Attractiveness of regions and externality in welfare economics
Daisuke Nakamura
Department of International Liberal Arts,
International College of Arts and Sciences
Fukuoka Women’s University
1-1-1, Kasumigaoka, Higashi-ku, Fukuoka, 813-8529, Japan
Email: dnakamura@fwu.ac.jp
Executive summary
It has been a great concern in Social Science to investigate sustainable urban and ruraldevelopment both in theoretical and empirical approaches. The measurement of regional
development and growth can be expressed by the GRP (Gross Regional Product) and othereconomic indicators. Although these may indicate the direction and the extent of economicgrowth, there are some missing elements to measure a real regional growth. One of missing
elements is attractiveness for households to accommodate at the specific area.

In otherwords, the real economic growth of the region needs to consider both effective economic
performance and sufficient well-being environment.

However, the extent of well-being

attainment would be difficult to evaluate within the framework of existing representative
economic indicators.

Unless whole elements for the real growth of region are properly

included in spatial analysis, regional development cannot fulfil actual needs of local
households and firms.
Apart from the fact that households do not feel their happiness as the economic
indicator shows, there is a following reason why it is necessary to conduct such aninvestigation. Once the level of attractiveness declines in a region, local population andeconomic activity may not be stable in the long run. Unstable local population and economic
activity would cause shrink of market areas and supply areas on local goods and services. Theshrink of market areas and supply areas of them may create uncompleted distribution of goods
and services, reducing local input which eventually declines the economic development andgrowth of that region.

In other words, appropriate decision-making of scale and scope onrural development can maintain centripetal force of local population and economic activity,
which may reduce excess cost and administrative burdens on local government in addition to
improve social welfare.
While there are various different approaches to investigate such particular issues, thispaper solely limits its scope to explore a relationship between attractiveness of regions andexternality in welfare economics to expand the established social welfare function to theargument of regional attractiveness.

A location model
Assume that there is a representative firm who produces a good to the local market and toexport other regions or nations. For reasons of simplicity, there is no market competition
within the region.
-

Local market area declines when local population decreases-

If goods and services can be exported at lower cost, actual market may be both in a regionand outside the region-For luxury goods and services, product differentiation is needed to survive frominterregional and international market competitions-

Local population increases, local market area also increases-

For luxury goods, higher product differentiation brings more demand outside the region-

In any case, either achievement supplies more place to work across the region-

Highly qualified standard of living is more secured, since firms providing goods andservices would continue to distribute their goods and services-

They bring less risk to increase consumer exclusion and visible safe-secured products areavailable to consume that invite more qualified standard of living as another respect-

This hypothesis varies with the type of examining goods and services

Hypothetical analysis
Classification of goods and services according to the applicability of conventional
central-place theory-

Type A: necessary goods and services so that consumptions are locally available within
the region
 Immediately available to apply market-area analysis as these may be distributed
within the region.

For necessary goods and services, profitability is not higher thanluxury goods, since prices are relatively low level and so both total revenue and total
cost can be a constantly lower level Directly affect the well-being enhancement of households in the region - a love ofvariety; spatial consumer exclusion to the local households
 If exported to other regions or nations, the regional additional income brings higher

income and higher local government tax revenue within the region, which enables toenjoy more variety of goods and services-Type B: necessary goods and services but locally unavailable to produce so that these areimported from other regions or countries
 Formation of market area can be unevenly illustrated
 The volume of information is limited
 Fewer profit for the region as these are exported and purchased from the market
outside the region
 Increase more satisfaction based on the idea of a love of variety
 If these are strictly distributed within the closed regional economic system, eachproduction may cause significantly high cost with inefficient level of labour andcapital because they are not on the right track of comparative advantage
 Ideal to import from neighbour region, ideally under affiliated coordination
 A specific case that region 1 has a good  which region 2 does not have.
Similarly, region 2 has a service  which is unavailable at region 1 - If both regions
realise such situation with each other and affiliation coordination is organised, bothregions may save cost and increase well-being level than the circumstance where
there is no contract between two regions-Type C: luxury goods and services so that local consumption may be limited and these are
more common to export to other regions or countries.
 Difficult to apply market-area analysis
 Normally product differentiated as a result of interregional or international
competition and both higher revenue and higher cost may be observed
 Distribution of these goods and services cannot be directly related to welfare level ofhouseholds in the region
 Indirect effects: product differentiation is available by more refined inputs K, L  Refined inputs are high quality of of K I , L  and high quality of Ld  How to maintain highly-qualified labour in a region - provide comfortable space tomake a living: attractiveness Other aspects: accessibility to central places for obtaining full goods and services
 Distribution of goods and services can be directly unrelated to welfare level ofhouseholds in the region - however, product differentiation may bring higher revenue
which increases the tax revenue of the local government and also increases income of
local labour and other local firms under upstream and downstream linkages

An extension
Every type of goods and services can contribute to improve well-being attainment of local
households, while the causation may be different among these three types of goods andservices-

Explore how to define well-being or comfortable feeling in economic theories-

Stiglitz et. al., (2009) addressed missing factors to measure whole impacts of sustainableeconomic growth as Report by the Commission on the Measurement of Economic
Performance and Social Progress-

Alternative measurement of sustainable regional and national growth-

Involves the notion of attractiveness for households to stay at a specific space-

Expanded terminology of urbanisation economies

Further avenues
Social welfare function in regional welfare economics-

Involvement of spatially-constrained and spatially-unconstrained internal and external
economies of scale, scope, and complexity-

A formal representation can be referring to Coase (1937), and Silberberg and Suen (2000)-

Technological improvement conversely causes lower demand of labour and other input ina quantity term-

Accessibility to the centre involves additional investment which may be only acceptable if
there is a sufficient demand as well as a certain level of contribution to enhance regional
economy in the long run

Concluding comments-

Sustainable development and growth in urban and rural areas-

Existing indicators such as the GRP do not measure the extent of well-being in the region-

Alternative framework by central-place theory combined with externality-Social welfare functions

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