rural poverty and socio-economic decline is raise due to
urban biased development policies. Unemployment and underemployment in
urban areas is more visible and more unsettling for both the individual and the
society. Furthermore, the rapid migration of rural population from rural areas
to urban slums is intensifying the complexity of urban problems. Problems of
traffic congestion and environmental pollution (particularly in and around
urban areas) stimulated a search for more rational use of space and resources.

Fiscal pressures on local and state governments in developing countries are

part of the picture too. For expanding areas, with increased demands for all
kinds of public services, the principal revenue sources often do not keep up
with rapidly rising demands. In many countries business people, local
communities, and even states are rightly fearful that higher taxes will drive
away or deter business investment.

Governments design rules and regulations to facilitate efficient distribution and

allocation of resources, enhance the welfare of people, and make markets
flourish. It puts the necessary policies that provide important institutional
infrastructure such as laws that protect property rights and maintains public
order without which long term investment and sustainable development are
impossible.

A government, through its expenditure policies, play crucial role in resource

allocation, and distribution of economic benefit and costs. In this process, a
government can use resources in productive investment and thus enhance
regional as well as national economic development and social welfare; and in
developing countries governments often spend resources in non-productive

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investments. Many scholars argue that the reasons why many African
countries do not succeed in growing their economies is due to the non-
productive use of resources and weak institutional capacity to design and
effectively implement development programs. The lack of effective institutions,
enforcement, and state stability to enforce existing laws and rules often leads
to corruption and mismanagement there by increasing the cost of conducting
business. The other critical problem in development policies of developing
countries is the failure in selecting priorities and the unflagging interest of the
leaders to follow externally induced wrong strategies.

The other important point is that many African countries embraced a state led
development strategy. This means the government actively involved in every
aspect of the economy such as price controls, administering production and
marketing of products. This created overstuffed government and resulted in
crowding out effects. It means the private sector is squeezed out since both the
public and the private sector compete for the same factors of production.

The following part will take up the question of what directions of change are
desirable or desired for regional development or what situations are in an
urgent need for corrective action. Then, we will focus on some of the critically
important local and regional development strategies and policies that
developing countries need to follow or adopt for achieving sustained and long
term development and social welfare.

8.2. Employment generation as a strategy for regional development

Employment growth is a primary economic development goal of most countries

and communities. More jobs generally mean more residents, more spending at
local businesses, and more tax revenue for local governments. Thus job growth
permits the expansion and improvement of public goods and services, leading
to an improved local quality of life and enhanced prospects for future
employment and growth (Barkley).

In addition, a vibrant job market provides incentive for local human resource to

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upgrade their competence since the rewards are evident in local employment
opportunity. An expanding job market encourages local workers to upgrade
their skills in order to qualify for available higher wage jobs, which ultimately
enhancing innovativeness and making the environment a more attractive
location for businesses.

Much of the local economic development efforts of local authorities in

stimulating or creating economic activities focus on expanding the
manufacturing and service sectors activities. But employment growth and local
economic development can result from alternative strategies such as local
business retention and expansion, entrepreneurship and small business
development, expansion of nontraditional agricultural activities, development of
local service and trade businesses, attraction of tourism, etc...

8.3. Attracting New Investment and Expanding Existing Firms

The following are some strategies for state and community action to expand
local as well as regional investment opportunities

a) Develop local industrial districts and important public services, and

provide specific information on available opportunities and resources.

b) Create supplies and facilities of transportation, recreation,

communication, business services etc. These services benefit existing
firms and the local community and attract new potential investment.

c) Facilitate the provision of capital resource or investment funds at

reduced interest rates.

d) Follow industry targeting principle by conducting research to identify

businesses that use local and abundant resource and that would have
the greatest and positive impact on the community.

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 8.4. Business Supports, Encouraging Entrepreneurial Activity, and the
Development of New Small Businesses

In developing countries small businesses are responsible for much of the job
growth and product innovation since they use local inputs from resource
owners or from other local businesses. These businesses create more stable
employment and provide greater opportunity for indigenous managerial and
professional competencies.

The following are some key strategies for state and community action.

a) Assist new firms and entrepreneurs with equity and debt capital needs.

Financial institutions usually are willing to provide debt capital for those
with collaterals. Small business and new entrepreneurs at the beginning
cannot provide collateral and this may hamper the success of such
enterprises. Assistance of finance from government or other non-
governmental stakeholders is necessary.

b) Provide counseling and intensive education for new entrepreneurs and

small

First time entrepreneurs seldom know much about business management,

marketing or business plans. Nor would they know of government
regulations that would affect them. Then a local support structure can be
very helpful and encouraging to such business startups.

c) Adopt an encouraging economic policy and community attitudes towards

entrepreneurship.

8.5. Encouraging Investment and Employment in Local Agribusiness

Industries and Raising Rural Farm and Non-Farm Income

Rural areas have a comparative advantage in natural resources and

agricultural production, and many of the products can be processed in agro-
industries thus further creating market and employment options in the rural
hinterlands. Furthermore the new agribusiness firms and the resulting rise in

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rural income may stimulate the demand for locally produced consumer goods
further creating backward and forward linkage in the economy.

8.6. Building Human Capital

Human capital is a term economist’s use for the productive investments

embodied in human persons. These include skills, abilities, ideals and health
resulting from expenditure on education, medical care, on the job training
programmes. These and other human capacities can raise productivity when
increased (Todaro, 2003).

8.6.1.Conceptual Link between Education and Economic Development:

The Human Capital View

The human capital theory

The human capital theory is the dominant paradigm which helps to see the
relationship between economic development and education. The concept of
human capital, under this theory, is based on the idea that governments and
individuals invest in their population or in themselves through education,
training and health care or other means in order to produce or enhance skill
and abilities with the belief that this investment will produce more output and
income or returns in some future period (McNamara and Deaton)

On the micro economic level, human capital theory focuses on individuals.

Investment in individuals is assumed to increase the stock of skills and
abilities of individuals within an economy. It assumes that the increased
productivity of individuals can be aggregated to the national (macro level) or
societal level to stimulate economic growth. As the education level of individual
improves, the general quality of work force improves and become more efficient;
technological innovation increases and the productivity of both labor and
capital grow up. As productivity increases, economic growth occurs.

According to this view, governments need to have the motivation to invest in

education, health care, nutrition and other service because these expenditures

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are actually investment in the future aggregate stock of human capital
available to the economy.

Education as a force for Modernization

Modernization is the process of transformation from traditional society to a

modem nation. While the human capital approach focuses on the impact that
investment on human capital has on individual productivity through the
improvement of skill and abilities, modernization theory tends to take a much
broader view of education's contribution to economic development.

It views education as an institution that promotes values such as social equity,

equal opportunity, and minimum living standards. Education also transforms
individual’s attitudes and motivation through developing individual character
such as efficiently, punctuality, honesty, cooperation. The result is social
environment that promotes economic development. Education in aggregate
increases the number of individuals with modern perceptions of society,
thereby providing an environment in which social and economic development
and growth are more likely to occur. The modernization view of education offers
a broader macro view of how educational institution influence change in society
or nations.

Education is a unique good because its services are consumed by both

individuals receiving the education and community members at large. The
following distinction is important:

1) The person receiving education receives direct benefits and other persons
in the jurisdiction providing the education service receive indirect
(spillover) benefits.

2) Then the supply decision of education is again influence by local people

(individuals or the community) as well as regional and federal state
mandates reflecting a broader view of social goals for an educated
society.

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Individuals and their families make decisions concerning the individual’s and
family’s investment in education. The broader community and regional and
federal governments make decision concerning investment in education on the
basis of the spillover and macroeconomic development objectives and priorities.

Education policy can help achieve development goals by stimulating increased

economic activities in urban and rural areas. It can also hinder the attainment
of these goals by stimulating out-migration of young and educated workers
from communities that lack competitive income and employment opportunities.
Relevant education policy and investment to increase human capital expand
individual opportunity therefore appears to be an effective policy for regional
development and social welfare.

8.6.2. Human Capital and Regional and Local Economic Growth

Higher level of human capital contributes to more rapid regional and local
economic development through its direct and indirect effects. The direct effects
include:

1. Additional human capital enhances the ability of local businesses to

adopt new technologies and respond to changing economic conditions.

2. A well-educated labor force improves community's chances of attracting

new businesses to the area. This is because labor force quality is
important to attract establishments of high technology industries and
businesses with significant employment in skill and technical
component.

3. Small business development and entrepreneurial activity in a community

depend on the availability of skilled people in technical and management
positions.

In addition to the direct effects of human capital on firm productivity, there are
other indirect effects of human capital. This is because well-educated labor
force facilitates the generation of spillovers or external economies that promote

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local development. For instance the presence of a well-educated labor force
enhances the level of social capital in the community which would result in
locally initiated successful local project than those communities with no
educated labor force. The presence of well-educated labor force enhances
information exchange and networking which are important and critical for
industry cluster development.

8.6.3. Policy Implications

The variation in level of economic development across regions within a country

captures important implications for regional and national development policy
and for the structure of educational investment. These implications must be
considered in national and regional education policies if individual,
community, regional and national development goals are to be achieved.
Federal and State governments have a role to play in setting education policy
and funding education to insure individual’s opportunities and access to
education.

To assure the supply of a minimum level of education, regional state and

federal governments should assume a major role in the funding of primary and
secondary education. Without strong regional and federal state fiscal
responsibility for funding education, desired change in socio-economic
development and structural change in methods of production is impossible.

Education policy directed at strengthening economies in rural as well as urban

communities should be directly linked to other local development policies to
effectively promote expansion of local economic opportunity and to critically
address local socio-economic problems and priorities. For instance specialized
training programs (for example vocational training) should be linked to local
economic development potential that are based on value added development
opportunities for which a community has a comparative advantage.

Education policy as a location specific rural or urban development should

attempt to increase the stock of human capital to the local labor markets by

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targeting education programs to specific local economic activities. Education
policy should also consider existing human capital stocks as well as the
complementarity of the system to the community's resource base and provide
some potential for developing employment and income opportunities that
enable communities to capture the direct and indirect benefits from human
capital investment and thereby broaden their base for future economic
expansion.

8.7. Nurturing Entrepreneurship

According to a report from the Global Entrepreneurship Monitor (GEM), nearly

70 percent of economic growth in rich countries is attributable to
entrepreneurial activity. The US has one of the highest levels of entrepreneurial
activity and as much as one-third of the differences in national economic
growth may be due to differences in entrepreneurial capacity.

As entrepreneurship becomes more visible in state and local economies a

general socio-economic system evolves: Among others, an entrepreneur:

Develop innovate products and services that improve quality of life;

Create more dynamic and flexible new industries and firms to replace
those no longer viable in a rapidly changing global economy;

Provide new employment opportunities

Create wealth that is reinvested in new enterprise

The following are important aspects of entrepreneurship that can be nurtured

by effective state policies targeted to specific needs.

A) Improving access to capital

Capital formation can be a significant impediment to aspiring entrepreneurs.

There is a significant gap in capital access for businesses in start-up and early
growth stages. One characteristic that separate entrepreneurs from other
business entities is their potential for high growth. With new products and
innovations being introduced rapidly, entrepreneurs seeking to compete in a

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global marketplace, need massive infusions of capital to survive. The size of
their investment and the risk inherent in these ventures limit their ability to
raise the necessary capital resulting in a capital-gap. The most common
approach states use to fill this gap is through direct investment in venture
oriented limited partnership and by capitalizing new funds dedicated to
directing investment to entrepreneurs within their states.

B) Providing technical assistance

Many of the entrepreneurs are technologists and are not trained in finance and
marketing. Entrepreneurs must understand how industry operates, what
investors look for when reviewing a business plan and the general terms and
conditions required by firms to take a stake in a growing economy.

Regional as well as national states should provide technical assistance to

entrepreneurs through different venues, including small business development
centers, state economic development agencies, technology development
corporations, trade shows and visits.

C) Improving state regulatory and licensing environments

States should streamline procedures for licensing and registration and steps
should be taken to streamline the overall burden on businesses. One way
states can simplify this is through one-stop business registration and licensing
centers located in a convenient areas across a state and serve as a point of
contact for entrepreneurs and the state regulatory agencies.

D) Setting legal property right structures and recognizing entrepreneurial

achievement

Institutions evolve in market economies to help individuals and groups

accomplish their goals. Banks, labor unions, corporations, legal systems, and
not-for-profit organizations are examples of important institutions. A different
kind of institution, clearly defined and well enforced property rights, is
essential to a market economy.

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Property rights, contract enforcement, standards for weights and measures,
and liability rules affect incentives for people to produce and exchange goods
and services. Property rights and the rule of law are the essential foundation
for economic progress and reductions in poverty. From the natural right of
individuals to the fruits of their own labor to the ordinary expectation that the
security of people’s homes, businesses, and possessions will be enforced, the
capitalist institution of private property creates conditions conducive for
resource owners and producers and to economic growth and generates
incentives that make growth likely to occur. Throughout developing countries,
lack of secure property rights founded on the rule of law denies the poor access
to wealth-generating capital, robbing them of initiative and hope.

Many developing countries’ governmental and non-governmental organizations

sponsor events or programs that recognize the contributions entrepreneurs
make to state or/and national economies. In the US states organize different
awards ‘entrepreneur of the year’, ‘innovation fairs’, ‘young entrepreneurs
conferences’ etc., which ultimately creates sense of entrepreneurship,
encourage investment, and build private-public partnerships for regional as
well as national development.

E) Building intellectual and entrepreneurial capacity

Development history of rich countries clearly shows that educational and

training institutions are more than an asset for producing a skilled workforce
they also are important economic development tools where human capital and
relevant research is augmented. States have to provide generous funding
support for these institutions and their research and development activities
and thus they can continue to produce quality development agents and
innovate new scientific products for regional development. Encouraging greater
collaborative partnerships between research and training institutions and the
private sector especially in technology transfer is important for
commercialization of the new technologies. Entrepreneurship education
teaches individuals the skills to succeed as entrepreneurs. An essential

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component is providing students with the awareness that entrepreneurship
can be one of many options to pursue as a carrier choice. States should
increase funding for a variety of education programs targeted at developing
curriculum that includes entrepreneurship.

F) Creating industry clusters

Clustering firms in related industries is important for entrepreneurs for several

reasons. Clustering allows firms to develop a high degree of specializations.
This allows entrepreneurs to create products, services, and management
systems for firms and industries. The proximity of so many firms facilitates the
flow of ideas through formal and informal channels and creates a kind of
spillover effect from employees moving from firm to firm and between firms of
the same industry and among industries thus enabling sharing of ideals and
enhancing entrepreneurial capacity.

8.8. Investment in Economic Infrastructure

Infrastructure refers to the underlying amount of physical and financial capital

embodied in roads, railways, airways, and other forms of transportation and
communication plus water supplies, financial institutions, electricity and
public services such as health and education.

The term economic infrastructure can be used to denote the complementary

facilities which a society needs and possess to enable individuals,
organizations, businesses, and enterprises to carry out their activities.

Economic infrastructure includes transport and communication, power, water,

drainage, irrigation etc. Social infrastructure includes education, health
services, housing, amenities and recreation. Administrative infrastructure
includes the legal framework and the apparatus for law enforcement,
administrative control and coordination. Each form of infrastructure can serve
a wide variety of purposes.

Economic infrastructures are needed to facilitate production and exchange of

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resource and goods and services.

Social infrastructure is also needed to produce healthy and productive citizens,

and provide vocational training for industry.

The administrative infrastructure is needed to harmonize further all types of

activities in a country. The supply of infrastructure is thus largely provided by
local, regional, and federal governments on collective rather than individual
bases to create enabling socio-economic environment for citizens, firms and the
society at large.

Linkages between Infrastructure and Economic Development

Infrastructure can be linked to economic development in three ways, namely

through the supply side; the demand side; and the redistribution of
economic activities.

A) Supply side linkage: this is when infrastructure enters directly the

production function of business firms (for example electric, water).
Infrastructure also affects output through the supply side when it makes other
inputs to be easily available and to be more productive. For example a good
road facilitates the movement of labor to their work and communication
facilities create formal and informal communication network thus make labor
more productive. As available infrastructure permits existing or new firms in an
area to produce more and then ultimately residents and owners of firms reap
higher incomes.

B) Demand side linkage: The demand side linkage of infrastructure occurs in

two ways: One is economic development occurs because of wage and non-wage
expenditure of households employed in the construction process of
infrastructure. The second is new infrastructure may be demanded because of
higher incomes of the society or rising incomes in expanding firms. This implies
that high income and economic development induces demand for
infrastructure that reinforces employment and spending.

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Firms and new investments are attracted by supply side advantage of a
location with the standard infrastructure necessary to establish and run a
business. This consequently improves employment and income generation of
the localities and ultimately quality of life of the people.

C) Redistribution of economic activity: Public infrastructure may

redistribute economic activities between rural and urban and intra-urban and
intra-rural places by the relocation of firms to take advantage of rents or less
congested public infrastructure. This is because firms locate if they think they
can gain from supply and demand linkages of availability of infrastructure.
They may also relocate if a new infrastructure permits firms to consider
investment opportunities previously untapped due to lack of infrastructure. For
example improved highway to a rural community may motivate a firm to move
form an urban location to rural areas because of wage cost advantage or lower
congestion, the benefit of which was formerly offset by transportation cost. This
process therefore directs (distributes) economic activities across geographical
spaces for harmonious and balanced distribution of economic activities and
regional growth.

Infrastructure and Economic Development

Provision of efficient and reliable infrastructure services provides the

environment for productive activities to take place and facilitates the
generation of economic growth. In the absence of power, water, transport and
communication, production process or locational advantage may not be
optimized. The availability of an efficient infrastructure network can stimulate
new investment in other different sectors. By efficiently moving resource and
goods and services to where they can be used most effectively, transport adds
value and spurs growth. Efficient infrastructure development is also necessary
if the national economy is to be integrated and forward and backward economic
linkages are to be established thus benefits of economic growth are to spread
throughout the country.

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At the macroeconomic level, the evidence shows that there is a strong
association between infrastructure development and growth of real GDP and
that investment in infrastructure has a high return. One of the established
patterns of association is that as national income grows, the share of
infrastructure in GDP rises.

Infrastructure and global competitiveness

Infrastructure services such as transport and import-export serving facilities

such as ports, airport, and communication providing faster, safer and more
reliable movement of goods in order to make it possible for more trade to take
place and specialization to occur. Further increase in specialization and
efficiency gains can be constrained by the availability and quality of
infrastructure. Infrastructure can play a role in extending the market size for
input and output thus maximizing the gains from comparative advantage and
scale economies in production. Thus transport allows trade to take place on a
large scale allowing for improved specialization and improved productivity.
Then, by expanding infrastructure provision, regions can be competitive in the
global market for goods and resources and specialize and trade in the
production and supply of products to which they are comparatively endowed
and thus diversify opportunities and raise the well-being of their societies.

Infrastructure and Poverty Reduction

There are two ways by which new or improved infrastructure activity can help
reduce poverty. First there is a direct link between infrastructure and economic
growth. A higher rate of economic growth is essential for substantial reduction
in the numbers living in poverty. However at any given growth rates, the
reduction of poverty can be accelerated by ensuring that the growth that takes
place is pro-poor. The second link between infrastructure and poverty
reduction arises through the contribution of infrastructure to the process of
pro-poor growth. The poor usually have inadequate access to infrastructure
services such as clean water, sanitation and transportation and

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communication which are considered as important indicators of poverty. These
limit their access to another set of economic and social needs namely health
services, education facilities, food and markets which are indicators of poverty
such as life expectancy, literacy, income and nutrition. Then, infrastructure
services are purely linked to poverty reduction since it facilitates access of the
poor to economic and employment opportunities and to some basic resource
and goods and services.

Policy Issues in Infrastructure

There is several policy issues related to infrastructure. The first policy issue is
regarding the ownership and provision of infrastructure. Generally there is an
agreement that the market, especially in developing countries, cannot be
efficient in allocation of resource towards infrastructure provision. But today
there are four ownership options and provision structures of infrastructure
that are observed in the world.

These are:

1. Public ownership and public operation

2. Public ownership with private operation

3. Private ownership with private operation

4. Community and user provision, for example rural travel roads,

community water supply

The other policy issue is related to operational efficiencies. Inefficient

performance in infrastructure results in output lost in delivery. A good example
is unaccounted for water or loss of electricity in transmission and distribution
network. Inefficient use of labor in infrastructure such as overstaffing also
needs to be overcome. The other policy issue is the issue of maintenance. One
of the reasons for operating inefficiencies is caused mainly by lack of timely
and appropriate maintenance. Roads deteriorate, irrigation canals leak, water
pumps break, sanitation system overflow, installed phone lines fall etc. For

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achieving fast economic progress and reducing poverty available infrastructure
need to be maintained regularly.

Private sector participation in infrastructure investment, ownership and

operation brings efficiency in resource utilization for diverse provision of the
service. The different modalities for private sector participation in
infrastructure include: corporatization, leasing, build-operate transfer (BOT),
Build-own-operate (BOO) and de-monopolization and new entry. Under these
modalities the government delegates the private sector the rights to participate
in infrastructure provision and operation, yet retains some control over the
sector by setting its terms and conditions in contractual agreement

Though the involvement of the private sector is desirable, in some cases private
provision may not be forthcoming. For example the provision of rural
infrastructure may not be very attractive to the private sector and this will
require state responsibility and grassroots local community participation.
Moreover in some situations infrastructure involves public goods of a localized
nature such as feeder roads or rural irrigation schemes, which can be more
effective with local participation that creates sense of ownership and proper
administration. The private sector also neglects the environmental impacts of
infrastructure provision implying environmental deterioration and degradation.

Participation in infrastructure construction, management and maintenance by

the local community constitutes a major component of a successful
infrastructure policy. Projects planned and executed by central authorities with
no input from local beneficiaries have a high probability of failure and are not
well maintained. Local participation ensures not only efficiency but also
inculcates community ownership of projects and ensures transparency and
accountability in project planning and implementation.

An effective way to involve the local community is to support for decentralized

planning and local participation by giving local autonomy and devolving
decision making. Transferring central resources allocated to infrastructures

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and programs in education, health, welfare and poverty reduction to local
bodies to administer manage can facilitate greater autonomy at the local level.

8.9. Cluster Based Economic Development Strategies/Regional

Industrial Policy

Industry clusters have become one of the popular concepts in local and
regional development research and practice. An industry clusters may be
defined very generally as a group of business enterprises and non-business
organizations for which location within the group is an important element of
each firm for maximizing agglomerative economies and complementarity
(Bergman and Fraser).

Non-business organizations may include associations, technical and

community institutions with specialized industry programs, universities, and
government service providers. Such industries are frequently defined in the
cluster literature as 'related and supporting institutions'. They are often critical
elements in the success of the cluster. What binds the cluster together are
‘buyer-seller’ relationship, common technologies, common buyers or
distribution channels or common labor pool.

Industry clusters may be more or less geographically concentrated. Regional

industry clusters are industry clusters that are concentrated geographically
within a region that constitutes diverse activities in varying respects to
establish competitive industrial districts, business network, industrial complex
and innovative milieu.

Private and public industries in the cluster compete for resources and
intermediate input from suppliers in the value chain. Such industries also
compete for service, sources of Research & Development as innovation sources,
capital, and labor. Competition, according to the market principle, leads to
efficiency in resource allocation and the pricing of resources and goods and
services. Competition is important since it induces pressure on firms and
industries to continually upgrade their production processes and techniques

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and to seek new opportunities for cost-effectiveness. Competition also provides
opportunities for cooperation in solving joint problems or addressing industry-
wide issues. Thus the success of an individual company can be traced to the
size, depth and nature of the cluster or of related and supporting industries

Thus the above discussion implies that there are external economies,
innovative environment, cooperative conditions, and path dependence that lead
to overall regional growth. The idea that clusters can foster links between
different segments of a local economy has had much appeal to regions with a
strong tradition in attracting investment. Increasingly, in such regions, there is
a continuous process of fostering inter-firm supplies, creating mechanisms for
inter-firm learning and encouraging the involvement of scientific and innovative
management of firms, industries and institutions.

Cluster strategies have thus been introduced as a form of investment attraction

policies and a way of integrating policies especially targeted on cluster of Small
and Micro Enterprises. In many cases targeted industries are those with high
level of attracting foreign investment or those assumed to have a high
endogenous regional growth potential. Then, cluster targeting has become the
major policy preoccupation for regional growth both in developing and
developed countries.

Question for Review and Discussion

Attempt the following questions. Write your answer in your own words. Do not
copy directly from the module.

1. List and discuss the impact of excessive rural-urban migration on both

urban economies. What should government do in order to minimize the
problems?

2. Explain the important local and regional development strategies and

policies that developing countries need to adopt for sustainable and long
term development and social welfare.

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 3. List and discuss strategies for state and community action to expand
local and regional investment opportunities.

4. What is the implication of human capital theory for local economic

development?(Discuss)

5. State the important aspects of entrepreneurship that can be nurtured by

effective state policies.

6. Explain the linkages between infrastructure and local/regional economic

development. Discuss the policy issues in infrastructure at regional
level.

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