Associate Professor Vasilis Sarafidis Department of Econometrics and Business Statistics, Monash University

Transcription

1 Economic Benefits of Sister City Relationships Associate Professor Vasilis Sarafidis Department of Econometrics and Business Statistics, Monash University

2 The age of urbanisation There is strong historical evidence that the growth of cities mainly stems from two facts (see e.g. Getz, 1979) : the development of technologies that enable large-scale production; and the growth of markets large enough to take advantage of these technologies. Future development in both of these factors suggests that the number and/or average size of urban centres and cities will grow. A recent study by McKinsey predicts that by 2030 urban population will reach 75% of total global population; According to a 2014 UN report, by 2050 there will be over two billion more people living in large urban centers around the world than today.

3 Urban population in the world World 60 Urban Population (percentage of total population) 90 Australia Urban population in the World Urban population in Australia

4 Urban centres drive global economic growth It is cities and not nations that are driving the global economy, and are the engines of growth through productivity, innovation and job creation. David Adam, Founder of Global Cities Indeed, by 2030 more than 90% of global GDP is likely to result from urban activity; 1/3 of global GDP will come from just 100 cities; Increased urbanisation and environmental changes will pose new problems; For example, according to the 2012 OECD s environmental outlook: By 2050, water demand for household use is forecasted to rise by 55%; The number of people living in places facing a severe water stress is projected to double during the same period, reaching about 4 billion people.

5 The role of sister city relationships in global economy Is there a role for sister city relationships in today s rapidly changing world? The Global Cities Index attributes 2.5% of a city s total score to the number of sister-city relations. Why? What economic benefits can be realised by establishing international sister city relationships? What are the key characteristics of international Sister City relationships in Australia? How have these changed over time? What makes for a successful sister city relationship?

6 Structure of the remainder of the talk A brief history of the evolution of Sister City relationships. Key statistical facts about international Sister City relationships in Australia. Economic arguments in favour of establishing sister city relationships. How to make a Sister City relationship economically successful. Concluding remarks.

7 A Brief History As an organised modern phenomenon, sister city relationships became popular in Europe as a means of pursuing peace, reconstruction and reconciliation, following the devastation of WWII (O Toole, 2001) Switzerland agreement between French and German mayors; 1951 establishment of the Council of European Municipalities and Regions; 1956 establishment of Eisenhower s People-to-People Program. Van Ewijk and Baud (2009) estimate that about 70% of local governments are currently involved in cooperation at the international level based on a formal agreement. 2/3 of those have been supported through international associations.

8 The Australian Example Parkes (NSW) Coventry (UK) in 1939: Australia s first international alliance. Lismore (NSW) Yamatotakada (Japan) in 1963: first twinning under Sister Cities scheme. Lloyd (2010) suggests many Australian partnerships arose from sentimental attachments to Britain and to the homelands of subsequent migrants. More recent partnerships, however, have seen a move away from this traditional pattern, placing much stronger emphasis on economic benefits, trade and development. This trend is likely to continue in the future, as increasing media and ratepayers pressure may force councils to demonstrate value for money.

9 Distribution of councils involved in international relations Key Statistical Facts (1) State Total no. of councils No. of councils involved % of councils % of councils involved nationally Cumulative % % of population nationally NSW % 38% 38% 32% VIC % 26% 64% 26% QLD % 13% 77% 20% WA % 11% 88% 11% SA % 7% 95% 7% TAS % 4% 99% 2% NT % 1% 100% 1% Total % 100% 100% Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

10 Distribution of international relationships Key Statistical Facts (2) State No. of relationships % of national Cumulative % % of population nationally NSW % 41% 32% VIC 83 21% 62% 26% QLD 68 18% 80% 20% WA 43 11% 91% 11% SA 20 5% 96% 7% TAS 9 2% 98% 2% NT 7 2% 100% 1% Total % 100% Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

11 Type of international relationships Key Statistical Facts (3) Type NSW VIC QLD WA SA TAS NT Total % Sister City % Friendship City % Cooperative Agreement Informal Relationship % % Unknown % Total % Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

12 Most Common Countries Key Statistical Facts (4) State Japan China USA Italy Timor-Leste Total NSW VIC QLD WA SA TAS 4 9 NT 2 7 National Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

13 Activity Areas Key Statistical Facts (5) Area Number * % of active relationships * Education & student exchange % Cultural, art exchange 87 50% Trade, business development 47 27% Sporting 23 13% Community development 11 6% Note: * Not mutually exclusive Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

14 Partner Countries; Trends Key Statistical Facts (6) Period Country No. started Japan USA Japan USA Japan China China Japan China Timor-Leste Timor-Leste China China USA Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney

15 Economic Benefits: Economies of Scale and Scope Scale economies arise due to efficiencies formed by increasing the volume of a given activity/service. Scope economies arise due to efficiencies formed by increasing the variety of activities/services provided. In the context of governance efficiency, both concepts come down to the effect of learning by doing.

16 Learning by doing Direct costs per activity/service Average time per activity/service Experience curve Learning curve Cumulative volume/variety of activity/service

17 Economic Benefits: Economies of Scale and Scope Certain limitations (e.g. fixed infrastructure, budget constraints) imply that cities can only grow as much, and provide only a sub-optimal volume/range of activities and services: Sister city partnerships can allow local governments to move down the learning/experience curve at a relatively small cost, i.e. without growing pains : Relatively cheap access to know-how and transfer of knowledge; Capacity building and strengthening of urban and regional governance; Increase foreign direct investment.

18 Economic Benefits: Gravity Model of International Trade It predicts bilateral trade volumes, based on economic distance between two units and the economic size of the units. Trade volumes decrease with distance: TT iiii = cc (ssssssss ii ssssssss jj )/dddddddddddddddd iiii. Geographical, cultural & network distance raises the cost of entry into a market. Sister city partnerships can help to lower economic distance substantially by: Reducing cultural barriers; Increasing international reputation; Reducing transactions costs and search costs.

19 Trade Volumes in Victoria The Victorian economy, while remaining diverse, is currently transitioning away from its traditional base in manufacturing and is moving towards services Trade volumes of the Victorian Economy, percentage of national GDP GSP Exports of goods Imports of goods Exports of services Imports of services 24% 9% 27% 26% 24% Exports of Services Other 26% Consulting 6% Tourism 25% Education 43% Education Tourism Consulting Other

20 Choosing the right partner Carefully select your partner based on complementarity and potential for synergies: the interaction of two cities so that their combined effect is greater than the sum of their individual city-specific effects: Identify demographic, geographical and technological similarities and differences; Identify key industries and economic opportunities. Analyse current and projected economic conditions, as well as trade and investment climate; Pay attention to the history/prospects of diplomatic relations between the two countries; Pay attention to past Sister City relationships already established by the foreign city. Have the been successful and why?

21 Setting up a good business plan Establish clear motives and objectives for forming a relationship; What are your short- and long-term goals? How can these be achieved? Match expectations: ensure the two councils involved have non-conflicting objectives. Incorporate specific measurable activities and areas of co-operation. Define clear roles for management of the relationship. Who is responsible for what? Secure sufficient funding.

22 Managing the relationship effectively Ensure there is regular contact with the partnership city/local government; Keep it open and transparent internally as well as externally: inform the local community; Engage with the media; Establish a robust framework for continuous evaluation.

23 Concluding Remarks Globalisation and technological progress open up new markets, intensify competition, and increase trade flows. It is imperative that Victoria, a small open economy, remains outwards looking into their economic and trade policies. Establishing and maintaining effective Sister City relationships can provide several economic advantages and create new opportunities for growth and development.