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The Multiplier effect explained and with examples.

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Introduction

SECTION 1 According to Haggett (2001, p.789), "Multiplier effect is a term used in systems thinking to describe the process by which changes in one field of human activity (subsystem) sometimes act to promote changes in other fields (subsystems) and in turn act on the original subsystem itself. An instance of positive feedback, it is thought by some to be one of the primary mechanisms of societal change". The scheme printed below reflects the main ideas of Myrdal's model of cumulative causation. Source: www.carlisle.unn.ac.uk/CHP/Environmental _studies/ This scheme shows that everything is related to each other. According to official returns (Haggett, 2001,p.244), the new market creates a number of new jobs in the local area. If the average family sizes four, that means that 100 jobs will lead to 400 more people in the household sector. However, these new people will demand new schools, what will create more jobs in service sector and construction industry. Also, it will attract more firms linked to original industry, migrants, entrepreneurs and capital, what will give more profit and new jobs. Another words, the idea of the multiplier effect is that initial investment leads to increased prosperity. Money is generated by the industry and is spent on other goods and services, which in turn increases demand and economic activity. Myrdal's model of the cumulative causation has many advantages because it explains simply why the local economy grows and people become rich. As Naggett (2001,p.560) pointed out, "Although Myrdal's model of the multiplier effect has been criticized for its qualitative nature and lack of econometric substance, the more formal models also fail to demonstrate conclusively the direction of movement. Such models take no account of the differences within the country and are based mainly on European history". Nevertheless, Myrdal's model works rather well in real world. The significance of this model can be explained with reference to South Wales and M4 (the Western) ...read more.

Middle

Labour refers to the people working in the industry. New industries, such as hi-tech industries, are based on modern technologies, which require highly skilled workers. However, many workers are semi-skilled and need special training today. For this reason, it becomes quite clear why the regions with university centres, such as the South Wales and especially the Western Corridor with the universities in Bath, Reading, Bristol, Guildford, London and other cities, are so attractive to the majority of firms. According to Waugh (1995, p.516), "Most firms, which have located here[ the M4 Corridor] claim that the major factor affecting their decision was the availability of two types of labour: a) Highly skilled research scientists and engineers, the majority of whom are university graduates or qualified technicians...The proximity of several universities provides a pool of skilled labour. b) Females who can perform delicate work and often prefer part-time and flexible jobs." This shows that in the sphere of labour the M4 Corridor is more successful than the South Wales. Capital is an important factor too. Large amount of money is demanded to buy raw materials and to promote an industry. Profits have to be made, because without any benefit the industry cannot continue to work. So, investments in the industry are very efficient. This can affect the decision of the location of an industry close to people who can invest money. For example, in the m4 corridor were settled industries, which are closely situated to firms that can invest money. So, the location of the industry in terms of capital is dependent upon factor such as market. Market is the place where an industry's goods are sold for profit. As Lines and Bolwell91994, p.27) point out, "The advantages of a market location include: a) Reducing the problem of packaging and transporting goods. b) The location of a factory in a large centre of population, which is an important market means a work force is available c) ...read more.

Conclusion

So, if a region is successful and attractive to different firms, the industry develops quickly there. That leads to the increase of salaries, what is considered to be an important social change. Between 1972 and 2002 salaries increased by 14% in the South Wales, whereas in the Western Corridor the increase was about 21% (www.pub-ed-inquiry.org/reports, October 24, 2003). While the industry develops and new jobs appear, hilly skilled workers are demanded by firms. For this reason the university centres has been improved in the area of economic growth. As a good example can be the M4 Corridor where many famous universities such as The University of Bath, Reading, Guildford, Surrey and others are located. In addition, such changes in social life as the appearance of parks also take place in successful regions. For instance, in the M4 Corridor are located The Cambridge Science and Magdalene College Parks, while in the South Wales are the Pembrokeshire Coast and Brecon Beacons National Parks. The appearance of those parks was not accidental. The aim was to make the regions more attractive, especially such places, which were scarred by metal-smelting industries or by colliery tips. Finally, leisure facilities have expanded in the regions with economic increase. Not only do employers have to consider the source of their workers but also where they can relax after work. For this reason such leisure facilities as pubs, gyms, night clubs, restaurants, shops and many others appeared in economically successful regions. However, not all changes are positive in the area where economic growth takes places. Among environmental changes the most common one is pollution. As the industrial development increases, many toxic chemicals from factories are evolved and pollute water, soil, and air. Lines and Bolwell (1994, p.123) report that in the South Wales, which is considered as a successful region, many rivers are polluted by chemical waste like ammonia and cyanides from factories mine and steel workings. To sum up, in the areas, which became more successful than the other ones, social and environmental changes are inevitable because economic growth brings innovations. 1 ...read more.

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