The Multiplier Effect Research Free Essay Example

According to Haggett (2001, p.789), “Multiplier effect is a term used in systems thinking to describe the process by which changes in one field of human activity (subsystem) sometimes act to promote changes in other fields (subsystems) and in turn act on the original subsystem itself. An instance of positive feedback, it is thought by some to be one of the primary mechanisms of societal change”.

The scheme printed below reflects the main ideas of Myrdal’s model of cumulative causation.

Source: www.carlisle.unn.ac.uk/CHP/Environmental _studies/

This scheme shows that everything is related to each other.

According to official returns (Haggett, 2001,p.244), the new market creates a number of new jobs in the local area. If the average family sizes four, that means that 100 jobs will lead to 400 more people in the household sector. However, these new people will demand new schools, what will create more jobs in service sector and construction industry. Also, it will attract more firms linked to original industry, migrants, entrepreneurs and capital, what will give more profit and new jobs.

Another words, the idea of the multiplier effect is that initial investment leads to increased prosperity.

Money is generated by the industry and is spent on other goods and services, which in turn increases demand and economic activity.

Myrdal’s model of the cumulative causation has many advantages because it explains simply why the local economy grows and people become rich. As Naggett (2001,p.560) pointed out, “Although Myrdal’s model of the multiplier effect has been criticized for its qualitative nature and lack of econometric substance, the more formal models also fail to demonstrate conclusively the direction of movement.

Such models take no account of the differences within the country and are based mainly on European history”. Nevertheless, Myrdal’s model works rather well in real world. The significance of this model can be explained with reference to South Wales and M4 (the Western) Corridor.

It is known that in the past the industrial areas of South Wales depended upon two major industries: coalmining and steel production. This region had the ideal location for iron making, because coal, limestone and blackband iron ore were often found together on valley sides. The figure printed below proves the ideal location of these raw materials.

Source: Waugh, D., 1995, Geography. An Integrated Approach, London, Nelson.

When new techniques such as oil burning instead of coal burning and steel making had appeared, the coal industry and new alloys of metals began to decline. According to Lines and Bolwell (1994, p.52), the number of mines has decreased rapidly and famous coal mining areas such as the Rhondda Valleys have lost their industrial base, what created serious problem of unemployment.

In this situation only government intervention, which caused the influx of investments, helped to stop the decrease in the economy. Reference to Lines and Bolwell (1994, p.53) reveals that the Special Areas Act of 1934, the creation of Britain’s 27 Enterprise Zones, which included Milford Haven Waterway, and the efforts of the Welsh Development Agency attach many investments, mainly from Japan, the USA and Germany. As Lines and Bolwell (1994, p.53) point out, “The �585 million capital investment was put in the South Welsh economy, 147 projects were done and over 330 foreign manufacturing firms (150 from Europe, 140 from North America and 41 from Japan) were opened there”. This caused increase of labour, because only hi-tech Japanese firms employed 12000 people. Also, as new hi-tech industry demanded skilled workers, new schools and universities had to be opened. Finally, the overseas investments brought new jobs, improved housing and the local environment that made South Wales more diversified economically and more prosperous.

Another area, which was developing according to Myrdal’s model of multiplier effect, is the M4 Corridor. This area is known to be one of the few rapidly growing industrial regions of the UK. As Lines and Bolwell (1994, p.53) said, “The new region is a corridor within which new industries are clustered in and around the main towns, such as Swindon and Reading”.

Opened in December 1971, this region became very attractive to new investments, because of the government policies, such as reducing taxes and improving transport links. The success of early firms soon attracted more other firms, so that by 1992 there were almost 100 foreign companies employing over 2500 people (Waugh, 1995, p.517). The figure printed below supports this idea.

Source: Lines, C., and L. Bolwell, 1994, GSCE Geography, London, Letts Educational.

There were founded such industries as microelectronics, which demanded highly skilled staff. This caused migration from London and the South-East. These changes became a reason for the growth of service industries. As a result the M4 Corridor became a rapidly developing and prosperous industrial region.

So, both the South Wales and the M4 Corridor were developing according to the Myrdal’s model of cumulative causation. This shows the significance of this model, which works good enough in the real world.

SECTION 2

It is known that some regions are more diversified economically and more prosperous. There are several reasons explaining why some parts of the country are more successful than the others, but the most important one is the location of industry. Reference to Lines and Bolwell (1994, p.27) reveals that the location of industry is the spatial distribution of industrial activity, because that is where other industries are sited. Many firms wish to make the maximum profit. For that reason they try to find the place where can produce their goods at the lowest cost, sell as widely as possible and distribute as efficiently as it can be. All these things explain why industries are located at the most advantageous places, what makes them more successful in contrast to other regions.

The factors that influence where industries should be located are divided into physical, human and economic factors. The figure printed below defines more precisely these factors.

Source: www.kesgrave.suffolk.sch.uk/curric/geog

All those shown above factors can be better explained with the reference to any example. The best examples are the South Wales and the M4 Corridor, which have been developed greatly during the last decades.

Starting with natural routes, it can be said that nowadays industries are located near rivers not for transport reasons but for cooling water that is used for industrial needs. For example, such industries as steel or coal making, hi-tech industries and car factories need an access to water. Many rivers are located as in the South Wales as in the Western Corridor, what makes them more attractive to different firms.

Also, another factor is power. Industries need a form of energy, which helps the machinery to work. One source of energy can be coal, which is wide spread in the South Wales, while another one is electricity that according to Lines and Bolwell (1994,p.27) can be produced by the gas-fired power stations that are also located in the M4 Corridor.

Going ahead, the importance of raw materials is obvious. It is important for industries, especially for those, which use the bulky raw materials, to be located near the source of its raw materials because it reduces transport costs. For hi-tech industries, where few bulky raw materials are required, this is less important factor, whereas for those industries that are involved in steel, tin or nickel making it is a very important factor. As a good example for this can be the South Wales where steel and nickel making are located.

Moreover, all industries need land in some way. For instance, as the official refunds (www.kesgrave.suffolk.sch.uk/curric/geog, October 23, 2003) point out, large heavy industries such as iron and steel factories, which are wide spread in the South Wales need huge amount of cheap and flat land away from urban areas, while smaller industries, such as hi-tech industries, may only need a small amount of cheaper land on the edge of towns and cities. The M4 Corridor is the best example because many hi-tech industries are located in the towns and cities where the area is quite cheap.

Talking about human and economic location factors, it is useful to start with such important factor as labour. Labour refers to the people working in the industry. New industries, such as hi-tech industries, are based on modern technologies, which require highly skilled workers. However, many workers are semi-skilled and need special training today. For this reason, it becomes quite clear why the regions with university centres, such as the South Wales and especially the Western Corridor with the universities in Bath, Reading, Bristol, Guildford, London and other cities, are so attractive to the majority of firms. According to Waugh (1995, p.516), “Most firms, which have located here[ the M4 Corridor] claim that the major factor affecting their decision was the availability of two types of labour:

a) Highly skilled research scientists and engineers, the majority of whom are university graduates or qualified technicians…The proximity of several universities provides a pool of skilled labour.

b) Females who can perform delicate work and often prefer part-time and flexible jobs.”

This shows that in the sphere of labour the M4 Corridor is more successful than the South Wales.

Capital is an important factor too. Large amount of money is demanded to buy raw materials and to promote an industry. Profits have to be made, because without any benefit the industry cannot continue to work. So, investments in the industry are very efficient. This can affect the decision of the location of an industry close to people who can invest money. For example, in the m4 corridor were settled industries, which are closely situated to firms that can invest money.

So, the location of the industry in terms of capital is dependent upon factor such as market. Market is the place where an industry’s goods are sold for profit. As Lines and Bolwell91994, p.27) point out, “The advantages of a market location include:

a) Reducing the problem of packaging and transporting goods.

b) The location of a factory in a large centre of population, which is an important market means a work force is available

c) The presence of a large works in an area, which forms an important market, gives the product good publicity. It is clear therefore that good market system, such as in the M4 Corridor, is rather attractive to the foreign firms.”

Transport is very important for industry. Under the term of transport should be considered roads, especially motorways, railways and airports, which link different industries and give people an opportunity to reach their work places as quick as possible. The best example is the M4 motorway that goes through the whole M4 Corridor, linking many cities and other motorways like the M5 and M11, and continues in the South Wales. In addition, firms located in the Western Corridor are close to railways and such big airports as Heathrow and Gatwick. The figures printed below show the advantages of the South Wales and the M4 Corridor because of the location of motorways, railways, airports, research centres and universities.

The South Wales:

The M4 Corridor:

Source: Waugh, D., 1995, Geography. An integrated approach, London, Nelson

The laws, restrictions and policies that government establishes have a huge influence on the location of industry. For firms different areas become very attractive when government provides tax relief, pays for new buildings, equipment and for training people. It is a known fact that in such areas as the South Wales and the M4 Corridor the government established several policies that caused the influx of many firms, especially foreign firms such as Sony, BMW and many others. According to Waugh (1995, p.521), in the South Wales the Special Areas Act of 1934 was the first government assistance that helped the industry. Also, as in the South Wales as in the M4 Corridor lower taxes for the first 10 years, payment for firms to train people, the improvement of communications, like the M4 motorway, urban development loan and the Enterprise Zones attracted many firms there and helped these two regions to succeed.

Finally, such factors as geographic inertia, technology and leisure facilities play an important role in making a region more successful than others. The official refunds (www.kesgrave.suffolk.sch.uk/curric/geog, October 23, 2003) claim that “geographical inertia refers to an area that has become known for a particular industry or product”. Another words, this one is important because it can guarantee other firms customers. As an example of this can be such fact that many hi-tech industries were located in the M4 Corridor, mainly around Bristol, because such firms as Rolls Royce and British Aerospace had succeeded there. Also, access to technology is essential because if something brakes there should be any special technology that can repair it. In addition, leisure facilities are a very useful factor too because each person need to relax after work. For that reason the M4 Corridor is a nice example because many leisure facilities such as pubs, gyms and restaurants are located there.

To conclude, it can be said that all regions cannot be successful because the success depends on many important factors, whereas not all regions can offer the most part of those factors. For that reason it can be quite clear why such areas as the South Wales and the M4 Corridor are more successful than the others.

SECTION 3

Models, such as Myrdal’s model of cumulative causation or Rostow’s model of economic development describe mainly economic changes. However, social and environmental changes also take place in an area with economic growth or economic or economic decline. As an evidence to this statement can be social and environmental changes in such regions with economic growth as the South Wales and the M4 Corridor.

Although the South Wales has been developed greatly during the last decades, the Western Corridor is more developed. For thus reason even if the similar changes take place, some differences are inevitable.

In the sphere of social changes can be mentioned such change as the increase of population. The government assistance, such as tax relief or inclusion in the Enterprise Zones, attracted new investments in the South Wales and in the Western Corridor. This fact means money and new jobs, which interested people different developed regions. So, people from less developed regions migrated to those two areas what caused the increase of population. According to Haggett (2001, p.476), the population in the South Wales and especially in the M4 Corridor increased for several times during the last 20 years.

Going ahead, the increase of population leads to another social change- to the increase of the amount of new buildings. As new people, mainly the whole families, come to the new region, they need a house where they can live. Therefore, new buildings should be built. That leads to the enlargement of the city and to creation of agglomerations. This idea can be especially proved by the example of the Western Corridor. Such cities like Bristol, Reading, Swindon had become much bigger after the development of the Western Corridor (www.bbc.co.uk, October 24, 2003).

Also, the influx of new workers and employers is a reason of the increase of transport because more people are in need of transport then. According to official returns (www.bbc.co.uk, October 24, 2003), the number of cars has increased significantly in the M4 Corridor, while in the South Wales the increase was lower.

Moreover, the increase of house price is another social change. When the region becomes more successful and attractive to new investments, the price for houses goes up. For instance, in the M4 Corridor and in the South Wales house price increase each year. According to the source (www.bbc.co.uk, October 23, 2003), house price in the M4 Corridor increased twice, while in the South Wales it increased for 42% during the period from 1999 till the year 2003.

As the population goes up and cities become bigger, another social change like the increase of the number of vacancies for jobs becomes obvious. Reference to the Western Corridor and the South Wales reveals that when these two regions attracted different firm’s investments with the help of government policies and other specific factors many vacancies for job were offered to people. The source (Waugh, 1995, p.517) notes that only by 1992 over 2500 people were employed in those two regions, while it was not the final number.

So, if a region is successful and attractive to different firms, the industry develops quickly there. That leads to the increase of salaries, what is considered to be an important social change. Between 1972 and 2002 salaries increased by 14% in the South Wales, whereas in the Western Corridor the increase was about 21% (www.pub-ed-inquiry.org/reports, October 24, 2003).

While the industry develops and new jobs appear, hilly skilled workers are demanded by firms. For this reason the university centres has been improved in the area of economic growth. As a good example can be the M4 Corridor where many famous universities such as The University of Bath, Reading, Guildford, Surrey and others are located.

In addition, such changes in social life as the appearance of parks also take place in successful regions. For instance, in the M4 Corridor are located The Cambridge Science and Magdalene College Parks, while in the South Wales are the Pembrokeshire Coast and Brecon Beacons National Parks. The appearance of those parks was not accidental. The aim was to make the regions more attractive, especially such places, which were scarred by metal-smelting industries or by colliery tips.

Finally, leisure facilities have expanded in the regions with economic increase. Not only do employers have to consider the source of their workers but also where they can relax after work. For this reason such leisure facilities as pubs, gyms, night clubs, restaurants, shops and many others appeared in economically successful regions.

However, not all changes are positive in the area where economic growth takes places. Among environmental changes the most common one is pollution. As the industrial development increases, many toxic chemicals from factories are evolved and pollute water, soil, and air. Lines and Bolwell (1994, p.123) report that in the South Wales, which is considered as a successful region, many rivers are polluted by chemical waste like ammonia and cyanides from factories mine and steel workings.

To sum up, in the areas, which became more successful than the other ones, social and environmental changes are inevitable because economic growth brings innovations.