ECONOMIC DEVELOPMENT QUARTERLY
GLOBALISATION
REQUIRES
COOPERATION
BY THOMAS DEVITT, ECONOMIST, GEOGRAFIA
general impacts in the location in which the
investment was initially made.
• Globalisation of supply chains has
driven down local economic multipliers. • This makes it harder to justify economic
development investments and fiscal
stimulus. THE LOCAL MANIFESTATION OF
THIS – LOCAL GOVERNMENT
EXPENDITURE LEAKAGE
• A balance is required between self-
sufficiency and regional/global
cooperation. Western Australian regional city, Greater Geraldton,
for example, suffers from significant economic
‘leakage’. A project we undertook last year calculated
business ‘leakage’ alone of $1.24b, much of which
was from the Manufacturing sector (Figure 1).
Returning to our construction project above, $100m
here would result in only a $31m direct economic
impact and a $65m flow-on impact ($96m total –
still smaller than the initial injection). Many of the
benefits would be felt elsewhere. Consequently, the
broader economic impact was only larger than the
initial injection when you include the positive impacts
outside Geraldton.
ECONOMIC MULTIPLIERS ARE
SHRINKING
Economists often use input-output modelling to
measure the broader economic impacts of a single
event. If, for example, a $100 million construction
project is announced, we can insert that $100m
into the model, and it tells us how the effect of that
construction activity would spread to the rest of the
economy.
The difference between the initial construction
injection and the broader impact is called the
‘multiplier’.
But in recent years, the assumed multiplier in input-
output modelling has been falling, meaning that
individual investments by industry and/or government
are having smaller and smaller knock-on effects on
the economy. Why?
Well one explanation lies with globalisation –
specifically the globalisation of supply chains.
Businesses no longer source all their inputs locally.
They can buy machinery from Germany, parts from
Bangladesh, and technical expertise from the US.
Even one’s workforce can be sourced from interstate
or overseas.
This means that, even when money is invested
in one area, it ‘leaks’. This results in ever smaller
Figure 1: Expenditure Leakage by Source, Greater
Geraldton (Source: Geografia, 2016)
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