Regional Economic Adjustment

For any locality the level of well-being of the population reflects the balance between their assets and liabilities. Insofar as the area trades goods with other parts of the world and uses mobile factors of production, this balance is not autonomous. Changes in the rest of the world are felt as a range of impulses which elicit different responses over time. The change in the nature of the local response is a matter of the length of time needed for different adjustments to work themselves out and come into play. The time dimension can be divided into short-, medium- and long-term, with the break points reflecting the length needed for the markets and resources involved to achieve fluidity. In the short run, the resource endowment of a region and prices also remain fixed when the economy is perturbed by a change in external circumstances. In the medium run, a change in supply or demand conditions in one region will work itself out as changes in prices and quantities traded between regions. A change in the constellation of prices between parts of a nation or the world will have an effect on the relative worth of factors of production and resources. Mineral, climatic and soil resources cannot be moved; however, the encouragement for their discovery, exploitation, technical enhancement, depletion or ruin does vary through time and such changes do affect regional productivity. In combination, variations in regional productivity and factor returns give rise to a long-run response on the part of mobile factors of production.