What is Local Economic Development?

Defining the core characteristics of local economic development seems to be a straightforward exercise: it’s something about economic development, probably some kind of promotional activities, and it’s happening at the local level.

However, things are a bit more complicated:

• One way of defining LED would be to say that it’s the same as national economic development, but in a downscaled way. This view would not be adequate. A national economic development policy includes several activities which are completely out of the reach of any LED initiative, and vice versa.
• Another way of defining LED would be to say that it’s all those activities which aim at promoting investment in the locality. This view would be misleading as it may imply an exaggerated focus at inward investment.
• Yet another definition would be to say that it includes all the activities which aim at improving the well-being of the local population. This again would too wide a definition. It is important to distinguish between local development and LED. Local development is the wider concept. Apart from LED, it includes community development, local social development and other types of local initiatives. As these different types of initiatives follow different logics, pursue different goals and operate with different incentive structures, it is important to make a clear distinction between them (at least analytically – there are, of course, many potential synergies between such initiatives).

What then is the essence of LED? LED is about creating employment and jobs at the local level. The main approach to do so is

• to create a favorable environment for business,
• to promote the competitiveness of firms,
• to create opportunities for new businesses, be they external investors or local entrepreneurs.

Local competitive advantage

Another way to put it would be to say: LED is about competitive advantage – the competitive advantage of local firms, but also the competitive advantage of the locality. The prominent economist Paul Krugman has argued that the term "competitiveness of nations" does not make sense. This is true. But it does make sense to talk about the "competitiveness of a locality". If you are creating competitive conditions at your locality, you may attract investment which otherwise would go elsewhere and create jobs and income in another city. And if the conditions to do business in your locality compare unfavorably with other locations, you will see that businesses move elsewhere, taking the jobs with them.

Local vs. national economic development

Local economic development is different from national economic development in several respects:

• Instruments: There are numerous instruments to promote economic development which are out of the reach of local initiatives, for instance all those that have to do with generic framework conditions, such as the exchange rate, the tax rate, anti-trust policy, or the legal framework for employment. At the same time, many instruments of LED are not really viable for national government, e.g. the development of real estate or business coaching programs.
• Actors: National economic development is formulated and implemented by government. Non-governmental actors are involved in the policy process, for instance in terms of lobbying or by sharing information and knowledge. But in terms of execution of policy, they are much more targets than executors of policy. At the local level, and in particular in the context of lively LED initiatives, things are different. In the most extreme cases, LED initiatives can be designed and executed by private actors without any participation of government. Under normal conditions, LED initiatives involve close cooperation between government and non-governmental actors (chambers and business associations, trade unions, universities and research institutes, companies, NGOs, etc.) during diagnostic, planning, implementation and evaluation.
• Governance: National economic development programs involve a clear definition of roles between the legislative and the executive branch of government. LED initiatives usually involve fuzzy role definitions, and clarifying and defining the roles of different stakeholders is one of the main challenges of every LED initiative.

Rather than writing local/regional development, the text so far mostly addressed local economic development. What is the difference between local and regional economic development? Actually, it is hard to determine this difference in a scientifically precise way. One would tend to identify local economic development with cities or municipalities, and regional economic development with aggregates of cities (usually up the level of provinces). But different countries define municipalities in different ways. Sometimes an urban agglomeration, which in economic terms is a functional entity, consists of several municipalities. In other cases, a municipality encompasses a set of cities without particularly strong economic interaction. In other words, the definition of local and regional very much depends on the case. The only certain thing is that "local" addresses a smaller geographic aggregate than "regional".

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