MULTI-LEVEL, MULTI-ACTOR MODEL OF LOCAL ECONOMIC DEVELOPMENT: NEW DIRECTIONS FOR RESEARCH

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MULTI-LEVEL, MULTI-ACTOR MODEL

OF LOCAL ECONOMIC DEVELOPMENT:

NEW DIRECTIONS FOR RESEARCH

A Literature Review

MSc International Business & Management

University of Groningen

Author:

Konstantin Theodoridis

Student No.

S2846853

Faculty:

Faculty of Economics and Business

Supervisor:

Dr. B.J.W. (Bartjan) Pennink

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II

Preface

My interest in Local Economic Development first started during my MSc in International Business and Management at the University of Groningen. The courses I chose, made me realize that Economic Development is an interesting and worthy research area. The fact that this was a relatively new research area to me also increased my interest on researching it. Due to this, and with the help of Dr. B.J.W. (Bartjan) Pennink, I decided to focus on my master thesis on this topic. The ‘Multi-Level, Multi-Actor Model for Local Economic Development’ centered my interest for research, since it incorporates many dimensions related to local economic development.

I would like to express my gratitude to my supervisor Dr. B.J.W. (Bartjan) Pennink for his useful comments, and his engagement through the learning process of this master thesis. In addition, I would like to thank him for introducing me to the topic of Local Economic Development.

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III

Introduction

According to The World Bank (2011), the purpose of Local Economic Development (LED) is “to build up the economic capacity of a local area to improve its economic future and the quality of life for all. It is a process by which public, business and nongovernmental sector partners work collectively to create better conditions for economic growth and employment generation.”

Although this definition clearly defines the purpose of LED, it does not incorporate all actors and processes that influence its outcomes. Subsequently, the question that arises here is how is LED stimulated, and which actors play a role in this process? Researchers have focused mainly on finding ways and means through which local economic development can be stimulated, without taking into account the different contexts and levels in which each development intervention is made. For example, the economic development interventions that are needed in developed countries such as the Netherlands differ to a great extent from those needed in developing countries such as Nigeria. Furthermore, inter-country variations have also to be taken into account when making economic development interventions, since the needs of each region or locality can differ extensively. These observed differences are mainly related to the different socioeconomic environment of countries or regions, and in this paper I will focus on examining in more detail which actors and processes are influencing local economic development, and how.

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2 empowerment and institutions 6) Collaboration 7) Empowerment 8) Role of outside actors 9) Leadership Function 10) Institutions 11) Entrepreneurial activities 12) Link between human coordination and empowerment 13) Link between human coordination and entrepreneurial activities 14) Link between human coordination and institutions.

Figure 1: Multi-level, Multi-actor Model of Local Economic Development Source: http://bjwpennink.wix.com/ledmodel#!model/cjg9

Throughout this thesis, the actors and the processes through which Local Economic Development is stimulated, as well as their linkages will be described and examined in detail.

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1. Quality of the regional situation

Assessing the quality of the regional situation is a difficult process that requires a lot of time and a vast amount of information. The first, and simultaneously biggest challenge researchers and policy-makers face is to find what exactly determines the quality of the economic situation in a locality, region or nation. In this chapter, the challenge of assessing the regional economic situation will be addressed. First, a set of definitions related to the economic situation in a region will be introduced. Second, the determinants of the quality of the regional situation will be examined. Third, the connection between the quality of the regional situation and economic development will be explored.

Definition

In order to develop a region, the first step is to assess its potentials. The term potentials refers to ‘a source of opportunities, resources, stock, which can be activated, used to solve a problem or achieve a certain goal; capabilities of the individual, society and state in a particular field’ (Cheymetova, 2014). This includes not only the quantitative economic indicators, but also qualitative characteristics that influence the potentials of a region.

Bashka et al. (2001) defined the Socio-economic potential of a region as a ‘potential of the region with the use of the whole complex of its resources, the use of the features of the existing and future structure of the economy, geographical location to act in order to improve the quality of life’.

The Centre for European Economic Research (2014) offered a broader definition regarding the quality of the regional situation, by defining it as the ‘existing conditions in the region in terms of prosperity and competitiveness from a broad socioeconomic perspective’.

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5 specifically the author argues that an ex-ante evaluation provides the relevant authorities with ‘a prior judgment on whether development issues have been diagnosed correctly, whether the strategy and objectives proposed are relevant, whether there is incoherence in relation to Community policies and guidelines, whether the expected impacts are realistic, and so on’.

Ex-ante evaluation of the quality of the regional situation, is also the goal of the Multi-Level, Multi-Actor Model of Local Economic Development.

To sum up, despite the fact that the quality of the regional situation has not been defined explicitly so far, the interest among researchers and policymakers to find a universally accepted definition has increased over the last years. A starting point in defining the current situation of a region is the fact that most definitions include the term potentials.

Determinants of the quality of the regional situation

As stated by the World Bank (2004), a thorough local economy assessment provides the foundation for successful LED strategy development. So far, the factors and determinants that have to be taken into account when assessing the quality of the regional situation have been scarcely investigated. At this point, five assessment frameworks will be introduced, each of which contains a different list of factors and indicators of the current situation in a region. The first was introduced by Mulder & Pennink (2015), and focuses on the assessment of the regional situation during or after a humanitarian crisis. The second was introduced by Cheymetova & Nazmutdinova (2015), and focuses on the assessment of the socio-economic potentials of a region. The third was introduced by Viturka (2014) and focuses on the evaluation of the business environment quality in a region (BEQ). Fourth, an assessment model by the Centre for European Economic Research (2014) will be introduced, which focuses on the assessment of the existing conditions in a region, in terms of prosperity and competitiveness from a broad socioeconomic perspective. Last but not least, the World Bank’s Local Economy Assessment Model will be examined.

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6 economic development process and its outcomes. These regional dimensions related to economic development are: 1) Poverty 2) Accessibility of basic goods 3) Employment 4) Transportation infrastructure 5) Small businesses 6) Currency 7) Innovation capacity 8) Energy efficiency 9) Large businesses 10) Financial Institutions. In order to assess the regions current situation, the authors compiled a list of indicators, which have to be evaluated with a score from 1 to 10, with 1 being the lowest score and 10 the highest: 1) Small businesses and entrepreneurship 2) Employment rates 3) The presence or absence of poverty 4) The state of transportation infrastructure 5) Currency/basis of trade 6) Energy efficiency 7) Innovation capacity 8) Large businesses 9) Number, professionalism and stability of financial institutions.

Similarly, Cheymetova & Nazmutdinova (2015) introduced a theoretical framework to assess the socio-economic potentials of a region. The authors developed the framework based on the work of Baksha et al. (2001), who divided the resource potentials for economic development and the willingness of the process into three blocks.

As it can be seen in figure 1, the first block includes resource potentials, which can be seen as opportunities for the economic development of the region. The components of the first block are:

1) The availability of natural resources

2) Economic and geographical characteristics as for example the climatic zone of the region

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7 Figure 1. Structurizing of socio-economic potential of the region

Source: Cheymetova & Nazmutdinova (2015)

The second block includes potentials, which can ensure or enable the economic development in a region. The components of the second block are:

1) Labor potentials, refer to the regions human resource effectiveness. 2) Industry potentials, refer to the regions production potentials.

3) Social and Infrastructural potentials, refer to the conditions and the quality of life of the population.

4) Market Infrastructure potentials, refer to the formation and development of entrepreneurship in the region.

5) Investment potentials refer to the presence or absence of investments in the region.

6) Budget and Finance potentials refer to the fiscal and financial capacity of the region.

The third block includes potentials of the readiness to the economic development of the region. The potentials in this group are closely related to the population’s willingness and openness to the economic development of the region. More specifically, the components of the third block are:

1) Socio-economic readiness 2) Regulatory preparedness

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8 Viturka (2014) on the other hand, created a framework for evaluating the business environment quality (BEQ). Despite the fact that this framework is not actually focusing on the economic development of a region, the examination of how companies choose their location can lead to fruitful insights about what really maters in a regional environment. The factors that are assessed in this framework were found to be important for big companies regarding their location decision, which also reveals the link to economic development. The factors were divided into three groups, depending on their importance. The most important factors are: 1) Entrepreneurial and Knowledge base 2) Availability of labor forces 3) Proximity to markets 4) Concentration of significant companies 5) Quality of labor forces. The medium important factors are: 1) Real estate price 2) Road and railway quality 3) Price of labor 4) Information and communication technology 5) Supporting services 6) Urban and natural attractiveness. The less important factors are: 1) Presence of foreign companies 2) Environmental quality 3) Assistance of public administration 4) Proximity of International Airport 5) Flexibility of labor forces. It can be argued that the BEQ framework provides information about several factors influencing the development of regions. In particular, the development potentials of a region, and more specifically its strengths, weaknesses, opportunities and threats can be diagnosed.

The fourth framework introduced in this chapter, was developed by the Centre for European Economic Research (2014). The framework was created for the assessment of the existing conditions in the Danube Region in terms of prosperity and competitiveness from a broad socioeconomic perspective. Three pillars were used in the assessment, each of which contained four indicators, and for each indicator the potential opportunities, challenges and needs were evaluated. The pillars and their indicators are:

1. Prosperity and competitiveness a. Macroeconomic performance b. Indicators of competitiveness c. Labor markets and migration

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9 a. SME growth

b. SME financing

c. Regulation and institutions d. Development of clusters 3. Cooperation and networks

a. Stocktaking of existing networks and initiatives

b. International financing institutions, development aid and participation in EU programs

c. Progress in competitiveness initiatives

d. Recommendations for improving cooperation

The last model, and probably the most significant, is the one from the World Bank. The assessment model was developed for collecting strategically important information regarding the regional economy, which can be used in the development of a LED Strategy. More specifically, the model includes the following five categories of indicators:

1. Demographic information

Information about the people in the community, what they need and what they are capable of.

2. Economic information

This information will provide an understanding of the local economy. 3. Investment climate information

This will inform on how the local government treats its business community. 4. Hard Infrastructure information

This will inform about the status of water, electricity and wastewater provision. The focus should be on economic areas.

5. Regional and National information

To gather information on what is happening in other areas that impact the community.

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10 To sum up, several frameworks and models have been developed over the last decades, all of which can be a useful source to assess the quality of the regional situation in the Local Economic Development Process. The question that has to be addressed is whether one of those frameworks is suitable for all regions, or whether each region needs its own, specialized assessment plan. From an economic development perspective, each of the above-examined frameworks can reveal important information about the regional situation. The resources available during the assessment process enable or constrain the usage of these frameworks, since the required time to compile them differs significantly.

Quality of the regional situation and economic development

As already stated in the beginning of this chapter, the current situation of a region has to be taken strongly into account, when compiling a regional economic development plan. As Ascani et al. (2012) stated, regional economic development theories highlight that development potential and competitive advantage are strongly localized elements. Thus, the distinctive characteristics of each region influence the economic development process. The current way of living in developing regions, their openness and readiness to changes, entry conditions for businesses, economic imbalances, technology transfers, and government and logistic uncertainties are just some of the characteristics which have to be taken into account. In order to take those characteristics into account, five frameworks were examined, each of which contains several determinants of the regional situation. Despite the fact that each of the frameworks was created for a different purpose, a combination of them would be most appropriate to fully assess the current situation in a region.

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11 To conclude, in this chapter several frameworks were introduced that can be used to assess the quality of the regional situation. Although none was found to be superior, these Frameworks can be used in the Multi-Level, Multi-Actor Model of Local Economic Development in order to assess the quality of the regional situation.

Realized Research Projects

Baars, Combining

Technology Transfer with Technology Push

This research aims to develop a framework containing technical requirements to make technology transfer in a technology push situation possible. Several requirements of the projects are met (requirements of material transfer and capacity transfer). Motivation & willingness to change and the bio diesel needs are limited in the Biodiesel project in Indonesia. The use of rubber as a source material is open to further investigation. Overall, it is doubtful that with a transfer of this technology towards this application area, any significant LED can be reached.

Bekkering, Local economic development at the bottom of the pyramid

This study describes the Bottom of the Pyramid (BoP) living in these cities. In doing so, it shows what the size of this group is, where they are living, how they are economically active and on what income they live. Moreover, it aims to provide an estimation of the developments of the BoP in the past five years. Secondly, this research focuses on local governments and affiliated organizations, and their role in stimulating LED in their cities.

Boon, Introducing Management Control in Local Economic

Development

In this research, it is suggested that for new local economic development projects, it should be understood if the local market (people) desires any changes to the current situation. In the case of interest, capital is to be supplied. Management Control (internal), Confidence and Transparency are important factors to focus on.

Pieter Bot, Uncertainties in the Bidirectional Biodiesel Supply Chain

The quality of the regional situation negatively influences uncertainty, of which governmental uncertainty, transportation & logistics uncertainty and raw material & supply uncertainty have the most (negative) impact on local economic development.

Mulder, Measuring an economy's state: a quick scan model on three geographical levels. A Tanzanian case study

The main objective of this thesis is to test the applicability of a quick scan model measuring economic development. The method used in doing so is a case study in which Tanzania’s economy is mapped on three geographical levels using said model. The data for this case study were obtained through interviewing a varied group of 17 respondents on site in Tanzania. Their input provided a detailed, useful and accessible overview of Tanzania’s economy on all levels. It is thus concluded that the model functions well, has a broad applicability and can be used with ease by the target group. Van den Ban, How to

analyze business sectors in emerging markets: A new framework applied to the retail sector in Vietnam

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the lack of quality retail space in HCMC and Hanoi, and high rental costs are important threats to succeed in Vietnam. Finally, collaborative entry strategy (JV or acquisition) is recommended rather than an independent entry strategy (greenfield investment).

Van den Berg, The Influence of Financial Markets,

Telecommunications and Culture on success of M-Pesa

This paper investigates which specific factors contributed to the success of mobile payment system M-Pesa in Kenya. Central aspects are the financial and telecommunication industry, cultural and lifestyle characteristics, and the position of the players. The methods to gather data are 40 questionnaires with agents, 91 structured interviews, 3 in-depth interviews and desk research. The combination of these factors results in the success story called M-Pesa. Li Zhang, The Research of

Regional and Local Economic Development in Intraprovincial Inequality

Local Economic Development is also about imbalance within a region or country, and how to reduce this imbalance. Several things are important for this. First of all, both national and local government should introduce a policy which reduces the imbalance and create coordinated economic and development. This can be done via preferential treatments, tariffs etc. Secondly, infrastructure should be improved in order to improve the quality of the regional and local community. Third, education should be improved in order to increase innovation and thus local economic development. Lastly, sustainable development should be more enhanced which can be done by the national and regional government or by local leaders.

De Jong, The Influence of Chinese Firms and Immigrants on the Local Economic Development

Chinese immigrants/ entrepreneurs bring new resources and capabilities, create jobs, and stimulate business and development (through spillover effects). Overall positive influence, however ethnic tension can influence cooperation and well-being. The short-term relationship is positive however impact of the long-term presence of China is still to be questioned.

Future Research Suggestions

Future Research should focus on defining what exactly the quality of the regional situation is, and on finding the most relevant quantitative and qualitative indicators that can be used to assess it. Furthermore, closely related to the Multi-Level, Multi-Actor Model of Local Economic Development, researchers could focus on addressing how the quality of the regional situation influences the Local Economic Development process and its outcomes, and how the quality of the regional situation influences other domains of the Model.

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13 conducting case studies on regions that want to develop an action plan for local economic development.

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2. Competitiveness of the region

In this chapter a review of the previous literature regarding regional competitiveness will be compiled. Increasing a regions competitiveness is one of the main goals of the Multi-Level, Multi-Actor Model of Local Economic Development. First, several definitions of competitiveness and regional competitiveness will be explored. Second, an explanation will be given why the regional instead of the national competitiveness is the main focus. Third, the factors that influence the competitiveness of a region will be examined.

Before defining Regional Competitiveness, it is wise to define the term Competitiveness in general. The World Economic Forum’s Global Competitiveness Report (2012) defines competitiveness as “the set of institutions, policies, and factors that determine the level of productivity of a country.” This definition clearly links competitiveness to productivity, which is in line with Porter’s (1992) statement that ‘the only meaningful concept of competitiveness is productivity’. Porter, elucidated his statement by arguing that the competitiveness of a region depends mainly on the productivity of its firms, whether they are domestic firms or subsidiaries of foreign firms. A similar but broader definition was provided by IMD’s World Competitiveness Yearbook (2012) which defines competitiveness as how an “economy manages the totality of its resources and competencies to increase the prosperity of its population.”

At this point it is important to shift the attention towards regional competitiveness, which according to the UK Department of Trade and Industry (2002) ‘describes the ability of regions to generate income and maintain employment levels in the face of domestic and international competition’.

A more specific definition regarding the competitiveness of places - localities, regions and nations - is given by Malecki (2000), who defines it as the ability of the local economy and society to provide an increasing standard of living for its inhabitants.

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15 firms with stable or rising market shares in an activity while maintaining or increasing standards of living for those who participate in it.”

Similarly, the European Commission (1996) defined regional competitiveness as follows:

The ability to produce good and services which meet the test of international markets, whilst at the same time maintaining high and sustainable levels of income, or more generally, the ability of (regions) to generate, while being exposed to external competition, relatively high income and employment levels. In other words, for a region to be competitive it is important to ensure both quality and quantity of jobs.

This definition is the most suitable to use in this paper, since it focuses more on the aspects of local economic development by addressing the income and employment levels.

Regional vs. National Competitiveness

It seems reasonable to ask why the focus lays on the regional instead of the national competitiveness, and what the differences between regional and national competitiveness are. As Cellini and Soci (2002) argue, regional competitiveness is neither macro- (national) nor micro-economic (firm-based). Furthermore, regional competitiveness is not the same as a firms’ competitiveness or a scaled-down nations competitiveness. Competitiveness can be categorized as macro level (the competitiveness of a nation), the micro level (the competitiveness of a firm) and the meso level (the competitiveness of a regional economic system).

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16 The fact that the regions seem to separate from the national economy more and more was highlighted also by Malecki (2002), who argues that nowadays the development of the national economy depends heavily on the economy of its regions and cities as successful ’regional motors’ and not vice versa. In short, a regions economic development fosters the nations economic development and not the other way round.

This also gives us a good chance to underpin the importance of regional competitiveness in the Multi-Level, Multi-Actor Model of Local Economic Development. The importance of regional competitiveness lays in its results. A competitive region improves its welfare (living standards), increases its employment and income, new investments take place, talented young people and successful businessmen move there, etc. (Camagni 2002, Malecki 2004). Furthermore, the competitiveness of a region is also one of the main drivers for increasing the quality of the regional situation, which was examined in detail in Chapter 1.

Porter (1995) argues that every location – whether it is a nation, region, or a city – has a set of unique local conditions that underpin the ability of companies based there to compete in a particular field. If connected to the Local Economic Development concept, this highlights the importance of finding the set of unique conditions in the region.

Regional Clusters

A concept which is closely related to regional competitiveness are regional clusters. Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions (e.g., universities, standards agencies, trade associations) in a particular field that compete but also cooperate (Porter, 2000). Isolated Companies usually do not influence the competitiveness of a region, but on the other hand, when a cluster or group of companies exists then regional competitiveness is fostered (Porter, 1995).

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17 development.

This means that if a region focuses on creating clusters, these clusters will also foster Local Economic Development. Clusters create new capabilities, new companies and new industries, improve companies’ operational efficiency, foster innovation and tacit knowledge diffusion, and accelerate social capital formation.

Influencing Factors

Next, we will examine the factors that influence the competitiveness of a region. As it can be seen on Pennink’s (2014) multi-level, multi-actor model for Local Economic Development, the competitiveness of a region is influenced by the Entrepreneurial Activities in the Region, the Institutional Environment, and lastly the Leadership Function. The Leadership function encompasses entrepreneurship, and in the case of Regional Economic Development it refers to the collective actions of a society or a group of people which aim to increase the entrepreneurial activity.

Figure 1. Determinants of Regional Competitive Advantage Source: Porter, 1990

In one of the most influential papers on competitiveness, Porter (1990) introduced the Diamond Model, which consists of four broad attributes of a nation which influence its competitiveness (Fig. 1). Despite the fact that Porter introduced it as a Model for a nations competitiveness, the Diamond Model can be also applied in the case of regions (Lengyel 2003). The attributes which influence the regional competitiveness are:

• Factor Conditions

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18 • Demand Conditions

The nature of home-market demand for the industry’s product or service. • Related and Supporting Industries

The presence or absence in the region of supplier industries and other related industries that are internationally competitive.

• Firm Strategy, Structure, and Rivalry

The conditions in the region governing how companies are created, organized, and managed, as well as the nature of domestic rivalry.

The Diamond model allows analyzing why some regions are more competitive than others are, and why some industries within regions are more competitive than others.

Lengyel (2004) also examined the factors that influence regional competitiveness, and introduced the pyramid model of regional competitiveness (Figure 2). He argues that the goal of being competitive as a region is to advance the quality of life and the standard of living. In order to achieve this Lengyel (2004) created the pyramid model which consists of three levels. The first level consists of the ‘basic categories’ of regional competitiveness which measure the competitiveness of the region, and include the labour productivity, the employment rate, and the regions performance which can also be seen as the Gross Regional Product. The second level consists of the Development factors which directly influence the previously introduced ‘basic categories’ of regional competitiveness. These factors influence the regions competitiveness directly but on a short-term, since they do not focus on deeply transforming the regions situation, but more on making the first steps towards a competitive region. The ‘development factors’ are research and technological development, Infrastructure and human capital, foreign direct investments, small and medium sized enterprises, Institutions and social capital. The last level consists of the ‘Success determinants’, and focuses on the regional economic and social structure, the innovative activities, the decision centers, the regional accessibility, the environment, the regional identity, and the skills of the work force.

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19 strategies to increase the competitiveness.

Figure 2. The pyramid model of regional competitiveness Source: Lengyel (2004)

The neofordist region refers to an underdeveloped region in which the economy is typically in the factor-driven phase. The regions classified as neofordist should focus on developing their technical infrastructures and on attracting new Investors by lowering the taxes and wages. Knowledge transfer regions are usually medium developed and their most important goal is to continue the structural change by keeping existing companies and creating work places with higher added value. In Knowledge transfer regions, most of the development factors of the pyramid model are developed. Knowledge creation regions are characterized by high economic output, and these regions are in the innovation-driven phase. The development factors in these regions are fully developed and the success determinants are also mostly fulfilled.

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20 Martin R. (2005) analyzed the above listed reports and research results, and selected seven key factors. These factors are:

1. Clusters

2. Demography, migration and place 3. Enterprise milieu and networks 4. Governance and institutional capacity 5. Industrial structure

6. Innovation / Regional Innovation Systems 7. Ownership.

To sum up, over the last decades several factors and drivers of regional competitiveness have been pointed out, but future research is needed to clarify the importance of each.

How to become competitive

Malecki E. (2004) argues that there are two different types of regional competition, namely low-road and high-road competition. Low-road competition among regions can be seen as a race-to-the-bottom in order to attract scarce mobile investments. This can be achieved with low taxes, low wages, and manipulable labour. Despite its ineffectiveness on the long run, the low-road variety has not lost its popularity.

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21 region leads to the creation of a regional competitive advantage.

Bakker, Microfinance competition in Tanzania

As a result of competition, managers of Microfinance industries in Dares Salaam, Tanzania tend to focus on innovation of products and increasing the level of service in their company policy. However, competition did not affect management opinion on the level of target group risk, excluding poor customers from the target group, the relationship between the borrower and the lender, screening and monitoring investments and interest rate levels.

Frank

Dooijewaard, Collaborative strategy and institutional interference to stimulate innovation in regional economic development

Innovation and collaboration positively influence competitiveness of the region and regional economic development. The best innovation policy comes from a combination of a top-down and a bottom-up approach, where the national government, regional and local institutions and local actors come together. Creative ideas have to stem from within the region and only sometimes need institutional support and resources.

Renske van Leeuwen, Local Economic Development: An Investigation of Success Factors

If a local economic development program is a success depends on several factors. There are regional factors that are different for every program, and general success factors. The general success factors are active participation of local stakeholders, awareness creation, leadership, and collaboration between the public and private sector and involvement of local actors in the planning process.

Vredegoor, Endogenous variables and the influence they have on the

sustainability and

competitiveness of regional seaweed industries in Indonesia

The competitiveness of a region is an important factor of local economic development. However, in the existing model there is one variable missing which can influence a region’s competitiveness for the better; human coordination. Public and private companies, entrepreneurs, institutions and the community should all work together in regional/local economic development projects to get the greatest benefit out of it.

Future Research on regional competitiveness should focus on finding ways to increase the results and impact of interventions. More specifically, future research could focus on finding ways and means through which the competitiveness of a regional can be improved, while identifying and eliminating the threats to the regions competitiveness.

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22 studies on how the Leadership function, Entrepreneurship and Institutions influence the Competitiveness of a region, and how they interact with each other.

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3. Quality of the Local Community

Besides the quality of the regional situation, which was examined in detail in the first chapter, the quality of the local community also has a great influence on the local economic development process and its outcomes. More specifically, the quality of the local community will influence greatly the effectiveness and solidness of Local Economic Development interventions, and thus it can be seen as a crucial part of the Multi-Level, Multi-Actor Model of Local Economic Development. As Shaffer et al. (2006) stated ‘a community is a logical economic unit that can exert some control over its economic future’. Local stakeholders, the public and private sector, local actors, local leaders and entrepreneurs all play a crucial role in the economic development process. In this chapter, the relationship between the quality of the local community and economic development will be examined. First, several definitions of concepts that are closely related to the quality of the Local Community will be introduced. Second, the determinants regarding the quality of the local community will be examined. Third, the direct and indirect links between the quality of the local community and local economic development will be explored.

Definitions

Terms as Quality of Life, Community Well-being, Socioeconomic quality, sustainability, healthy-Community Indicators, and other community indicator models are all closely linked to the quality of the local community.

Before analyzing these concepts, it is wise to define what a community is. For this reason, we will use a definition by Mattessich and Monsey (2004), who defined a community as people ‘who live within a geographically defined area and who have social and psychological ties with each other and with the place where they live’. This definition encompasses both the spatial and the relational dimension of the community, since a community ‘is both a place and an experience of connectedness’ (McKnight & Block, 2010).

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24 broad sense the individual’s standard of living represented by verifiable conditions inherent in the given cultural unit’. Subjective quality of life on the other hand refers to “the degree to which the individual’s life is perceived to match some implicit or explicit internal standard or referent” (Evans, 1994).

Since the main focus area is the community and not individual residents within a community, Myers (1987) definition regarding the community’s quality of life will be introduced. The author argued that the community’s quality of life ‘is constructed of the shared characteristics residents experience in places (for example, air and water quality, traffic, or recreational opportunities), and the subjective evaluations residents make of those conditions’.

Fundamental to this, is the concept of Community well-being, which encompasses “the broad range of economic, social, environmental, cultural and governance goals and priorities identified as of greatest importance by a particular community, population group or society” (Cox et al., 2010)

Besides these two concepts, which are closely related to the quality of the local community, several other indicator frameworks and models exist, some of which will be introduced in the next section. In general, it can be argued that there is no accepted definition of what the quality of the local community exactly is, but in a broad sense it focuses on the community, which includes local stakeholders, the public and private sector, local actors, local leaders and entrepreneurs. Associated research has investigated how members from the community can contribute to local economic development.

Determinants of the local community quality

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25 indicators bind the community together towards a common goal is also the beauty of the whole concept.

According to the Office of Planning and Research (1977), a useful and complete community profile “should present a comprehensive view of the community and should contain information on housing, crime, health, education, income, employment, and other pertinent areas. It should also recognize that these social conditions are interrelated and should facilitate the use of information on social conditions in policy decision”.

At this point, some of the most accepted and useful frameworks regarding the quality of the local community will be examined. A brief definition and their used determinants will be introduced, before their main differences will be pointed out.

In general, Community Indicators are widely used by communities all over the world. Researchers and policy makers have shifted their attention from traditional community indicators, as for example the average income, housing starts, and high school graduation rates, to new indicators that more fully and accurately reflect the values and character of individual communities. This happened because communities started to realize that traditional community indicators may be important, but they do not necessarily align with the needs of its residents.

Healthy Communities

Healthy community projects help bridge the gap between government and citizens, they build important coalitions within communities, they attempt to draw attention to problems and negative trends before they become damaging to the community, and they share an overall commitment to community betterment (Besleme & Mullin, 1997).

Sustainability

According to the Sustainable Seattle Project (1995), sustainability can be defined as ‘long-term health and vitality – cultural, economic, environmental and social’. In comparison to the other frameworks, the sustainability indicators have a more ecological perspective.

Quality of Life

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26 of life concept and communities, by using several different approaches (Crider et al. 1991; Jeffres & Dobos, 1995; Rogerson et al., 1989; Liu, 1976).

One of the most accepted and comprehensive quality-of-life indicator lists, is the one from Liu (1976), which includes 123 factor and variables, which were measured through five different quality-of-life components to build an objective measure of quality of life. The five components are:

1) Economic

Individual economic well-being and community economic health 2) Political

Individual political activities, local government professionalism and performance, and welfare assistance

3) Environmental

Types of pollution such as air, water, noise, visual, and solid waste and types of natural environment such as climatological data and parks, trails, and recreational areas

4) Health and Education

Individual health, educational attainment, community educational investment and medical care provision

5) Social

Individual equality, individual concerns, level of community living conditions. Since then, Liu’s quality of life measurement method has been used extensively by cities and communities (Dissart & Deller, 2000).

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27 At a community level, Shin (1980) identified two dimensions of the capacity of a community to improve the well being of its citizens. The first dimension, termed ‘level of the quality of community life’ addresses the question of how much of citizen's needs are being satisfied. The second dimension, termed ‘distribution of the quality of community life’ addresses the question of whose needs and preferences are being met. This clearly points out the importance of improving as many as possible quality of life indicators, for as many community members as possible.

The differences and similarities between quality of life and community well-being have been investigated by many researchers so far. Galloway (2006), argued that some scholarly work, and the usage of the term quality of life, indicates that the terms quality of life and community well-being refer to the same concept. On the other hand, Lee & Kim (2015) argue that these concepts differ, because quality of life focuses on measuring the quality of social and economic factors in an objective manner, while community well-being focuses on both quantity and quality of its factors and incorporates both objective and subjective measurements. The authors Lee & Kim (2015) also argue that the concept of community well-being is more related to community economic development, than the concept of quality of life.

As far as the differences between quality of life, sustainability, and healthy communities are concerned, Swain (2002) argues that they differ mainly in what they measure. Sustainability projects tend to focus more on environmental measures, while healthy-community projects focus more on health issues. In contrast, quality of life projects tend to select a broadly defined and broadly balanced set of indicators.

Community Well-being Index

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28 Community Satisfaction

While the term ‘community satisfaction’ is closely related to the term ‘quality of life’, it reflects different notions. Brown (1993) stated that community satisfaction depends on the satisfaction with employment and income, reflecting thereby mainly personal economic perceptions. Goudy (1977) on the other hand, argues that community satisfaction is influenced more by social dimensions, rather than economic factors.

The concept of quality of life differs from the community satisfaction concept, because it is more general. As stated by Matarrita-Cascante (2010), quality of life reflects a broader condition in the totality of human life, while community satisfaction is concerned with an evaluative judgment of needs fulfilled within the community.

Besides these concepts, Mulder & Pennink (2015) also identified eight relevant dimensions about the quality of the local community. These are: 1) Small businesses and entrepreneurship 2) Employment rates 3) State of transportation infrastructure 4) The presence or absence of poverty 5) Currency/basis of trade 6) Energy efficiency 7) Innovation capacity 8) Accessibility of basic goods. Similar to the dimensions introduced in the first chapter, these dimensions focus more on the local than the regional level.

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29 For the Multi-Level, Multi-Actor Model of Local Economic Development it is crucial to determine the quality of the Local Community, since development interventions depend on the quality of the Local Community. Policy Makers and practitioners have to take the quality of the Local Community into account in order to create an effective intervention plan, and this can be done by using some of the frameworks presented in this chapter.

Quality of the Local Community and Economic Development

Community development is “a process of developing and enhancing the ability to act collectively and an outcome: (1) taking collective action and (2) the result of that action for improvement in a community in any or all realms: physical, environmental, cultural, social, political, economic, etc.” (Phillips & Pittman 2009).

Schaffer et al. (2006) argues that community economic development happens when the community members ‘analyze the economic conditions of their community, determining its economic needs and unfilled opportunities, deciding what can be done to improve economic conditions that community and then moving to achieve agreed upon economic goals and objectives’.

Phillips & Besser (2013) on the other hand, argue that community economic development is a ‘merging of aspects of the fields of community development and economic development, implying practice aimed at community betterment and economic improvement at the local level, preferably encompassing sustainable development approaches’.

Both definitions of community economic development indirectly point out that the quality of the local community is an important aspect in the development process. The definition provided by Schaffer et al. (2006) points out that an analysis of the economic conditions of the community has to be compiled, while the definition by Phillips & Besser (2013) refers to the quality of the local community indirectly, by proposing a sustainable development approach.

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30 who stated that ‘community indicators are unique in that when used as a system, they can support decision-making to foster improved community well-being’, which in turn fosters local economic development.

Phillips (2015) stressed out the importance of focusing on the local economy, since a locally focused economy connects the socially responsible enterprises and culturally competent businesses and organizations to stimulate a long-term development. This can be achieved by focusing on local or community ownership, which according to Phillips et al. (2013) is an essential condition for community prosperity. The author identified the following five reasons, why community ownership is crucial:

1. Locally-focused businesses are long-term wealth generators 2. Fewer destructive exits from a community’s economy 3. Higher Labor and Environmental Standards

4. Better chances of success 5. Higher economic multipliers

Furthermore, Phillips (2015) also introduced a framework that can help community residents and policy makers to stimulate strategic approaches for promoting community well-being. The framework consists of the following indicators: 1) Economic Indicators 2) Socially Responsive Business Indicators 3) Social Enterprise Indicators 4) Community Development Indicators 5) Supporting Policy Indicators.

Similarly, Swain (2002) introduced the ‘community improvement process’ model, in which he stated that the most important role indicators can play, are to ‘raise consciousness among citizens and decision makers, to reconfigure priorities among issues most deserving of community attention, and to shape the agenda for public consideration of action and allocation of resources’.

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31 Neighborhoods 3) Health care and supportive services 4) General retail and services 5) Social integration. It is argued that these spheres should be the main focus of a development initiative in a community. As it was stated in the guide:

“Our lives are improved by the quantity and quality of our relationships and interactions with others, and a community that fosters these interactions by creating a meaningful and livable environment for all residents will reap the benefits.”

Metropolitan Life Insurance Company (2013) To conclude, several studies have demonstrated that indicators, such as quality of life or community well-being, are a precondition for achieving economic development (Salvesen & Renski, 2002; Florida, 2002). Local actors, leaders and entrepreneurs, from both the public and the private sector, play a crucial role in the local economic development process, and that is why their ‘qualities’, and more specifically their strengths and weaknesses have to be taken into account throughout the development process. As far as the indicator frameworks are concerned, each community has to decide which indicator list is most suitable to their residents needs. It has been shown that the quality of the local community is a crucial dimension that has to be taken into account in the Multi-Level, Multi-Actor Model of Local Economic Development.

Dewi, Deciding Evaluation in Local Economic

Development

Local Economic Development programs can be evaluated using the CIPP (context, input, process and product) model. Context can be seen as the goals for local economic development, the input are the plans to reach those goals, the processes are the actions taken to execute the plans and the product is the outcome of the actions. If the LED programs are effective quality of life of local people and competitiveness of the region should increase. Furthermore, collaboration between all relevant stakeholders should be enhanced more(both public and private sector, entrepreneurs). Lastly, institutions should facilitate the transfer of knowledge from participants through organized and planned events.

Leeuwen, Local Economic Development: An

Investigation of Success Factors

If a local economic development program is a success depends on several factors. There are regional factors which are different for every program and general success factors. The general success factors are active participation of local stakeholders, awareness creation, leadership, collaboration between the public and private sector and involvement of local actors in the planning process.

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32 Regional and Local

Economic Development in Intraprovincial Inequality

within a region or country, and how to reduce this imbalance. Several things are important for this. First of all, both national and local government should introduce a policy which reduces the imbalance and create coordinated economic and development. This can be done via preferential treatments, tariffs etc. Secondly, infrastructure should be improved in order to improve the quality of the regional and local community. Third, education should be improved in order to increase innovation and thus local economic development. Lastly, sustainable development should be more enhanced which can be done by the national and regional government or by local leaders.

Assessing the quality of the local community is a process that has to be compiled by the community itself, and researchers should focus on finding ways to assist this process. This can be done by examining which indicators, or which groups of indicators are relevant to the Local Economic Development Process. Furthermore, it is also important to create a list of qualitative and quantitative indicators that can be used as a basis in the creation of a specialized community assessment plan.

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33

4. Local capacity

Definition

According to the Cambridge Dictionaries Online capacity refers to ‘the ability of a person or organization to do something’. Similarly, the Oxford Dictionary describes capacity as ‘the power of containing, receiving, experiencing, or producing’ (Oxford Dictionary). (Cooper et al., 2005). Capacity is the answer to the question “What enables a community to effectively create the changes they desire?” (Baker & Teaser-Polk, 1998).

Capacity at the local level, or local capacity is termed in the literature as community capacity, which according to Paine-Andrews et al. (1998) is ‘the ability of people who share a common place, interest, or experience to address their identified concerns over time and across concerns’. Similarly, the MacArthur Foundation (2001) described community capacity as ‘the ability to mobilize the energy and talents of its members and to secure outside resources, such as capital investment and public services, to foster individual growth and improve quality of life’.

At this point, it is important to shift the focus on defining what community capacity building means, since community capacity is not a static phenomenon, but a continuous and dynamic process (Verity, 2007). In the community development arena, community capacity building was defined by Chapman & Kirk (2001) as ‘the process by which the capacity of the community is strengthened in order that it can play a more active role in the economic and social regeneration of their area through long-term ownership of the regeneration process’.

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34 their communities context. Based on the identified characteristics and the preset goal, community capacity building will be defined as ‘the identification and leveraging of <insert identified characteristics> for the purpose of <insert goal>’.

Community capacity building is closely related to economic development, and some authors even argue that community capacity building and community development refer to the same loose and wide concept (Craig, 2007). Their relationship will be examined in detail in the last section of this chapter.

Community capacity also shares some common characteristics with the concept of community empowerment. However, according to Goodman et al. (1998) community empowerment is one of several dimension of community capacity, and thus capacity should be seen as a broader construct than empowerment. Similarly Laverack (2006) argued that ‘empowerment has as a goal to bring about social and political changes and this is embodied in their sense of action and emancipation, whereas capacity building has the purpose of the development of skills and abilities that enable others to take decisions and actions for themselves but does not explicitly include political activism’. Hence, the difference between community capacity and community empowerment is the purpose of the process according to Laverack (2006).

Domains of Community Capacity

According to Goodman et al. (1998), community capacity is a ‘complex, multidimensional, and dynamic concept that requires precision for assessing community assets and for developing appropriate interventions’.

For that reason, and to show the connection between community capacity and three themes of the Multi-level, Multi Actor Model – empowerment, leadership and role of outside actors – three influential frameworks that highlight domains for community capacity will be introduced. The domains of each framework are depicted in table 1.

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35 structures (4) Problem assessment (5) Resource mobilization (6) ‘Asking why’ (7) Links with others (8) Program management (9) Role of outside agents.

Similarly, Gibbon (1999) utilized a set of eight domains of community capacity: (1) Representation (2) Leadership (3) Organization (4) Needs assessment (5) Resource availability (6) Implementation (7) Linkages (8) Management.

Likewise, Goodman et al. (1998) also introduced community capacity dimensions in their article ‘Identifying and Defining the Dimensions of Community Capacity to Provide a Basis for Measurement’. The ten capacity domains that can be used to assess and develop community capacity, are: (1) Participation (2) Leadership (3) Skills (4) Resources (5) Social and interorganizational networks (6) Sense of community (7) Understanding of community history (8) Community power (9) Community values (10) Critical reflection. Furthermore, the authors also included several subdimensions for each dimension of community capacity, and an illustration of how these dimensions can be linked.

Laverack (1999) Gibbon (1999) Goodman et al. (1998)

Participation Representation Participation

Leadership Leadership Leadership

Organisational structures Organization Skills

Problem assessment Needs assessment Resources

Resource mobilization Resource availability Social and

interorganizational networks

‘Asking why’ Implementation Sense of community

Links with others Linkages Understanding of

community history

Program management Management Community power

Role of outside agents Community values

Critical reflection Table 1. Dimensions of community Capacity

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36 As far as the dimensions of leadership and participation are concerned, Goodman et al. (1998) argued that they are two important and interrelated dimensions of community capacity. On the one hand, a community lacks capacity when its leaders do not have a strong base of actively involved residents. On the other hand, participation is also crucial to community capacity, since without the involvement of the community members, community capacity cannot be build.

The fact that community empowerment and community capacity are seen as interrelated concepts by Laverack (1999), and the fact that leadership, empowerment and the role of outside agents are seen as crucial domains of community capacity, also indicates their connection in the Multi-level, Multi Actor Model.

Besides the three introduced frameworks created by academic researchers, international institutions and policy makers, as for example the United Nations or the European commission, have also identified ways and steps through which community capacity can be built and developed (Capacity Development Results Framework by Otoo et al., 2009; five steps capacity development cycle by Wignaraja, 2009; ToolKit for Capacity Development by EuropeAid, 2010; key stages for Community capacity building by Atkinson & Willis; 2006).

Wignaraja (2009) for example, introduced a five step approach to capacity development in the ‘Capacity Development: a UNDP primer’ Report. The flow of the five steps is shown in figure 1, and should be seen as an upwardly spiraling cycle of the following events:

Step 1: Engage Stakeholders Step 2: Assess capacity

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37 Figure 1. The five steps of the capacity development cycle

Source: Wignaraja (2009). Capacity Development: A UNDP primer.

To sum up, it has been shown that several frameworks exist, through which community capacity can be built and sustained. Furthermore, the importance of the capacity concept was shown, by pointing out its relationship to other domains of the Multi-level, Multi Actor Model. In the next section of this chapter, we will examine what capacity building means for economic development, and why it is relevant to the Multi-Level, Multi-Actor Model of Local Economic Development.

Capacity building and Economic Development

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38 process themselves emerged in the late 1980s and 1990s, and shifted the focus away from technical cooperation, and towards capacity development.

Eade (1997) illustrated the nature of capacity building, by introducing four negative examples of ‘what capacity is not’. First, capacity building should not create dependency. Second, capacity building does not mean weakening the state. Third, capacity building is not a separate activity. Fourth, capacity building is not solely concerned with financial sustainability. Subsequently, it can be argued that capacity building for economic development should strengthen the community without weakening the state, it should focus on social and economic aspects, and it should be part of a widely constructed development initiative.

The view that community capacity building has a critical role to play in economic development, was also supported by Noya et al. (2009). In the OECD Report “Community Capacity Building: Creating a better future together” the authors argued that community capacity ‘enables all members of the community, including the poorest and most disadvantages, to develop skills and competencies so as to take greater control of their own lives’. Thus, community capacity building contributes to inclusive local development. The authors also argued that community capacity building can be initiated by national and local governments, and by the already developed capacity that communities have.

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39 Figure 2. Community Capacity Building - Local Multiplier Effect

Source: Westwood (2009)

The importance of including all sort of actors and assets was also pointed out by Finsterbusch & Van Wicklin (1989), who emphasized on the influence of participation in development projects, and showed that participation, beneficiary organization, and the use of indigenous knowledge are major facilitators of community capacity.

Prior to this, McGuire et al. (1994) pointed out the importance of strategic development planning, since planning can build local capacity without using all the public management tools mentioned in the capacity building literature. The authors expressed the opinion that three broad factors can conceptualize community capacity for development. These factors, and their determinants are:

1. Citizen Participation

MULTI-LEVEL, MULTI-ACTOR MODEL OF LOCAL ECONOMIC DEVELOPMENT: NEW DIRECTIONS FOR RESEARCH