Analyzing the international competitiveness of metropolitan areas: the MICAM Model. (Metropolitan International Competitiveness Assessment Model)

The foundation of metropolitan economic development is rapidly changing as international trade and investment become more critical forces in national, regional, and urban economic growth. Economic globalization will require metropolitan areas to create a business climate that supports and attracts internationally competitive firms and industries. Conventional approaches to urban economic analysis focus primarily on the internal characteristics of metropolitan areas and treat international market trends as exogenous variables when they are taken into consideration at all. The Metropolitan International Competitiveness Assessment Model (MICAM) examines an urban region's strengths and weaknesses in the context of international trade and investment requirements.

The economic growth of cities has been a vital force in national development since the time of the Industrial Revolution. As cities grew economically, they created jobs, wealth, services, infrastructure and new economic opportunities that attracted migrants from surrounding rural areas and entrepreneurs and workers from abroad (Bairoch, 1988). Driven by the demand for mass-produced goods and a growing diversity of services, urban economic growth attracted large numbers of people to cities in western Europe during the 18th and 19th centuries, in North America in the late-19th and early-20th centuries, and in Latin America and Asia over the past 40 years (Castles & Miller, 1993). Many of these cities and metropolitan areas will remain vital centers of economic development in the 21st century. About 45% of the world is population now lives in urban areas, and the largest cities have grown at an especially rapid pace (United Nations, 1995a). The United Nations predicts that, by the year 2015, there will be at least 543 cities with more than one million in population, accounting for about 1.7 billion of the world's population.

Although urban growth will continue to be a major factor affecting national development, the bases of urban economies are changing rapidly (Mills & McDonald, 1992). The 21st century will be an era of global economic competitiveness. The worldwide trends that are affecting the economic growth of metropolitan areas include (a) the growing importance of international trade and investment, (b) the increasing global mobility of factors of production, (c) the driving force of technology, (d) the growing importance of knowledge industries, (e) the critical role of market size, (f) the need to adopt "agile" business practices, and (g) the necessity of forging international strategic alliances (United Nations, 1995b).

Since the 1960s, world trade has provided an important source of economic growth for established market economies and, by the 1980s, became a driving force for economic growth in developing countries with competitive market systems. The value of world merchandise exports doubled from a little more than $2 trillion in 1980 to a little more than $4 trillion in 1994 (World Trade Organization, 1995a). In addition, the value of world exports of commercial services increased from $402 billion in 1980 to nearly $1.1 trillion in 1994. The manufactured exports of industrial market economies grew from about $160 billion to $1.6 trillion between 1970 and 1990, whereas eastern European countries and the former Soviet Union saw increases from $18 billion to $91 billion. Developing countries with market economies increased their manufactured exports from $10.5 billion to $344 billion (United Nations, 1993).

As a result of increasing international economic transactions, all the factors of production labor, capital, ownership of land, and technology--are moving more easily among cities and across national borders. The global mobility of production factors means a potentially greater similarity of production capabilities in cities around the world, as nations attract or lose competitive advantage. Whether a metropolitan area gains or loses economically will depend on policies that allocate local resources effectively to those activities that contribute to the competitiveness of its businesses and industries.

The economic growth of cities and metropolitan areas, and the standards of living of their people, depend increasingly on the ability of businesses and industries to engage in global economic interaction through trade and investment.(1) The basis for urban economic development is also shifting from mass-production industries, relying on low-wage labor and cheap raw materials and energy, to a technology- and knowledge-based system of production and services. Such a system requires better educated and higher skilled workers, modern infrastructure, and flexible and responsive public and private organizations (Kanter, 1995). This shift to a technology and knowledge-based system of production and services provides higher incomes to workers and managers who have the skills and knowledge to participate effectively, and also creates new economic cleavages between cities that can respond effectively to technological and knowledge requirements and those that cannot.

The continuing integration of the global economy is not only affecting the pace of their growth but restructuring the economies of metropolitan areas. Foreign direct investment flows to, and exports flow from, cities that openly seek them by creating a physical environment, a quality of life, and the economic conditions in which technologically trained and globally oriented managers and workers can flourish. Changes in the world economy during the 1990s required businesses and corporations of all sizes to adopt agile business practices; during the next century, enterprises will have to become even more agile to remain competitive (Goldman, Nagel, & Preiss, 1994; Sheridan, 1993). These agile business practices will require more companies to become "virtual corporations" and to form strategic alliances to draw on the skills and talents of managers and workers around the world (Hagedoom, 1992; Rothwell, 1991).

Considering the importance of these global changes on the economies of cities and regions, we developed and tested a model for assessing the international competitiveness of metropolitan areas. In this article, we describe the global factors affecting the international competitiveness of metropolitan areas and review alternative methodologies for measuring urban economic characteristics. We then offer an operational model that can help policy makers identify urban centers likely to grow economically. We demonstrate the results of the model applied to 11 metropolitan areas in the United States, Europe, and Asia, and explore the implications for improving metropolitan area competitiveness.

MODELS FOR ASSESSING URBAN ECONOMIC COMPETITIVENESS

Attempts to analyze the economic strengths and weaknesses of urban areas have been undertaken in the United States for more than half a century (Henderson & Ledebur, 1972; Hoover, 1948; Isard, 1960). These studies focused almost entirely on the internal markets of urban regions and their "exports" to other domestic markets. They relied on industrial complex analysis, inter-regional commodity flow analysis, and analyses of physical infrastructure and service endowments in support of local industries. They generally emphasized the economic, social, and physical characteristics of cities that made them attractive as locations for mass-production industries. Although these studies touched on urban competitiveness in a national context, they usually viewed the international economy as a vaguely defined exogenous variable (often labeled the rest of world) having an indirect and largely unexamined impact on urban economic growth.

Most current assessments that do take international factors into account are "popular" analyses conducted by international business and trade associations. Their primary objective is to measure and rank metropolitan areas as locations for plants or corporate headquarters and to identify places with favorable business climates. They rely heavily on subjective judgments of business leaders.

Kresl (1995) has concisely summarized the more recent academic literature on determinants of urban competitiveness. In his framework, urban competitiveness is the result of economic and strategic determinants. Economic determinants can be represented by statistical data, whereas strategic determinants are almost always qualitative. He identifies the most important economic determinants of urban competitiveness as (a) factors of production, (b) infrastructure, (c) location characteristics, (d) structure of the urban economy, and (e) urban amenities. Kresl does not identify specific variables nor does he attempt to quantify economic determinants, but he and others indicate that the factors of production should include (a) the rate of capital accumulation (because there is a documented linkage between the rate of capital accumulation and productivity), (b) the availability of skilled labor, and (c) the existence of an adequate financial sector.

Moomaw and Williams (1991) argue that the most important determinants of variations in total factor productivity are investments in education and transportation infrastructure. Cities have a key role in determining the priorities for expenditures by all levels of government in these two areas and, in so doing, can influence manufacturing growth rates as well. Suarez-Villa (1989) recognizes that the competitiveness of urban regions also depends on their degree of entrepreneurial capacity--that is, the ability of individuals and corporations located within a region to engage in (a) investment, (b) intermarket linkage and integration, (c) productive coordination, (d) strategic planning, and (e) invention and technical innovation.

Although location characteristics play an important role in urban competitiveness, Kresl (1995) concludes that "to be on the periphery in a spatial sense no longer means that a city must also be marginal in an economic sense" (p. 57). Despite the increase in the number of industries that can be classified as "footloose" because of advances in transport and telecommunications technology, location remains an important feature in attracting and nurturing competitive enterprises.

Aspects of urban economic structure that seem most significant are (a) the distribution of firms by size, (b) the role played by foreign-owned firms, and (c) the richness of the complexity of firms providing business and financial support services. Rondinelli and Behrman (1991) point out that "urban amenities" are also becoming more important in attracting and expanding internationally competitive firms, especially those involved in high-technology manufacturing and services. They note the relationships among educational institutions, the arts, culture, health care, crime, and the environment in contributing to the economic strength of cities (Behrman & Rondinelli, 1992). Effective governance, urban development strategy, public-private cooperation, and institutional flexibility are also frequently identified as strategic determinants of urban competitiveness, although none of them is easily measured (Behrman & Rondinelli, 1995).

Methods of Analysis

Attempts to measure these indicators have used quite simple methodologies. They generally employ ranking and indexing methods based on descriptive statistics. A few studies compare urban data from several countries, but the methodologies most frequently used include the following.

Rank numbers method. Models of urban competitiveness that use actual data are often based on rank numbers. Cities are ranked by each criterion, the rank numbers are summed and the city with the lowest number is declared the best. The criteria used in the comparison are often given equal weights. The work of Marlin, Ness, and Collins (1986) exemplifies this approach. Their Book of World City Rankings collects data for 105 cities in 10 world regions: the United …