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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