A dynamic model for regional and sectoral planning in the Federal Republic of Germany

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<ul><li><p>ECONOMICS OF PLANNING Vol. 10, No. 1--2, 1970 </p><p>Printed in Norway </p><p>A dynamic model lor regional and sectoral planning in the Federal Republic o! Germany 1 </p><p>Rainer Thoss </p><p>Institut ftir Siedlungs- und Wohnungswesen University of Mtinster </p><p>I N T R O D U C T I O N </p><p>G e r m a n y has a l a rge n u m b e r of p l a n s a n d d e v e l o p m e n t r e p o r t s a t </p><p>h e r d i s p o s a l to g u i d e h e r r e g i o n a l po l i c i e s . T h e s e i n v e s t i g a t i o n s t o </p><p>assess r e g i o n a l g r o w t h p o t e n t i a l h a v e b e e n c a r r i e d o u t in t h e p a s t </p><p>f e w y e a r s f o r v a r i o u s d i s t r i c t s of t h e F e d e l a l R e p u b l i c . I t n o w s e e m s </p><p>r e a s o n a b l e t o s e t a b o u t t a c k l i n g t h e m e t h o d o l o g i c a l p r e p a r a t o r y w o r k fo r </p><p>G i e r s c h ' s p r o p o s a l fo r a " c o h e r e n c e t e s t ''~, a c c o r d i n g to w h i c h , a s e l e c t i o n </p><p>f r o m t h e v a r i o u s d e v e l o p m e n t a l t e r n a t i v e s is m a d e w h i c h l e ads t o a m a x i - </p><p>m i s a t i o n of t h e soc ia l p r o d u c t of t h e w h o l e e c o n o m y . </p><p>i This investigation was carried out at the "Institut fiir empirische Wirtschaftsforsch- ung" in the Division "Volkwlrtschaftslehre und Statistik" of the University of Mann- heim. Cooperation with Professor H. KSnig and his associates, particularly Messrs. W. Gries, H. Mannal, Dr. V. Timmerman and Mr. J. Wolters, led to much encour- agement and many critical appraisals. The writer also had the opportunity to submit parts of this work to Seminars of Professors E. von BSventer (Heidelberg), J. H. Mfiller (Freiburg) and R. Jochimsen (Kid). For all advice and proposals for im- provement he remains grateful. ( I twasnot possible to include all of the many improve- ments suggested to him at the time but work is continuing on an improved version of the model incorporating many of these suggestions including an input-output model with 14 sectors. Further details of this later version may be obtained by direct application to the author.) Computations were made at the "Deutsche Rechenzentrum Darmstadt", under the supervision of Messrs. Faber and P6cker (Dipl. Math.), and financed by the "Gesellschaft der Freunde der Wirtschafts- hochschule Mannheim" and of the "Deutsche Forschungsgemeinschaft'. Its German version was published in "Jahrbficher ffir NationalSkonomie und Stat istik, 182 (1968/ 69), pp. 490 and following. Dr Paul A. Pellemans (Namur) and Mr. Malcolm Agnew have provided its English translation and the author expresses his thanks to them. </p><p>2 Cf. Giersch, "Das 5konomische Grundproblem der Regionalpolitik', in: H. Jiirgen- sen (ed.), Gestaltungsprobleme der Weltwirtschaft, G/Sttingen 1964, pp. 386 and following. </p></li><li><p>90 R. THOSS </p><p>The advantage of such a procedure is clear: on the one hand, it would be possible to utilize the resuks of the analysis of isolated economic areas for the formulation of concrete targets of economic and social policy and of possible combinations of objectives and means; on the other hand we would obtain from the preliminary results of the coher- ence test, a loose planning framework, along which plans for regional development could be developed. In this way, we would reduce the number of alternative plans to be elaborated, thus avoiding delay in the planning process. Still more important would be the possibility of avoiding the promotion of inappropriate investments, where several re- gions struggle for the attraction of the same economic sector (for example tourism), or introducing stimulating tools in the wrong sector or region. </p><p>Simultaneously with the detailed investigation into the development possibilities of the sub-regions, we should promote the setting up of a quantitative standard-guide for the regional development of the Federal Republic. This would permit the coordination of the regional economic policy actions, the values of which would be used as a test for the con- sistency of the regional plans. </p><p>Before we proceed to the formulation of a spatial standard-guide for the economy, it should be clear that it does not involve the establishment of a spatial structure which once and for all guarantees a maximisation of the welfare of the population or its social product. The growth of population and of capital, the evolution of new production processes and the appearance of new needs require a constant checking of the allocation of the factors concerned, with special reference to the time span and costs, which may require an eventual spatial modification of the production structure. If the standard-guide is to retain its validity, it should be con- stantly checked against reality and up-dated accordingly. </p><p>Thus, the determination of capacities recedes automatically into the background in favour of the determination for each period of desirable and possible changes from the initial state. A model by whose help the standard-guide is formulated, should meet the requirements set by Palander for a dynamic explicative spatial model: it should be devel- oped from a given initial spatial allocation of resources and production, and it should contain relationships that take particular account of the time-lags and the market imperfections in the spatial economy. I "A static, or rather a comparative static analysis, under the hypothesis of an in- </p><p>1 Cf. T. Palander, "Beitr~ige zur Standortstheorie", Uppsala 1935, pp. 275 and fol- lowing. </p></li><li><p>MODEL FOR PLANNING IN FRG 91 </p><p>f i n i t e ly g rea t a d j u s t m e n t speed , is no t f i t for n o r m a t i v e proposa l s . I n - </p><p>d e e d we w o u l d no t expec t t ha t a s t imu lus for m o v e m e n t b r i ngs a b o u t </p><p>a n i m m e d i a t e r ea l loca t ion f r o m one r eg ion to ano the r b u t r a the r a fa i r ly </p><p>s low t rans fe r , where , p e r i o d af te r pe r iod , on ly pa r t of those t h ings tha t </p><p>fa l l u n d e r t h e in f luence of t he s t i m u l u s change the i r pos i t ion" . 1 S u c h </p><p>f r i c t ions shou ld be t aken into accoun t in t he d e t e r m i n a t i o n of t he s tan- </p><p>d a r d - g u i d e ; consequen t ly , i t is adv i sab le to focus a t t en t ion on the va r ia - </p><p>t i on of s tocks r a the r t h a n on the s tocks themse lves . T h e c o r r e s p o n d i n g </p><p>s tocks can r ead i ly be ca lcu la t ed if necessary . </p><p>T h e s e c o n d r e q u i r e m e n t of t he s t a n d a r d - g u i d e - b a s e d on the cohe r - </p><p>ence tes t - is t ha t i t r e su l t s in a se lec t ion of va r ious reg iona l d e v e l o p - </p><p>m e n t a l t e rna t ives w h i c h wil l rea l ize a col lect ive economic o p t i m u m . T h i s </p><p>i m p l i e s tha t a t t en t i on shou ld be f ixed on m o d e r n ve r s ions of t he t h e o r y </p><p>of spa t ia l e q u i l i b r i u m 2 in w h i c h t h e p r o b l e m of t he d e t e r m i n a t i o n of t he </p><p>e q u i l i b r i u m cond i t i ons is m a d e a m e n a b l e to n u m e r i c a l t r e a t m e n t b y </p><p>a p p l i c a t i o n of t he t e r m i n o l o g y of l inear and non - l i nea r p r o g r a m m i n g . </p><p>M e a n w h i l e , an ex tens ive n u m b e r of t heo re t i ca l p r c b l e m s have been </p><p>so lved and m a n y o p e r a t i o n a l m o d e l s have been d e v e l o p e d for the h a n d - </p><p>l ing of spa t ia l a l loca t ion p r o b l e m s . ~ </p><p>1 Ibid. p. 281. E. yon B6venter, "Theorie des r/iumlichen Gleichgewichts", Tiibingen 1962; cf. also: L. Lefeber, "Allocation in Space; Production Transport and Industrial Location", Amsterdam 1958; J. Tinbergen, "The Spatial Dispersion of Production; A Hypo- thesis", in: Schweizerische Zeitschrift fiir Volkwirtschaft und Statistik, 97 (1961), pp. 412 and following; by the same author: "Sur un modele de la dispersion g6o- graphique, de l'activit6 6conomique", in Revue d'Economie Politique, 74 (1964), pp. 30 and following; H. C. Bos, "Spatial Dispersion of Economic Activity", Rotterdam 1964. </p><p>3 B. H. Stevens, "An Interregional Linear Programming Model", in: ~ournal of Re- gional Science, 1 (1958), pp. 60 and following; W. Isard, "Interregional Linear Pro- gramming: An Elementary Case and a General Model", in: ffournal of Regional Science, 1 (1958), pp. 1 and following; by the same author: "Methods of Regional Analysis", Cambridge, Massachusetts, 1963; L. N. Moses, "An Input-Output Linear Programming Approach to Interregional Analysis", in: Harvard Economic Research Project, Report on Research for 1956/57, Cambridge, Massachusetts, 1958, pp. 122 and following; R. E. Kuenne, "The Theory of General Equilibrium", Princeton, 1963, pp. 395 and following; H. K. Schneider, "Modelle ftir die Regionalpolitik", manuscript of a communication to the meeting of the Committee of Economic Policy of the "Gesellschaft f/Jr Wirtschafts- und Sozialwissenschaften", on April, 9th and 10th, 1965 at Unkel on Rhine. In addition, see the articles in "Papers and Proceedings of the Regional Science Association"; J. R. Boudeville, "An Operational Model of Regional Trade in France", 7 (1961), pp. 176 and following; J. Sebestyen, "Some </p><p>(cont. next page) </p></li><li><p>92 R. THOSS </p><p>Difficulties are, however, greater in practice if an optimization model is applied to the solution of actual problems of regional planning be- cause the lack of statistical information generally involves a significant simplification of its handling. In this respect, the present proposal of a consistency test for planning of regional development should not be viewed as the ultimate quantitative conception of the author with re- gard to regional policies in the Federal Republic. There is no doubt that the spatial allocation of the economic activities proposed here rests on too many simplifying hypotheses to be regarded as a binding standard- guide. And this is even more so since most of the constraints used in the model contain subjective appraisals by the author, since no better in- formation was available. These appraisals must be replaced by the quali- fied iudgement of experts or the resuks of political decisions, before we can speak of a binding frame of planning. </p><p>The purpose of this article is rather to present, with the aid of a sufficiently realistic example, a method that could be followed for the coordination of planning and regional economic policy. The author hopes that it will evoke constructive criticism which will lead to a synthesis resulting in a conceptualization of the spatial allocation of the Federal Republic. </p><p>This is particularly relevant for the non-economic constraints (na- ture protection, social rights, etc . . . . ). Precisely in the field of regional allocation policy, where the number of variables that are conceptual- ized in terms of utility only is especially high, the lack of an adequate social preference function is felt acutely? As before, we must be con- tent with the maximization of social product or consumption. We can, however, in the quantitative approach, take in a large number of non- economic variables as constraints if their value can be considered </p><p>(cont. from page 91) Thoughts on a Spatial Model for Development Purposes", 12 (1964), pp. 119 and following; A. P. Hur ter and L. N. Moses, "Regional Investment and Interregional Programming", 13 (1964), pp. 105 and following; E. O. Heady, "Discussion of Some Particular Programming Models", 13 (1964), pp. 121 and following; V. S. Dadayan, "A Model of Interregional Relationships in a Single-System Opt imum Plan of the Economy", 14 (1965), pp. 53 and following; T. KronsjS, "Iterative Price and Quan- tity Determination for Short-Run Production and Foreign Trade Planning", 14 (1965), pp. 63 and following; J. G. Waardenburg, "Space in Development Planning", 18 (1967), pp. 91 and following. </p><p>1 For discussions in that field, see, for example: G. Giifgen, "Zur Theorie kollektiver Entscheidungen in der Wirtschaft" in: Jahrbucher fiir National6konomie und Sta- tistik, 173 (1961), pp. 1 and following. </p></li><li><p>MODEL FOt~ PLANNING IN FRG 93 </p><p>as given "by the general demand of the population" or "by political decision". </p><p>To demonstrate this, a series of these conditions were introduced in the model with the implication that, in their provisional form, they con- siderably limit the explicative value of the results obtained so far. </p><p>The long-term approach, which is the basis for the concept of develop- ment potential, corresponds to the maximization of the social product (its utility) over a longer period (10 to 20 years), or else at a given time in the future. This problem can be considered as solved to-day from the point of view of the theory of economic policy, since we may link it to (or with) the results of growth theory, in particular to considerations about the optimum rate of savings with a limited planning horizon. 1 If we had time series on factor input and the corresponding output in a </p><p>9 satisfactory regional and sectoral disaggregation at our disposal, then by analogy to current growth theory procedure, we could determine the production function of every single region taking into account explicitly its peculiarities in terms of advantages in location and industrial struc- ture. From these functions, we could determine the optimum volume of investment and the optimum production programme - taking into ac- count the constraints required by each region, e.g. the optimum popula- tion density. Sadly enough, the German regional statistics are, as yet, in- adequate to permit this precise procedure to be followed. Figures such as the gross domestic product of towns "Kreisfreien Stfidte" and rural districts, "Landkreise" of the FedeIal Republic are only available for three years, and there is only a coarse disaggregation into four sectors measured for the requirements of state planning. </p><p>For the moment, in the absence of long time series, we are dependent on cross-sectional methods for the estimation of production functions. This implies, for example, the hypothesis that from the input-output relations of cities, we can project the same relations for small towns; in other words, that the relation between factor input and output for cities may be representive for all regions of the Federal Republic. It implies a sub-optimization of the procedure and a considerable reduction in the validity of the results. The author hopes that the growing awareness of </p><p>1 Cf. F. P. Ramsey, "A Mathematical Theory of Saving", in: Economic ffournal, 38 (1928), p. 543; J. Tinbergen, "The Opt imum Rate of Saving", in: Economic ffournal, 66 (1956), pp. 603 and following; S. Chakravarly, "Optimal savings with Finite Planning Horizon", in: International Economic Review, 3 (1962), pp. 338 and fol- lowing. Numerous methodological examples are foun...</p></li></ul>