Edward Hill, Cleveland State University
Howard Wial, Brookings Institution
Hal Wolman, George Washington University
Why Some Regions Bounce Back from Economic Shocks and Others Do Not
The Economic Resilience working group examines whether regions that have experienced negative economic “shocks” recover and, if so, how. The aim is to explore the role of economic agency (private sector decision-making in markets, hierarchies, and networks) and public policy, planning, and politics, in that process.
- There are no “magic bullets” that both insulate regions from the harmful impacts of economic downturns and help them recover quickly from downturns.
- Regions with a high percentage of employment in durable manufacturing and a poorly educated population are more likely to suffer from an employment downturn as a result of an economic shock, but they are also more likely to recover quickly (that is, they’re more resilient to it).
- Regions that have many export industries are less likely to suffer from employment downturns as a result of shocks than those that have fewer export industries.
- The greater the income disparities between rich and poor in a region, the more likely it is to experience an employment downturn as a result of economic shocks and the less resilient it is the time it takes to recover. However, the greater the income disparities, the more resilient a region is in recovering from downturns in gross metropolitan product.
- A region’s resilience or lack thereof was primarily due to the behavior of individual firms within the region and their strategic decisions as well as to what was happening to the region’s major export industries.
- The most common policy response to economic shock was organizational restructuring, frequently aimed at increased collaboration across previously impermeable boundaries or among firms engaged in similar kinds of activities.
- Policymakers in regions experiencing economic downturns as a result of shock engaged in a wide variety of traditional and in some cases new economic development and planning activities (marketing and promotion, tax subsidies, job training). There was no evidence that these activities played an important role in determining the region’s resilience.
- Because it takes a long time to change the regional characteristics that affect resilience-related outcomes, policies and strategies that are put in place after a region has experienced an economic shock appeared to make little difference, at least in the short run. Therefore, policymakers should undertake precautionary planning to make regions less vulnerable to downturns or more likely to rebound from them.
- Metropolitan areas with long histories of specialization in durable manufacturing, those where a few large firms from the same industry or related industries dominate the economy and civic life, and those with highly fragmented business communities and local governments may be poorly equipped to carry out precautionary planning to mitigate the impact of economic shocks.