eWork and Regional Development: Background

Regional comparative advantages in the knowledge economy

In an information society and knowledge economy context, the new regional mosaic can be seen at a general level as a result of the interplay of the two forces of geographic concentration and decentralisation. There is some evidence that differences between European regions, notably in terms of economic indicators, are not decreasing as clearly as they are between Member States. In a knowledge-driven economy, the tendency towards geographic concentration may be stronger than the tendency towards decentralisation (Clarysse and Muldur, 2001, and European Commission, 2000a).

The outcome of this is the development of new geographic patterns of economic activity as companies are given the opportunity to select a much wider range of locational opportunities, particularly for business functions using ICT. If more regions are potentially accessible because of ICT, company decision makers tend to look more closely at the unique characteristics of each individual location, eg in relation to infrastructures, cost, skills, efficiency, quality, convenience, image, etc. This tends to make the differences between places (geographical differentiation) more, rather than less, important. In such decision making, decentralisation can result when functions disperse to take advantage of other locations’ competitiveness advantages (especially low costs or the availability of scarce skills). On the other hand, concentration in, for example, urban agglomerations, can result when physical clustering and the availability of specialised skills provide the biggest competitive advantages (Gillespie, Richardson, Cornford, 2001, and Millard, 1999).

Prior to the large scale introduction of ICTs across Europe, the need for physical accessibility to raw materials and other production inputs, like large pools of labour, as well as to large markets, were the primary factors of location. Now that the relative importance of these has diminished for many business functions because electronic transactions are becoming widespread, the consideration of other factors becomes relatively much more important. In the context of regions, a different set of comparative advantages (pull factors) appears (Millard, 1997):

labour costs, including non-wage labour costs
the availability of skills
the dependency ration (the ratio of working population to the rest of the population). A large number of registered unemployed or economically inactive people indicates a large reservoir of potential workers on which to draw. (gender issues may also be important here, especially where women provide a relatively untapped and flexible source of labour)
infrastructures, including transport, telecommunications, the relative price and quality of land, property and services, etc.
the organisational and entrepreneurial capacity of firms (eg local business markets)
standard of living and incomes (eg local consumer markets)
out-of-region trading capacities and networks (eg wider business and consumer markets)
training, educational, research and other knowledge centres
the institutional capacity of the public and voluntary sector
(local/regional) regulations, legislation, taxes, incentives and grants
both natural and man-made environment and amenities
quality of life (cultural life, and lack of stress, congestion, crime, etc.)
high quality personal services
physical location in terms of time zone
above all, the establishment and nurture of innovative and creative environments, knowledge-rich milieu and local entrepreneurship which can be decisive for successful regional development in the knowledge economy.

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