The socio-economic consequences of regional booms

Abstract

This paper examines the development of regions where large projects mobilising significant resources, especially labour, take place. Booms originating in the extractive industry, around mega-events and large-scale industrial investments break the equilibrium of regional economies, bringing with them additional demand and new growth opportunities, but also symptoms of shortage, and when they unwind, the possibility of regional erosion and depression. In peripheral areas characterised by a low intensity of economic activity, the effects of booms are especially notable because they involve large quantities of exogenous capital and labour. The resulting boom effects involve a range of components which may be positive (primary, indirect, inter-industrial and other induced effects) as well as negative (displacement, re-spending and substitution effects), which all combine to generate a complex boom effect. The core issue of boom economies is the ultimate outcome of regional stabilisation after the boom and bust forces have run their course: a return to normality; regional depression; or a new development trajectory. Regional multipliers may generate short-term gain, but also contribute to lasting restructuring processes; the local entrepreneurial milieu might use the income injection of the boom to break out of pathdependency and enlarge the scope into a learning-curve and upgrading process. A relevant aspect of booms is the mismatch between the capacity of local infrastructure and services and increasing demand: this generates shortages and crowding-out under the boom, and leaves over-capacities in the unwinding of the bust phase. These disruptions may be addressed by approaches of anticipative and participative planning, employing a range of impact-mitigating instruments, although these require a sufficient level of local decision-making capacity. The specific problems of large-scale investment projects underway or being discussed in Hungarian regions require further analysis. In the preparatory phase, environmental impact assessment is now common practice, but the broader socioeconomic implications are not being considered in planning. In between the production-centric investor and the public sector, there is a missing link in either impact mitigation or a regulated integration of beneficial boom effects into local development; moreover, we do not even know the true extent of the socioeconomic changes taking place. This is all the more important since in boom areas, there is a hazard of advantageous effects being rerouted towards more efficient external competitors instead of locally embedded actors, leaving the local economy unaffected by the boom, but left to bear the socio-economic costs of both the boom and the bust. It is postulated that a more thorough investigation of concrete investment projects, and a re-evaluation of local development policy should take place in Hungary.