THE NON-METROPOLITAN MIDWEST AND THE GEOGRAPHY OF US VALUE CHAINS Prepared for The Intersection of Agriculture and Rural Development Conference, Federal Reserve Bank of Chicago, 9 November 2010 Edward Feser University of Illinois at Urbana-Champaign feser@illinoisedu
2 Three messages The increasingly neglected appreciation of industries The importance of a flexible understanding of geography and of interfirm linkages over space The value of understanding the rural shadow economic base
3 Begin here: Rural role in national value chains Feser & Isserman, 2008, Regional Studies What role do industry clusters play in rural economies? Is there such thing as a rural cluster? Can we use cluster ideas to better characterize the evolving economic base of rural areas? How should policy makers utilize cluster ideas in rural development programs? What and where are the rural clusters in the US, and what are their characteristics?
4 Separating two cluster concepts Sector 1 Sector n Economic clustering Sectoral interdependence Cluster 1 Cluster m (n >m) Urban Rural Functional Specialization Spatial clustering
5 Top-down method: Identify an exhaustive set of industry clusters (or value chains) through comprehensive analysis of interdependence between all sectors Detailed interindustry transactions data: For each sector, sales to and purchases from every other sector Apply data reduction techniques (factor analysis, statistical cluster analysis, etc) Result: Cluster or Value Chain Benchmarks Cluster 1 Cluster 2 Cluster n 5
6 Table 1 US motor vehicles value chain ID Code IO Code IO Label 2002 NAICS Primary ID T ype Linkage Z-Score 23 336120 Heavy duty truck manufacturing 336120 23 Primary 051318 665 23 336211 Motor vehicle body manufacturing 336211 23 Primary 051100 662 23 336212 T ruck trailer manufacturing 336212 23 Primary 050285 648 23 336110 Automobile & light truck manufacturing 336110 23 Primary 049863 641 23 336213 Motor home manufacturing 336213 23 Primary 046566 586 23 336214 T ravel trailer & camper manufacturing 336214 23 Primary 044360 550 23 336300 Motor vehicle parts manufacturing 336300 16 Secondary 040194 481 23 336991 Motorcycle, bicycle, & parts manufacturing 336991 19 Secondary 034128 380 23 336999 All other transportation equipment manufactur336999 0 Secondary 029329 300 23 336612 Boat building 336612 0 Secondary 027436 269 23 334300 Audio & video equipment manufacturing 334300 12 Secondary 025887 243 23 335110 Electric lamp bulb and part manufacturing 335110 0 Secondary 017931 111 ID Code A unique ID assigned to each (1, 45) identified value chain cluster IO Code & Label Input-output classification code, Benchmark Input-Output Accounts of the United States, 1997 2002 NAICS 2002 NAICS code (does not always concord directly to IO code) Primary ID Indicates the value chain cluster in which row sector is a primary member T ype Indicates whether industry is primary or secondary to the value chain Linkage & Z Score Measures of strength of the sector's linkage to overall chain (higher value = stronger linkage)
7 Rural or urban? Source: Isserman
8 Joined with metro/non-metro Integration and character Table 5 Rural population and shares by metro designation, 2000 Type Metro status Total pop Percent of total Rural pop Percent of rural Farm pop Percent of farm n Avg pop Percent Rural Percent Farm Rural Metro 6,589,186 23 5,134,419 87 285,576 96 304 21,675 779 43 Rural Non-metro 21,375,266 76 16,143,924 273 1,129,623 378 1,486 14,384 755 53 Mixed Rural Metro 59,132,936 210 15,971,278 270 652,240 218 467 126,623 270 11 Mixed Rural Non-metro 27,291,697 97 12,706,423 215 658,413 220 555 49,174 466 24 Mixed Urban Metro 40,333,682 143 6,018,827 102 180,184 60 146 276,258 149 04 Mixed Urban Non-metro 175,003 01 36,526 01 450 00 11 15,909 209 03 Urban Metro 126,524,136 450 3,052,200 52 81,045 27 172 735,605 24 01 Total 281,421,906 1000 59,063,597 1000 2,987,531 1000 3,141 1,239,630 210 11 Source: US Census and authors' calculations 856 percent of US rural population Non-metro accounts for 489 percent
9 Census Urban Areas Rural, Non-metro Rural, Metro Mixed Rural, Non-metro Mixed Rural, Metro Urban/Mixed Urban
10 Separating two cluster concepts Sector 1 Sector n Economic clustering Sectoral interdependence Cluster 1 Cluster m (n >m) Urban Rural Functional Specialization Spatial clustering
11 Table 8 Rural-urban distribution of US value chains, 2002 Sorted in descending order of rural non-metro percentage ID Cluster Emp (000s) Percent of total US value chain employment Nonmetro Metro Total Nonmetro Metro Total Mixed Urban 6 Mining 2746 298 57 355 207 237 444 86 115 20 Wood processing 1,0178 201 42 243 180 222 402 122 228 26 Feed products 3011 189 40 230 210 262 472 103 195 7 Farming 128 164 12 176 163 246 408 66 350 18 Wood products & furniture 6507 150 35 184 156 207 363 180 267 32 Grain milling 449 142 33 175 214 258 472 95 258 10 Chemical-based products 4841 131 40 171 182 283 465 139 219 1 Textiles & apparel 9539 130 29 158 160 194 354 132 351 24 Wood building products 8581 126 28 155 158 241 399 154 291 45 Leather products 1690 124 24 148 139 186 324 132 395 2 Packaged food products 1,2853 121 27 148 181 216 397 118 336 22 Concrete, brick building products 7553 120 28 149 156 252 408 156 286 15 Dairy products 2460 117 24 141 140 196 336 157 366 40 Appliances 9952 109 22 131 163 232 395 154 319 19 Construction machinery & distrb equip 5945 92 19 111 171 205 376 160 353 3 Plastics & rubber manufacturing 6327 91 33 124 136 272 408 151 313 23 Motor vehicles 1,1048 89 22 111 148 231 378 186 324 16 Nondurable industry machinery 1,6545 82 20 102 143 211 354 170 373 30 Petroleum & gas 1,3457 80 22 102 98 232 329 135 433 25 Plastics products 8947 79 23 102 126 238 363 171 361 4 Aluminum & aluminum products 6799 73 15 88 112 233 345 201 365 41 Copper & copper products 2383 69 12 81 115 212 326 188 405 14 Metalworking & fabricated metal goods 7026 68 24 92 A different 125 222 picture 347 159 of 401 11 Machine tools 1,1551 68 18 86 132 186 318 162 434 33 Rubber products 5384 65 17 82 the 178 US rural/non-metro 218 395 138 383 34 Glass products 3540 65 17 81 150 237 387 157 374 36 Steel milling 2203 59 16 75 116 230 346 255 324 economic base 44 Breweries 3164 50 17 67 110 259 369 143 422 Rural Mixed Rural Urban
12 Findings Based on 2002 employment data, rural non-metro counties capture 47% of overall US private non-farm employment but 50% or more of US employment in 28 of 45 national value chains Mostly natural resource-based/ag, but Among the 28 are several manufacturing chains, including chemical-based products, construction machinery and distribution equipment, motor vehicles, non-durable industry machinery, and machine tools Rural America is closely tied to a wide range of national industries Rural places not exclusively based in low-wage and secondary industries in given chains
13 But an imperfect measure of value chains Top down (2008 results) Analyze buyersupplier patterns among n industries and organize into r groups Example: 400 industries organized into 45 fixed clusters or chains Bottom up (new results) Identify the linked industries associated with each individual industry Example: 400 value chains identified for each of 400 industries
14 Bottom up implementation requires A measure of how closely linked a given industry is to all other individual industries Linkage has several dimensions 1 Proximity in an extended value chain 2 Directionality in exchange between industries (for industries A and B, where A buys supplies from B, A is a buyer and B is a supplier A has a backward linkage relationship with B B has a forward linkage relationship with A 3 Magnitude of exchange Industries buy more from (or sell more to) some industries than others
15 Hypothetical Exports and purchases by consumers and governments are sources of final demand Exports Wheel manufacturing is a direct supplier to automotive assembly and steel is an indirect supplier (through wheel manufacturing) Wheel manufacturing is closer in proximity to automotive assembly in the automotive assembly value chain Wheels Consumers Governments Rubber Tires Steel Rubber molding Automotive assembly Vehicle rental services Engine and rubber molding manufacturing occupy a similar position in the automotive assembly value chain but the magnitude of sales of engine manufacturing to automotive assembly is much higher Engines Legal services Advertising The direction of automotive assembly s linkage to rubber molding is backward The direction of its linkage to vehicle rental services is forward The direction of vehicle rental services linkage to automotive assembly is backward Automotive assembly s forward linkages Purchases by vehicle rental services are a source of intermediate demand Automotive assembly s backward linkages Direction of sales
16 Complications In reality, all industries are linked to all other industries but some industries are more closely linked than others No single index captures the complexity effectively Purchases and sales flows eg, in input-output tables capture only one dimension (financial exchange) of inter-industry linkages
17 Illustrative US chain for a hypothetical core industry Metal stampings, nec Eating & Drinking Wholesaling Computer Manf Logging Legal Services Marketing Organic Chemicals Aircraft Manf Sawmills and planing mills Non-upholstered wood furniture Inorganic Chemicals Petroleum refining Metal furniture Retail Trade Carbon Black Veneer and plywood Tires Truck Transport Poultry
18 Revealing a value chain in space? Metal stampings, nec Logging Urban industrial? Wholesaling Marketing Urban advance d services? Coastal regions? Petroleum refining Sawmills and planing mills Rural counties? Non-upholstered wood furniture Retail Trade Veneer and plywood Ubiquitous? What is a regional cluster?
19 Exploratory analysis Metal stampings, nec Logging Wholesaling Marketing Sawmills and planing mills Non-upholstered wood furniture Petroleum refining Retail Trade Veneer and plywood Absolute Size Specialization CORE INDUSTRY Historic Growth Forecast Growth Employment Location Quotient Region Region Output State/Province State/Province Nation Region/Int l Nation Region/Int l Absolute Size Specialization LINKED INDUSTRIES Historic Growth Forecast Growth Employment Location Quotient Region Region Output State/Province State/Province Nation Region/Int l Nation Region/Int l Explore as a group or individually
20 Some findings: Non-metro Midwest Study year: 2008 Number of industries Core LQ > 11 = 217 of 399 Of those, with Linked LQ > 11 = 123 of 217 Of those, with core jobs > 10,000 = 29 of 123 Of those, highly education-intensive = 1 of 50 (forest nurseries and forest products) Of those, moderately education-intensive = 25 of 109 Core LQ < 09 = 159 of 399 Of those, with Linked LQ > 11 = 32 of 159 Of those, highly education-intensive = 1 of 50 (junior colleges) Of those, moderately education-intensive = 9 of 109
21 Non-metro Midwest economic base? Core Linked NIIO NIIO Label Jobs LQ Jobs LQ 251 Household laundry equipment manufacturing 6,611 1061 1,814,283 116 1 Oilseed farming 91,793 1037 1,163,207 155 2 Grain farming 251,212 843 1,067,106 154 191 Farm machinery and equipment manufacturing 20,015 770 882,935 314 42 Beet sugar manufacturing 2,037 756 1,619,548 119 37 Wet corn milling 2,754 726 1,094,924 161 21 Iron ore mining 1,573 647 539,113 154 13 Animal production, except cattle and poultry and eggs 119,722 642 988,742 249 49 Cheese manufacturing 10,733 608 1,578,802 115 52 Animal (except poultry) slaughtering, rendering, and processing 73,002 605 2,104,921 114 281 All other transportation equipment manufacturing 3,435 600 2,126,060 109 50 Dry, condensed, and evaporated dairy product manufacturing 3,628 572 938,604 114 139 Rubber and plastics hoses and belting manufacturing 5,779 488 391,704 206 35 Other animal food manufacturing 6,896 484 1,207,963 185 267 Truck trailer manufacturing 8,137 484 1,825,774 152 34 Dog and cat food manufacturing 4,074 478 2,065,626 129 167 Ferrous metal foundries 18,654 475 255,626 184 269 Travel trailer and camper manufacturing 9,617 471 793,514 098 8 Sugarcane and sugar beet farming 11,473 471 956,540 139 10 Cattle ranching and farming 81,211 464 1,514,798 159 250 Household refrigerator and home freezer manufacturing 3,394 463 1,767,443 100 38 Soybean and other oilseed processing 2,891 462 962,840 165 237 Automatic environmental control manufacturing 4,312 459 1,051,868 085 279 Motorcycle, bicycle, and parts manufacturing 2,790 441 694,705 098 193 Construction machinery manufacturing 15,310 441 1,910,810 114 268 Motor home manufacturing 4,181 439 601,221 072 257 Storage battery manufacturing 2,823 407 1,959,971 125
22 Non-metro Midwest shadow economic base? Core Linked NIIO NIIO Label Jobs LQ Jobs LQ 4 Fruit and tree nut farming 5,995 069 995,459 260 170 Custom roll forming 162 054 297,357 207 67 Tobacco product manufacturing 78 008 199,389 204 74 Fabric coating mills 230 056 229,763 182 68 Fiber, yarn, and thread mills 117 006 980,742 172 23 Gold, silver, and other metal ore mining 168 021 523,763 165 280 Military armored vehicle, tank, and tank component manufacturing 7 003 808,084 154 6 Tobacco farming 229 017 1,102,829 153 155 Ground or treated mineral and earth manufacturing 179 074 337,924 150 276 Railroad rolling stock manufacturing 735 072 251,601 146 125 Paint and coating manufacturing 1,510 079 212,357 138 94 Pulp mills 179 065 762,970 136 289 Mattress manufacturing 598 046 281,792 135 194 Mining and oil and gas field machinery manufacturing 1,373 044 309,602 131 7 Cotton farming 915 044 870,631 129 57 Tortilla manufacturing 504 064 1,632,349 121 73 Textile and fabric finishing mills 496 026 676,584 121 69 Broadwoven fabric mills 365 020 715,025 120 146 Other pressed and blown glass and glassware manufacturing 600 061 540,575 119 294 Ophthalmic goods manufacturing 762 050 1,427,185 118 66 Distilleries 22 007 1,941,663 117 31 Natural gas distribution 3,944 081 340,345 116
23 Non-metro Midwest clusters? Core Linked NIIO Label Jobs LQ Jobs LQ Grain farming 251,212 843 1,067,106 154 Animal production, except cattle and poultry and eggs 119,722 642 988,742 249 Motor vehicle parts manufacturing 96,313 344 801,515 169 Oilseed farming 91,793 1037 1,163,207 155 Automotive repair and maintenance, except car washes 90,391 146 2,072,130 111 Cattle ranching and farming 81,211 464 1,514,798 159 Animal (except poultry) slaughtering, rendering, and processing 73,002 605 2,104,921 114 Support activities for agriculture and forestry 56,450 182 903,083 207 Dairy cattle and milk production Relative & absolute 48,779 391 1,163,972 199 Other plastics product manufacturing size combined, both 40,380 270 199,924 194 Farm machinery and equipment manufacturing core and linked 20,015 770 882,935 314 Poultry processing industries 20,014 184 2,115,424 111 Death care services 19,802 196 598,292 110 Ferrous metal foundries 18,654 475 255,626 184 Ornamental and architectural metal products manufacturing 18,529 181 702,111 110 Construction machinery manufacturing 15,310 441 1,910,810 114 All other crop farming 14,409 207 1,008,807 150 Logging 14,372 226 1,062,730 128
24 Education-intensity continued US highly education-intensive industries concentrated in the non-metro Midwest, 2008 Location Quotients NIIO NIIO Label Jobs Jobs VA 237 Automatic environmental control manufacturing 4,312 459 457 222 Computer storage device manufacturing 2,073 196 153 374 Community food, housing, and other relief services, including rehabilitation services 62,311 196 184 15 Forest nurseries, forest products, and timber tracts 1,137 174 159 397 Religious organizations 25,212 131 111 239 Totalizing fluid meters and counting devices manufacturing 657 123 148 398 Grantmaking, giving, and social advocacy organizations 36,236 115 098 354 Veterinary services 20,090 112 132 US highly education-intensive industries with linked industries concentrated in the non-metro Midwest, 2008 Core Linked NIIO NIIO Label Jobs LQ Jobs LQ 15 Forest nurseries, forest products, and timber tracts 1,137 174 841,234 265 366 Junior colleges, colleges, universities, and professional schools 51,655 074 2,278,943 114 239 Totalizing fluid meters and counting devices manufacturing 657 123 2,344,239 107 374 Community food, housing, and other relief services, including rehabilitation services 62,311 196 2,118,230 104 235 Electromedical and electrotherapeutic apparatus manufacturing 935 036 1,166,698 102 354 Veterinary services 20,090 112 1,619,100 102 124 Biological product (except diagnostic) manufacturing 1,068 097 2,776,562 102 121 Medicinal and botanical manufacturing 1,025 096 1,623,634 100 122 Pharmaceutical preparation manufacturing 4,562 045 2,509,178 100
25 Three messages The increasingly neglected appreciation of industries The importance of a flexible understanding of geography and of interfirm linkages over space The value of understanding the rural shadow economic base
26 Separating two cluster concepts Sector 1 Sector n Economic clustering Sectoral interdependence Cluster 1 Cluster m (n >m) Urban Rural Functional Specialization Spatial clustering
27 Clusters and sectors in strategy Guides: Target Foods (Cluster) Select few (4-6) Sector Strategy Aquaculture Organic Goods 1-2 per target cluster Build demand: Local market development seed funding (CD) Can be regionally focused at any level Sector Strategy Initiatives Regulation reform to streamline compliance and introduce flexibility (Leg) Targeted training program focused on cleaning and processing of produce (WD,CCs) Focused recruitment (B&I) Tactics, outcomes, and metrics at all levels Hard sunsets, get done and get out (and publicize what you ve achieved), move on to next sector strategy Sub-targets Equipment makers Major producers
28 Questions or comments? Edward Feser University of Illinois at Urbana-Champaign feser@illinoisedu