ECONOMIC DEVELOPMENT QUARTERLY
Figure 2 : Resident Expenditure Leakage , Casey ( Source : Spendmapp , 2017 )
Not surprisingly , Geraldton residents spend a lot of money outside of Geraldton . A small regional city ( Greater Geraldton ’ s population is around 40,000 ) just does not have the goods and services available to meet local need .
Outer metropolitan municipalities offer a variation on this theme . They are notorious for out-commuting . And as residents leave every day to work closer in to the city centre , they spend a considerable proportion of their income outside of their home municipality . Let ’ s take Casey in outer metropolitan Melbourne . With a population of 300,000 , we can use bank transaction data to see they spent upwards of $ 250m just in the month of December 2016 . Leakage at that rate in Greater Geraldton would result in around $ 340m in resident escape expenditure in Greater Geraldton ( compared with the $ 299m we actually measured ). An annual loss of $ 41m in an economy the size of Greater Geraldton ’ s would be a serious hit on local jobs , services and amenities .
As per our construction example above , just $ 84m in total would be captured locally if the $ 100m project occurred in Casey .
MORE LEAKAGE , MEANS SMALLER MULTIPLIERS AND LESS LOCAL IMPACT
This kind of leakage has significant implications for the economic viability of investment projects . A local government is going to have a harder time justifying a project if they can ’ t demonstrate through
input-output modelling that a large proportion of the benefits from such a project will remain in the local area .
There are also implications for economic recovery after crises . The standard Keynesian approach says that during a recession , fiscal multipliers are especially high and therefore , particularly effective at reviving a lagging economy . In the US , those multipliers have indeed been strong in recent years , justifying a stronger fiscal policy response to an economy that was , until recently , underperforming . But the US is an enormous economy , so their domestic supply chains are well-established and diverse , resulting in minimal economic ‘ leakage ’ and strong fiscal multipliers . But for smaller , internationally open economies such as Australia , fiscal policy may be less effective at kick-starting a slumping economy .
WHAT CAN WE DO ABOUT IT ?
And this brings me to the solution – self-sustainability vs . cooperation .
In the case of Greater Geraldton , a significant amount of their ‘ leakage ’ could be clawed back ( we estimated about $ 259m of the $ 1.24b in business leakage ). This can be done by identifying industries where the volume of leakage is so high , it demonstrates a large local market that could be used to entice ( and support ) a new business to invest locally . ‘ Buy local ’ policies could be used to support these businesses . Equally , population growth will
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