Capital subsidy programmes aimed at small businesses attempt to compensate for market failures that exist in the conventional financing markets. The existence of these market failures means that some small firms can be denied access to credit despite the fact that they have viable business projects. This rejection occurs because the ‘risk profile’ of the small business is likely to be weighted by factors other than project viability such as ownership structure, business experience and location of the firm. Information on firms with these characteristics is often limited and thus they are overlooked by otherwise well-functioning credit markets. This paper presents an empirical examination of the subsidy embodied in a capital assistance programme that addresses this situation. Data are analysed pertaining to nearly 500 loans and loan guarantees authorized for small businesses in peripheral regions in Israel over the period 1993–95. The gross size of the subsidy embodied in the programme is calculated and a methodology is presented. Employment impacts of the programme are also presented. On this basis, the magnitude of the subsidy-per-job is estimated and the implications of this kind of programme for increasing regional welfare are discussed.
Gambling and tourism are often perceived as comple mentary activities. This article examines this relationship both conceptually and empirically. While land-based casino gambling is not a legalized activity at present in Israel, the economic impacts of introducing a casino at Israel's premier vacation resort, Eilat, are simulated. This ex ante evaluation shows that much of the output, income, and employment gains generated by a casino are likely to be captured outside the region and that localized impacts are small. The dis placement of existing local economic activity is examined, and the case of increased tourism expenditures generated by the casino is simulated. The public policy implications of these findings point to the necessity of developing activities that complement tourism at the local level, not just at the na tional level. The gambling-tourism relationship simulated for Eilat shows that national and local interests are not al ways synonymous.
This paper seeks to illustrate that within a systematic and reproducible evaluation framework there is room for subjective inputs based on local experience and knowledge. A spreadsheet model for evaluating economic development projects is presented which also evaluates "neighbourhood spillover impacts" generated by local economic development projects. These spillover effects - visual impacts in the neighbourhood, investor confidence and so on - are classified and characterised and a quantitative index is constructed in order to gauge the magnitude of their impact. Two hypothetical case studies are presented to suggest the trade-offs between monetary benefits and neighbourhood effects.
This paper conceptualizes the role of Israel's high technology sector as that of a node in a global production network. A node can be characterized by the intensity of the incoming and outgoing flow of information, investments and so on, that pass through it. Foreign investment is one indicator of the centrality of a node. Using case study and aggregate firm level evidence of US foreign investment in Israeli high technology, the paper tests the hypothesis that foreign involvement in the node economy is based on a rather different set of forces than those suggested by the foreign investment literature. The results seem to indicate the importance of node-type factors such as the centrality of small firms in R&D activity and labour force stability, rather than the standard determinants such as incentives, labour costs and infrastructure. The implications and policy issues relating to the development of a node economy are discussed.
This article describes the key elements of a computerized spreadsheet model that can be used by public officials and agency staff to assess in advance the likely economic and fiscal effects of economic development projects. While the model in its current state is based on Chicago, local data can be used to adapt it to other places. The project is innovative in its use of current economic theory, data, and tools to create a model useable on a routine basis by non-specialist public agency staff. The aim is to narrow the gap between academic economic analysis and public sector practice. A key element of the model is that it was developed in close cooperation with staff of the Chicago Department of Planning and Development and combines rigorous economic analysis with the political priorities and choices of public agency staff. Also, the model includes key data about the local economy and standard industry data, but can be overridden by an analyst if project-specific information is available.
This paper investigates the tendency of high technology firms in Israel to choose metropolitan locations. A series of hypotheses are presented that link this spatial behavior with the firms' life cycle characteristics, its' network context and technological characteristics. These hypotheses are then structured in a causal framework and the choice of metropolitan location is modeled as a discrete choice problem. Firm behavior is taken as utility-maximizing rather than profit-maximizing. Empirical results, based on a survey of over 160 Israel high technology firms are presented.These suggest that the choice of metropolitan location is often used to substitute for disadvantages that the firm experiences. For example, metropolitan location for new firms can mitigate the negative effects associated with a precarious market position; for firms with weak network structures, metropolitan location can substitute for this drawback. The public policy implications of these findings with respect to prospects for network-based regional development in Israel, are also discussed.
This paper estimates some of the impacts associated with a metropolitan university. The impact of the university in the metropolitan arena is conceptualised as a series of backward (expenditure) and forward (knowledge-related) linkages. These relationships can be both positive and negative and can operate in both the short and long terms. Their correct identification requires that the counter-factual situation of the area without the university be adequately specified. On the basis of a case study of the impacts associated with Northwestern University on the Chicago metropolitan area, some of these issues are highlighted. The results emphasise the magnitude of the university expenditure links with the metropolitan economy and the importance of scale when comparing these with more localised negative impacts. The paper concludes with some public policy implications relating to the role of the university as a non-profit organisation competing with local businesses and as an export base sector in the metropolitan economy.
The migration-inducing effect of an institution of higher education is often overlooked in university impact studies. This paper deals with estimating the local economic impacts of a university accounting for the fact that students and staff induced to the area by the presence of the university are unlikely to remain in its absence. It is argued that this is an important aspect of the correct identification of the counterfactual position and a vital component in accurate impact analysis. A case study is presented relating to the short-term impacts of the Northwestern University campus in the city of Evanston, Illinois. The tendency to overstate this impact through the incorrect treatment of induced migration is illustrated. It is also shown that the estimated income and output impacts attributed to the university are very sensitive to changes in the local consumption patterns of migrants.
The role of large high-technology firms in fashioning the spatial extent of the labour markets that serve them, is examined in this paper. It is argued that the demand for highly skilled labour in these firms results in their active role in labour market extension through a strategy of employee transport. This makes for employment mobility without a commensurate impact on residential mobility. It can also result in the 'inclusion' or 'exclusion' of certain types of labour. In this context, the 'free-rider' phenomenon associated with worker transport is identified and described. On the basis of an empirical study of some of the largest high-technology firms in metropolitan areas in Israel, these processes are illustrated. The labour markets serving these firms are delimited and characterised for employees of different skill levels. In addition, the determinants of the probability of the firm utilising spatially extensive labour markets is examined. The role of firm size in explaining this behaviour is stressed.
This paper examines the role of science parks as ‘seedbeds’ of innovation. Making the distinction between the spatial and the behavioural conceptions of the seedbed metaphor, the paper surveys the evidence related to the limited interaction effects between science park firms on the one hand and their neighbouring park firms, local universities and off-park firms on the other. This suggests that science parks might be functioning as ‘enclaves’ of innovation rather than seedbeds.
This hypothesis is empirically tested on the basis of a survey of over 160 high-technology firms in Israel located both on and off-park. Specifically, the following questions are addressed: (1) are seedbed effects important inputs to a firm's innovation level? and (2) to what extent are these effects contingent on the physical proximity and clustering afforded by science park location? The results indicate that, first, seedbed effects, as indicated by level of interaction with a local university and the entrepreneur's educational background, are not necessarily related to the firm's innovative level; second, science park location is shown to have only a weak and indirect relationship with innovation level. It is proposed that the role of the science park is thus innovation-entrenching rather than innovation-inducing. The attraction of science park location could therefore be due to perceived status and prestige conferred rather than benefits in terms of technology transfer and information flow.
This paper suggests that the constraints to small business development are likely to vary across the firm's life cycle. In addition, small businesses operating in peripheral areas are likely to face growth constraints arising from their location. On the basis of survey evidence from 100 small (owner-managed) firms operating in both peripheral and central locations in Israel, the probability of encountering a constraint (capital, marketing or bureaucratic) is then estimated. This probability is estimated for two points in the firms' development trajectory: the start-up stage and the stage of sustained operation. The results suggest that at the start-up stage the personal attributes of the entrepreneur serve to mitigate the odds of encountering a constraint while firm size increases the chances. At the operating stage, the personal characteristics of the owner and the form of economic activity are found to be influential. The conclusions point to the high opportunity costs associated with small firms in peripheral areas and to the role of firm size in mitigating the effects of finance constraints over the life cycle. The broad policy implications of these findings are outlined.
This paper presents an empirical assessment of the employment effects of two assistance schemes aimed at improving the accessibility of small businesses to capital. The first scheme is a revolving loan fund operating in two small towns. The second is a capital grant scheme aimed at promoting industrial activity in rural areas. Empirical data relating to the period 1986–89 is analysed for both schemes.
The employment effectiveness of the loan fund is analysed via the estimation of cost-per-job indices and the estimation of the ‘deadweight’ effect, i.e., employment that would have been created even in the absence of the financing scheme. For the grant scheme, the methodology implemented involves the use of regression techniques in order to isolate the effect of the financial assistance on employment generation. The results point to the cost-effectiveness of this form of assistance. From a public policy point of view, the need for targeting these type of schemes (both spatially and sectorally), is stressed.
This paper examines the economic development prospects for urban areas arising from localised clusters of high technology activity. Economic development opportunities are expected to be expressed in the development of local linkage patterns: employment linkages, production and service linkages and linkages to local universities. On the basis of survey evidence of high technology firms from two urban areas in Israel, linkage patterns are found to be weakly developed locally but extensively developed nationally and internationally. This is explained as a result of the international character of Israeli high technology activity resulting in a limited effect on the development of the local urban economy. Policy implications for urban economic development point to the need for the formulation of a public policy executed and administered at the local level rather than the present system of central government targeting of urban economic development at select locations.