EDA Journal Vol 11. No.1 Winter 2018 | Page 26

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) VOL.11 NO.1 2018 | 26