Economic sustainability of rural communities supported by environmental protection

August 28, 2008

CORVALLIS, Ore. – Economists at Oregon State University have discovered that remoteness is the main cause of disparities between communities that flourish and those that do not. The greater the distance between a community and its closest urban neighbor, the less likely it is to prosper.

But the enhancement of natural amenities – the physical characteristics that make a location a nice place to live – can offset the degree to which remoteness matters in terms of attracting new households, and thereby entice businesses to locate in rural areas.

These findings were recently published in the American Journal of Agricultural Economics, by economists JunJie Wu and Munisamy Gopinath in the OSU College of Agricultural Sciences.

In the past, businesses have tended to link growth to factors like infrastructure. "Now they may say, oh wow, this is something we hadn't considered," said Wu.

Community infrastructure has to do with physical services, such as transportation, water and sewer, power production and distribution, sanitation and communication management systems, and social services, such as education, science and technology and health care delivery. Add infrastructure to the knowledge and skill in a community's population and you get what Wu calls "accumulated capital".

The degree of remoteness, natural amenities such as lakes to swim in and pull water from, and accumulated capital all contribute to the economic sustainability of a community. When these factors are favorable, wages are high, most people are employed, housing is affordable and communities thrive.

Yet "it's hard to tell sometimes why some communities do so well while others suffer," said Wu.

To analyze this disparity, Wu and Gopinath developed economic models to look at the diverse factors involved.

The model hinges on the interactions between the location decisions of businesses and households. It is accepted that profit is the major determinant for companies when choosing new locations. And when businesses move into communities, demands for labor, and therefore wage rates, generally go up.

The surprise was that about 80 percent of the variations between thriving and failing communities is accounted for by the degree of remoteness. Nonetheless, natural amenities turn out to have a positive effect on wages, employment and housing prices.

As information technology advances, the U.S. population is becoming more footloose, and communities that are rich in natural amenities are becoming more attractive to many people. In turn, communities with knowledgeable, skilled work forces are attractive to new businesses, and towns with high-valued amenities are among the fastest growing in terms of population and income.

This has implications for the design of policies to promote economic development in rural communities, the researchers say.

Nationwide, the communities where wages are lowest are mostly in remote areas. The models developed by Wu and Gopinath can be used to highlight ways that public investments can enhance accumulated capital in these areas, and thus entice businesses to locate there.

Public policies that support ecological conservation and environmental protection can contribute to economic sustainability if they enhance high-valued natural amenities. Used in this light, the research can augment the development of policies that are good for both the environment and rural communities.

Author: Megan McKenzie
Source: Munisamy Gopinath, JunJie Wu