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Possible Effects of Hydraulic Fracturing and Shale Gas Development in Durham County

by Zheng Lu

 

Hydraulic fracturing, a process that extracts oil and natural gas from underground rock formations, is a process utilized to increase oil and gas yields. In nature, gas and oil are not typically found in underground caverns. Instead, these energy sources are found in the pore spaces of underground rocks. In order to reach these sources to produce oil or gas, a well needs to be drilled into the rock formation so that the oil or gas can be retrieved. The hope is that the gas or oil from the rocks flows into the well from the surrounding rock and then up the well to the surface (Hall).

Fluids flow easily through rocks which have a high permeability. However, if interconnections between pores in the rocks are too narrow or there are too few pores, permeability is low. Extracting oil or gas from these rock formations is not economical using conventional methods. Fracturing, a method in which cracks or fissures are created in the underground rock formations, gives oil or gas additional paths to flow through (Hall).

The first instance of fracturing occurred in the 1860s and was known as explosive fracturing. In explosive fracturing, an explosive charge, a “torpedo,” is lowered into the well. The resulting explosion fractures in surrounding rock and significantly increases the rate of oil or gas production compared with the production prior to fracturing (Hall).

In the 1940s, the process of hydraulic fracturing was developed. Unlike explosive fracturing, hydraulic fracturing does not use explosive charges. Rather, water at high pressures is pumped into the rock formations. The high pressure causes fractures in the rock formation and the water flowing through increases the size of the fractures. In order to prevent the fractures from “closing” when the pressurized water is removed, proppants – small particles such as sand, ceramic, or sintered bauxite – are used to prop open the fractures. These proppants are mixed into the fracturing water before being pumped into the rock formation. Water carries the proppants into the fractures and leaves them behind. Due to the high permeability of the proppants, oil and gas extraction are not impeded. Fracturing fluid consists of around 99.5 percent water and proppants (Hall).

The hydraulic fracturing process has been used in more than a million wells since the process was developed in the 1940s.  It has been used in low permeability rock formations and in coal-beds in order produce coal-bed methane. In recent years, hydraulic fracturing has received more notice due to its use in the production of oil and gas from shale, a process which has only become economical with the advent of horizontal drilling (Hall). In 2000, shale gas provided around 1 percent of the natural gas supply in the United States. By 2011, shale gas accounted for nearly 25 percent of the natural gas supply (Hagström and Adams 95).

In 2010, shale gas production in the United States amounted to around 5 trillion cubic feet. Projections by the U.S. Energy Information Administration show that production will triple by 2035 (Boersma and Johnson 571). “Early-adopters” of hydraulic fracturing: Texas, Oklahoma, and Pennsylvania, have emphasized the economic development, job creation, and state income associated with drilling. Other states such as New York, Delaware, and Vermont, have emphasized environmental concerns from polluted drinking water, anthropogenic seismicity, and the large carbon footprint created (Boersma and Johnson 572).

Shale gas is a relatively clean fuel when compared to coal or oil, releasing a lower amount of greenhouse gases when used as a source of energy. Hydraulic fracturing combined with horizontal drilling have made the production of natural gas commercially viable in many sites across the country. One advantage of allowing hydraulic fracturing is the creation of jobs. The development of the Marcellus Shale in Pennsylvania has added more than 100,000 jobs in 2011 and generated over $10 billion for the state’s economy (Simmons). Residents in areas where fracking is utilized may also be entitled to a royalty payment of around 12.5%-21% per unit of gas extracted (Muehlenbachs, Spiller and Timmins 3).

Another advantage lies in the fact that electricity generation utilizing natural gas instead of coal produces about half the carbon dioxide and less than a third of the nitrogen oxides. Sulfur oxides released by natural gas total less than 1 percent of those produced by coal. Unlike “clean” sources of electricity such as solar and wind, natural gas can be used to produce energy on demand based on consumer needs (Olson). Due to the reduced greenhouse gas emissions of natural gas, it can be effectively used as a “bridge fuel” until alternative clean sources of energy become more efficient and widespread (Durham Environmental Affairs Board 16).

However, there are some drawbacks to the process as well. One key disadvantage to hydraulic fracturing is the potential for a negative impact on the water supply of an area. Water is heavily used throughout the entire process of hydraulic fracturing. According to the EPA, approximately 90% of the injected fracking fluid is composed of water. Estimates of water usage range up to 13 million gallons required for shale gas production. Acquiring the amount of water required for fracking might limit the amount of water available for other uses. Even if enough water remained after withdrawing the necessary requisites for the process, the water quality may be negatively affected (US Environmental Protection Agency 14).

The injection of the well with fracking fluid also could have potentially harmful results to the water supply, as there could be an accidental release of the fluid due to a well malfunction. The fracturing fluid could also migrate into water aquifers underground as a result of the induced fractures intersecting with existing natural faults (US Environmental Protection Agency 17). During the flowback portion of hydraulic fracturing, the pressure in the wells is reduced. As a result, the fluid returns to the surface as wastewater. In addition to the components of the fracking fluid, wastewater can also contain hydrocarbons and other natural products of oil. Wastewater is typically stored onsite in pits of tanks. Potential leakages could also result as a consequence of improperly built or maintained sites. Finally, wastewater disposal could be another source of water supply contamination. (US Environmental Protection Agency 19).

Air pollution is always a large concern when looking at the oil and natural gas industry. The opening of a new well requires a range of equipment and construction. As a result, wells are typically a large source of volatile organic compound emissions. These compounds contribute to the formation of ground-level ozone, or smog. Wells are also significant producers of methane, a greenhouse gas about 20 times more potent than carbon dioxide. Benzene, ethylbenzene, and n-hexane, which are known as air toxics, are also produced by wells (Basic Information: Emissions from the Oil & Natural Gas Industry).

North Carolina is rich in many different natural resources. However, the state has little experience in dealing with petroleum or gas extraction. As a result, there has not been much regulation concerning shale gas. The Mesozoic basin, formed 225 million years ago, runs through the state of North Carolina. Durham County lies in the Piedmont physiographic province. Technological advances have made it economically feasible to exploit the gas reserves in the Piedmont (Durham Environmental Affairs Board 4-5).

The shale formations that lie underneath most of the lower half of Durham County are shallower when compared to the formations in other states such as Pennsylvania, West Virginia, or Texas. The smaller distance might be beneficial in reducing technical difficulties of the drilling process. However, the distance would also reduce the distance between the drilling sites and groundwater resources (Durham Environmental Affairs Board 6).

Many residents of Durham County depend on well water as their primary water supply. The Durham County Health Department estimates that there are around 6,000 private wells in the county. As most of these wells are outside the city limits, switching to public water is not an option. Residents that depend on well water are more likely to be negatively affected by the process of fracking (Durham Environmental Affairs Board 11).

Durham does not currently have the water capacity to support fracking operations. Additionally, a long lead time is required for the planning, funding, purchasing, and constructing of additional reservoirs. Disposal is also an issue in Durham, as the exact composition of the wastewater that is generated is typically a trade secret. Because of this fact, Durham waste water treatment plants cannot process the waste water (Durham Environmental Affairs Board 9-10).

Presently, hydraulic fracturing is not approved in North Carolina. However, on February 27, 2013, the North Carolina Senate approved a bill which would allow the North Carolina Mining and Energy Commission to start issuing permits for fracking by March 2015. The bill is currently being debated in the North Carolina House (Drye). In order to study the effects of hydraulic fracturing, a comparison can be made to other areas that have recently permitted fracking. Washington County, Pennsylvania provides a good source for comparison. Shale gas wells have recently been drilled in that area.

Data is gathered using Zillow in conjunction with a Google maps database on oil and gas wells in Pennsylvania. Zillow gives a brief overview of house attributes while gas well positions are highlighted on the map. The distance to gas wells is then estimated by noting the straight line distance between house location and the nearest gas well.

The hedonic model is a widely used approach that values certain characteristics of different products which are not specifically given values in their own markets. Under ideal conditions, the hedonic model can show the marginal values of changing attributes of a product. The hedonic model has been widely used in the housing market when used to study topics ranging from air quality, crime, and school quality. (Pope 499).

Utilizing a hedonic model, it is possible to assess how proximity to a shale gas well affects local residents by looking at the changes in property values over time. A hedonic model can estimate the average “willingness-to-pay” for a particular attribute. The simplest model compares the prices of properties based on their vicinity of a well. This results in the regression:

 

As Zillow only gives the basic attributes of a particular property, the attributes for houses were limited to the number of bedrooms, the number of bathrooms, the square footage of the living area, the lot size, and the age of the property:

 

20 individual properties in in located in Washington County are selected in order to perform the analysis. Taking a robust regression results in the following coefficients (and standard errors) for each term:

Covariate β Robust Standard Error P Value
Well Distance (miles) 0.1136 0.05123 0.045  
Bedrooms 0.0502 0.1617 0.761  
Bathrooms 0.1251 0.0773 0.130  
  0.3177 0.2238 0.179  
  0.1504 0.0785 0.078  
  -0.2435 0.0978 0.027  

 

Looking at the p-values, it can be seen that , , and  are significant at the 10% level. A 1% increase in lot size would lead to about a 0.15% increase in property value. A 1% increase in age would lead to a decrease in value of around 0.24%. For each mile away from an active well, house values rise about 11.4% for each mile.

The problem with the above analysis lies in the fact that there might be a correlation between well distance and the error term. Perhaps gas wells are purposely placed next to run-down houses. Perhaps lease payments for rights would incentivize people to live close to wells.  The key factor for isolating the effects of the shale gas wells is to control for correlated unobservable attributes which may influence and bias the resulting estimators. Using property fixed effects is an easy way to separate the unobserved factors of each property from each other. Looking at the variation in housing prices over time with respect to the change in proximity of a shale gas well allows for the implicit value of that well to be estimated.

Including a dummy variable for each house  allows for factors that do not change over time to be controlled. Due to the difficulty of connecting specific well construction times with the data provided by Zillow, the assumption that no gas well is present before 2004 is made. Changing the variable from well distance to inverse well distance allows for the analysis to proceed. This results in the following regression:

 

Utilizing the 11 remaining data points, the following results are found for the covariates:

Covariate β Robust Standard Error P Value
Change in Inverse Well Distance 0.4367 0.2229 0.079  
  0.5872 0.3474 0.122  

 

Inverse well distance is significant at the 10% level. This regression gives a different result than the last one, showing that housing price actually goes up as the distance to any gas well decreases. This could be due to the fact that these houses might have municipal water rather than well water. However, with data from Zillow, it is currently impossible to know this fact.

A problem with the regression analysis performed is the lack of data points. Cross-referencing Zillow with a map of shale gas well locations is not the most efficient way to collect data. Increasing the sample size by a factor of 10 would increase the accuracy of the results. Ideally, a data set with thousands of samples would be used in this analysis. Zillow also does not provide a detailed report of each house. At times, even the most basic information (lot size) is omitted. Further analysis using more detailed data would provide more conclusive results.

Most of southern Durham County’s inhabitants use municipal water. Fracking and its impact on groundwater might affect these particular residents less than those that depend on well water as their primary water source. Most of the residents of eastern Durham County rely on well water. Zillow currently shows that the price of housing in eastern Durham County is generally much higher than the price of housing in the south. Fracking could impact the property values there greatly.

In the end, the most important aspect to hydraulic fracturing regulation is that relevant monitoring systems are established. If hydraulic fracturing begins in Durham County, the water resources of Durham’s residents need to be protected. A more thorough analysis of the effects of hydraulic fracturing would point to better and safer regulation.

 

Works Cited

Boersma, Tim and Corey Johnson. “The Shale Gas Revolution: U.S. and EU Policy and Research Agendas.” Review of Policy Research 29.4 (2012): 570-576.

Drye, Kelley. Hydraulic Fracturing: State Regulatory Roundup Vol. 15. 8 March 2013. Web. <http://www.lexology.com/library/detail.aspx?g=f0badb74-6409-430f-b8bc-d22839d68b58>.

Durham Environmental Affairs Board. Report to the Joint City/County Planning Council on Some Potential Environmental Impacts of Hydraulic Fracturing in Durham County, and Recommendations to Consider for Future Implementation. Durham, 2012.

Hagström, Earl and Julia Adams. “Hydraulic Fracturing: Identifying and Managing the Risks.” Environmental Claims Journal 24.2 (2012): 93-115.

Hall, Keith B. “Hydraulic Fracturing – a Primer.” The Enterprise 41.11 (2011).

Muehlenbachs, Lucija, Elisheba Spiller and Christopher Timmins. “Shale Gas Development and Property Values: Differences Across Drinking Water Sources.” NBER Working Paper Series (2012): 1-37.

Olson, Jon. Natural Gas Is an Energy Solution That Works Today. 29 November 2011. 17 March 2013. <http://www.usnews.com/debate-club/is-fracking-a-good-idea/natural-gas-is-an-energy-solution-that-works-today>.

Pope, Jaren C. “Buyer information and the hedonic: The impact of a seller disclosure on the implicit price for airport noise.” Journal of Urban Economics 63.2 (2008): 498-516. Web.

Simmons, Daniel. No Evidence of Groundwater Contamination From Fracking. 29 November 2011. 17 March 2013. <http://www.usnews.com/debate-club/is-fracking-a-good-idea/no-evidence-of-groundwater-contamination-from-fracking>.

US Environmental Protection Agency. Basic Information: Emissions from the Oil & Natural Gas Industry. 10 October 2012. 16 March 2013. <http://www.epa.gov/airquality/oilandgas/basic.html>.

—. Study of the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources: Progress Report. Washington, DC, 2012. Web.

 

 

 

 

 

Birth of an Idea: The Creation of Research Triangle Park and Its Sustained Economic Impact on the Research Triangle Area

by  Christopher M. Cirillo

 

Abstract


 

Shortly after the end of World War II, key leaders in the state of North Carolina recognized the need to make some form of major investments to curtail the state’s fading economy. Out of this need was born the idea of creating a research and development park that could potentially leverage the science and engineering knowledge inherent in three of the state’s major universities; Duke University in Durham, the University of North Carolina at Chapel Hill, and North Carolina State University in Raleigh. This paper focuses on the establishment of such an entity, Research Triangle Park (RTP) located in-between the three universities, and how this park has stimulated the economic growth of the adjoining regions. The intent is to demonstrate that Research Triangle Park has promoted a wide range of economic benefits to the areas of Durham, Chapel Hill, Raleigh, and Cary since its establishment primarily because it serves as the core of a world-class innovation driven economic cluster that has directly promoted an increased global flow of goods and services.

 

Key Words: Research Triangle Park, Economy, Innovation, Creativity, Durham-Chapel Hill, Raleigh-Cary, North Carolina, Metropolitan Statistical Area, Cluster, Patent

 

 

  1. I.          Introduction

In 1776, Scottish moral philosopher and economist Adam Smith forever changed the world’s view on the key factors that effectively drive a nation’s and by extension the world’s economy with the publication his seminal work on modern economic theory, An Inquiry Into the Nature and Causes of the Wealth of Nations. Smith, in his treatise, articulated several beliefs that he felt were required in order to grow and sustain a nation’s wealth. Central to his theories was the belief that the flow of goods and services was absolutely required to sustain an effective economy and that anything that over regulates such flow or diminishes the inputs to the stream were detrimental to economic sustainability. To this end, much of Smith’s work concentrated on the factors that could potentially affect the dynamic nature of the production of goods and services (Library of Economics and Liberty).

Today, Smith’s ground-breaking theories are more relevant than ever given the rebirth of a truer global economy over the last several decades. The ability for cities and their surrounding metropolitan areas to be agile and creative in the face of global competition has never been more important. To that end, this paper investigates the steps that one region of the country pursued to adopt the fundamental principles that Smith so eloquently articulated all the way back in 1776. From a rather dire position in the global economy in the post-World War Two era, the region in North Carolina bounded by the cities of Durham, Chapel Hill, and Raleigh banded together to create an economic entity, Research Triangle Park (RTP), that would allow this area to rise today to one of global competitiveness. For, without such a bold investment, North Carolina faced the prospect of watching the talented scientists, engineers, and technicians that were being produced by its three leading universities; Duke University in Durham, the University of North Carolina at Chapel Hill, and North Carolina State University in Raleigh leave the state for greener employment pastures.

 

  1. II.        Birth of an Idea

In early 2008, the National Research Council (NRC) of the National Academies tasked its Board on Science, Technology, and Economic Policy (STEP) to undertake a study to help characterize the role that investments in forming science and technology themed research parks play in stimulating regional and national economies. In March of 2008, the STEP, along with the Association of University Research Parks (AURP), sponsored a global symposium entitled “Understanding Research, Science and Technology Parks: Global Best Practices” recognizing that “a capacity to innovate and commercialize new high-technology products is increasingly a part of the international competition for economic leadership” and that “governments around the world are taking active steps to strengthen their national innovation systems” (Wessner, xiii).

Central to the final report summarizing the outcome of the symposium was the recognition that “shared facilities, coupled with geographical proximity, can facilitate the transition of ideas from universities and laboratories to private markets” (Wessner, xiii). This belief was highly consistent with the findings of an earlier 2007 report issued by the National Academy of Sciences/National Academy of Engineering/Institute of Medicine which concluded that “the United States must compete by optimizing its knowledge-based resources, particularly in science and technology, and by sustaining the most fertile environment for new and revitalized industries and the well-paying jobs they bring” (Rising Above, 4). The ultimate goal in asking the NRC’s STEP to investigate the relationship between research parks and the innovation and creativity associated with knowledge-based research parks that can lead to economic stimulation was to better understand current United States policies relating to these types of institutions and steps that are being taken by other countries to enhance their global competitiveness by supporting their own research parks.

To illustrate that the concepts and beliefs identified in the NRC’s STEP report are more than just theory, this paper explores the creation, establishment, and growth of one of the United States’ oldest research parks, Research Triangle Park (RTP), located in the heart of North Carolina. In addition to covering the history of the RTP, the paper will characterize the positive effects that the RTP has had on the region’s economy over the last several decades at both a local and global scale, while providing a summary of some of the negative aspects associated with RTP’s impact on the environment and infrastructure. Finally, the paper will summarize several of the key steps the RTP has planned and initiated to ensure continued success.

 

  1. III.      An Historical Perspective on the Economy of North Carolina

From an historical perspective, cities and their surrounding metropolitan areas have played a vital role in fostering regional and national growth, primarily through trade, for thousands of years. Cities, not the nations that they reside in, are responsible for the majority of global commerce. Throughout history, before the rise of the nation-state, trade along routes like the Silk Road that connected cities from the Mediterranean to the heart of China, or the “medieval network of maritime trading cities” that served to link “Northern Europe’s Hanseatic League,” cities served as an integral part to enabling the earliest global trade (Berube and Parilla 2). What is unique about the creation of the RTP in North Carolina is that unlike the market-driven growth experienced by most U.S. cities, the idea for the creation of a primarily knowledge-based economic enterprise without existing commercial support to drive economic growth had never been accomplished before.

So, what drove the need for such a unique venture in the years shortly after the end of World War II? The primary motivation was to support a southern economy that had started to become “very unstable” (Link, 2). Over the proceeding decades, the state of North Carolina had relied on three primary industries for the generation of revenue and source of jobs: the tobacco growth and manufacturing industry, the furniture industry, and the textile industry. Unfortunately, the sustainment of each of these three primary industries was now being threatened as furniture manufacturing was exiting the state and migrating to the northeastern U.S., textile manufacturers were experiencing stiff competition from Asian manufacturers, and the tobacco industry was losing jobs because of the introduction of more automated manufacturing processes combined with decreasing demand.

The loss of jobs in these three sectors along with North Carolina’s already poorly ranked per capita income was making it increasingly difficult to retain the state’s recent college graduates. In 1952, per capita income for the continental states was $1,639, $1,121 for the states in the southern part of the country, but only $1,049 in North Caroline (Weddle et al, 3). To compound matters, the majority of North Carolina’s economy consisted of low wage manufacturing jobs.  In response, members of the state’s academic communities initiated a dialogue in the early 1950’s with the state’s economic leadership in order to identify potential ways to rectify this bleak economic situation and attract new businesses to the state. From these discussions, the initial concept for the creation of a research park area supported by the regions three “triangle” universities, Duke University in Durham, the University of North Carolina at Chapel Hill (UNC-CH) in Chapel Hill, and North Carolina State University (NCSU) in Raleigh was born (Link, 2).

 

  1. IV.      The Founding of Research Triangle Park

Instrumental in the initial discussions to form a research park were the Treasurer of North Carolina, Brandon Hodges, the president of Wachovia Bank and Trust, Robert Hanes, and a local Greensboro builder, Romeo Guest, whom some credit with the initial idea to create such an entity. By 1954, the three had worked to secure the support of a number of influential members of the NCSU faculty and administration resulting in the school’s Chancellor, Carey Bostian to pitch the idea to then Governor, Luther Hodges. While not immediately being convinced of the value of the idea of forming a research park, Governor Hodges was willing to commission to study the concept. On January 27, 1955, William Newell, director of the Textile Research Center at NCSU delivered a report to the governor endorsing the idea of forming what at that time was referred to as the “Governor’s Research Triangle” (Link, 2).

After obtaining the support of the UNC-CH president, Gordon Gray and the Duke University president, Hollis Edens, the Governor formed the first official entity associated with the RTP, the Research Triangle Development Council. After a first year under the leadership of Robert Hanes, control of the council passed to UNC-CH sociology professor George Simpson, who was tasked with seeking out companies to come to the research park. While Simpson worked with the three universities to develop material to help promote the park, and eventually met with over 200 companies, it became clear that in the absence of a physical entity, the concept was not attractive enough to secure enough interest to locate in North Carolina (Link, 3).

In response, Governor Hodges and a variety of potential investors worked to secure land in the area between the three cities. Unfortunately, the required capital to secure all of the land required to establish the research park failed to be obtained, so in August of 1958, Hanes and Governor Hodges made probably the single most important decision related to founding the park when they secured the services of Archibald Davis of Wachovia Bank and Trust. For it was Davis that recognized that only by making the Research Triangle an entity for public service instead of for private gain would the park be successful in raising the needed development and operating capital (Link, 4). As a consequence of this recognition, the nonprofit Research Triangle Foundation of North Carolina was created and over only a two-month period in late 1958 raised $1.425 million to acquire both the land needed to establish the park and create as a focal point for the park, the Research Triangle Institute. It would be the job of the Institute to conduct research for government, industry, and business in addition to serving as the home of the Foundation (Link, 4).

 

  1. V.        Growth of Research Triangle Park

The first major firm to move into the research park was the Chemstrand Corporation, which relocated from Decatur, Alabama to the park in May 1959. While the going was slow in attracting additional companies over the next five years, 1965 was a pivotal year for the park, when on January 6, 1965 it was announced that the $70 million National Environmental Health Sciences Center would be constructed in the Research Triangle Park by the U.S. Department of Health, Education, and Welfare. Three short months later, International Business Machines (IBM) announced that it would build a 600,000-square foot research facility spread over 400 acres in the Park (Link, 5). Over the coming decades a host of companies, some world leaders and some small entrepreneurial start-ups, would help to make Research Triangle Park one of the greatest research parks in the world (Link, 5). Figure 1 provides an historic overview of the number of jobs that have been created as a function of time in the RTP along with a near-term projection on potential job growth. Additionally, the graph shows the growth in the number of research and development related firms that have occurred since the Park was established (Weddle, 105).

Finally, to cement the long-term existence and uniqueness of such a world-class research park, the president of the Foundation, Davis, worked in 1974 with the president of Duke University, Terry Sanford, and the president of UNC-CH, William Friday, and NCSU to create a “park within the park,” the Triangle Universities Center for Advances Studies, Inc. (TUCASI) (Link, 5). This move was facilitated by the Park becoming financially solvent during this period.  TUCASI was specifically designed to foster an environment where faculty and students from the three associated universities could come together and collaborated with the RTP’s scientists and engineers. To facilitate the creation of TUCASI, the RTP Foundation created a 120-acre campus within the RTP (Weddle et al, 5). In 1976, TUCASI won a competition to house the National Humanities Center and today encompasses a number of other world-class entities such as the Microelectronics Center of North Carolina, the North Carolina Biotechnology Center (NCBC), the National Institute for Statistical Sciences (NISS), the Statistical and Applied Mathematical Sciences Institute (SAMSI), the Borroughs-Wellcome Fund, and Sigma Xi (TUCASI: A Brief History, 2-3).

Today, Research Triangle Park is by far one of the largest research parks in the U.S. and ranks among one of the top parks in the world. Located on an approximately 7,000-acre development situated between the three cities of Durham, Chapel Hill, and Raleigh, RTP is home to more than 170 companies and employs over 39,000 full-time researchers (RTP Media Resources). An ongoing model of science and technology innovation and creation for decades, RTP is home to a combination of multi-national corporations, university derived businesses, and entrepreneurial financed start-ups working in the fields of agricultural biotechnology, biotechnology/life sciences, clean and green technologies, information technology, materials sciences and engineering, business and professional services, and financial and insurance activities. A map of RTP showing the location of a majority of the businesses in the Park plus a listing of companies by industry sector is shown in Figure 2.

 

  1. VI.      RTP’s Impact on the Economic Growth of the Research Triangle Area

As was previously discussed, the degree to which investments in research parks yield a positive return on investment and the policies that should be enacted to enable such investments is an area of national interest given the nature of today’s global economy. The theory being that the establishment of a high-technology research park should support the agglomeration or clustering of advanced research and development firms that will eventually lead to economic growth. In 2004, a study by Scott Wallsten argued that, in general, science based research parks do not usually has a large positive effect on the economic growth of an area. One of the few exceptions specifically mentioned in this report was the Research Technology Park in North Carolina (Wallsten, 1). Although this economic stimulation took a number of decades to be realized, RTP has had a substantial impact on the economic growth of the Research Triangle including Durham and its surrounding counties.

In its current state, RTP meets all of the conditions associated with satisfying the important concept of “geographically clustered economic activity” which was first developed in the late 1800s by economist Alfred Marshall and expanded upon by economists Kenneth Arrow and Paul Romer.  Arrow and Romer characterized the benefits that are accumulated for works, companies, and local economies into three “externalities,” including:

  • Input externalities: a geographic concentration of producers in a given industry that helps reduce costs through shared specialized services, shared infrastructure costs, and shared transportation costs;
  • Labor market externalities: a concentration of workers with specialized skills attractive to local companies. This concentration of skills also has the beneficial effect of increasing worker skills;
  • Knowledge externalities: the high concentration of interrelated activities in a limited geographic area facilitates the intentional and unintentional spread of information and knowledge (Berube and Parilla 10).

By choosing to make an investment in RTP, North Carolina as a whole, and specifically its Research Triangle region have greatly benefited. In order to characterize the positive impact that the RTP has had on the region, it is important to establish an understanding and definition of what the “entity” is that should be evaluated. While in the past, it was potentially acceptable to present key statistical information such as population size and Gross Domestic Product relative to just the incorporated portion of a major city, it is best today to characterize such information in terms of the total metropolitan area. Over the last fifty to seventy years, while there has been a large decline in most cities’ population, there has been a corresponding increase in the number of residents living in a city’s respective surrounding metropolitan areas. As identified above, it is vitally important today to be able to characterize the behavior of not only the core city, but the metropolitan area in order to characterize an agglomeration driven economy.

Fortunately, one is aided in this definition through the establishment by the U.S. Office of Management and Budget (OMB) of a set of accepted Metropolitan Statistical Areas (MSAs). Standard definitions of metropolitan areas were initially established in 1949 by the precursor to the OMB, the Bureau of the Budget. According to their website, the U.S. OMB defines a MSA as “that of a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core” (2011 National Data Book: Appendix II – United States Census Bureau). In order to qualify as a MSA, it must have at least one urbanized area of 50,000 or greater inhabitants. A graphic showing the geographical areas of the two MSAs, Durham-Chapel Hill, NC MSA and Raleigh-Cary, NC MSA, that encompass Research Triangle Park and the three associated universities is shown in Figure 3. Table 1 provides a listing of the Durham-Chapel Hill, NC Metropolitan Statistical Area broken down by its associated “component counties” with their corresponding populations as of 2009, while Table 2 shows the equivalent data for the Raleigh-Cary, NC MSA (2011 National Data Book: Appendix II – United States Census Bureau). Finally, Figure 4 shows the significant growth in the overall populations of both the Durham-Chapel Hill MSA and the Raleigh-Cary MSA from 1969 through 2011 (U.S. Department of Commerce’s Bureau of Economic Analysis). An initial comparison of Figure 1, showing the rate of growth in the number of jobs in RTP, with Figure 4, showing the overall rate of growth in the two MSA, indicates that there is a potential positive relationship in the peak growth rate experienced by both in the mid-to late 1980’s timeframe. While not all of this population growth is directly related to science and research related jobs in RTP, it can be argued that a large portion of this growth comes from the associated ancillary jobs, such as teachers, city works, police, and service sector jobs that help support RTPs employees.

Besides just an increase in overall population in the Durham-Chapel Hill and Raleigh-Cary MSAs, Figure 5 illustrates that a measurable increase in the per capita personal income of both MSA’s inhabitants was experienced from 1969 through 2012 with a slight drop in the 2007 to 2009 timeframe most probably associated with the Great Recession (U.S. Department of Commerce’s Bureau of Economic Analysis). Figure 6 shows that a comparable increase in the Gross Domestic Product was also experienced by the two MSA’s during this same period of time. This is significant as it reinforces one of Adam Smith’s basic tenants that economic flow, in this case as measured by an increase in products and services (GDP), is vital to the economic sustainability of a nation, and that in this case much of that flow can be attributed to the innovative nature of RTP and its associated universities (U.S. Department of Commerce’s Bureau of Economic Analysis).   It is also clear from Figure 7, that during the period from the late 1980s through 2005, the Durham-Chapel Hill MSA, along with the other RTP influenced MSA, Raleigh-Carey, experienced per capita personal income growth that far exceeded North Carolina as a whole and the national average (Weddle, 106). While not all of this growth can be solely attributed to the establishment and growth of RTP, it is clear that residents of the Research Triangle area greatly benefited economically from the creation of approximately 40,000 high paying research and technology specific jobs.

In addition to the 40,000 jobs created within the RTP, the area has experienced a number of direct and indirectly related economic benefits including construction jobs, real estate tax yields, sales tax yields and income tax yields. Additionally, studies have shown that since 1970, greater than 1,500 companies have been established in the Triangle Region as a direct result of supporting the work done by companies inside RTP and the three associated universities (Weddle et al, 7). What has enabled much of this growth is a fundamental shift in the types of companies that were established within RTP. Prior to the existence of RTP, less than 15% of the businesses in the counties around RTP; Orange, Wake, and Durham, were involved in what were designated as “New-line” industries. That is, industries dealing with electronics, communications, engineering and management services, chemicals, and business and education services. As RTP grew, so did the percentage of new-line businesses, from 30% in 1966 to 51% in 2005 (Weddle et al, 6). Much of the economic growth success of RTP and the surrounding area has been attributed not only the number of firms with RTP, but the nature of the businesses that those companies are involved in, thus allowing them to compete on a global basis.

Finally, data from the Brooking Institution’s Global Metro Monitor for the years 2012 and 2013 has been used to assess the Raleigh-Cary MSAs economic recovery on a national basis and the Durham-Chapel Hill MSA’s and Raleigh-Cary MSA’s economic performance on a global basis (Note: Metro Monitor national ranking data for the Durham-Chapel Hill MSA was not available as only data for the top 100 MSA’s in terms of population is currently produced).

The Brookings Institute specifically developed the Metro Monitor to allow for a more visual understanding of the economic recovery of major MSAs from the Great Recession. Although the recession was given an official end date of June, 2009, the U.S. has three million less jobs today than when the recession began toward the end of 2007 (Friedhoff and Kulkarni). From an economic recovery perspective, the Global Metro Monitor tracks and assesses the economic performance of the 100 largest U.S. metropolitan areas since the 2004 timeframe using for key metrics; total employment, unemployment, total output (GDP), and housing prices (Friedhoff and Kulkarni). The most recent March, 2013 data shows that the Raleigh-Cary, NC MSA (Figure 8) has experienced a relatively good recovery in term of overall economic recovery over the period 2004 – 2012. The Raleigh-Cary MSA is currently ranked 29th in terms of overall economic recovery, leading the Brooking Institution to conclude that the Raleigh-Cary MSA has fully recovered from a major economic depression. Paradoxically, while job growth for the area is very strong (ranked 13th nationally), unemployment in the area is still relatively high compared with many other major MSAs.

In addition to an assessment of national economic recovery, the Brooking Institution also ranks each of the top 300 global metropolitan areas in terms of economic growth data, including real GDP and employment change. Currently, the Durham-Chapel Hill MSA ranks 118th (Figure 9) in the world in overall economic performance, while the Raleigh-Cary MSA ranks 109th (Figure 10). While the Durham-Chapel Hill MSA shows improvement economic performance when compared with the period 1997 – 2007, the Raleigh-Cary MSA still has not returned to the level of economic performance that it demonstrated during the 1997 – 2007 timeframe (Istrate and Nadeau). Finally, Figures 11 through 14 provide further insights on the economic recovery of both of the MSAs. From Figure 13, it is clear that both MSAs have experienced positive employment and GDP per capita growth from 2011 through 2012. Conversely, from Figure 14 it can be seen that while both MSAs have improved from an employment change perspective relative to the rest of the country over the last couple of years, both areas are slightly lagging the rest of the U.S. in terms of GDP per capita change over that same time period.

  1. VII.    Patent Trending: An Additional Measure of Economic Stimulation

In February of 2013, the Metropolitan Policy Program at the Brookings Institute conducted a comprehensive, first of its kind analysis of patenting activity and trends on a national scale (Rothwell et al). The report covers patenting trends on a regional level during the period 1980 up to 2012. The report focused on investigating the invention as a measure of economic growth while trying to establish an understanding of why certain areas are more creative and innovative than others.

The major findings of the report were:

  • The rate of patenting in the United States is at a historically level and has been increasing over the last several decades as shown in Figure 15;
  • The issuing of patents tends to occur in a small number of metropolitan areas. 92% of all U.S. patents are issued in just 100 metropolitan areas, while 63% are developed by individuals living in only 20 metropolitan areas;
  • High quality patents are found to be long-term stimulators of economic growth;
  • Metropolitan areas with a significant rate of patenting most often contain research oriented universities with graduate programs in the sciences;
  • Patents produced under U.S. government funded research activities tend to be of very high quality. (Rothwell et al, 1).

Given these findings, it is no real surprise to find that both the Durham-Chapel Hill MSA (40th of 358 MSAs) and the Raleigh-Cary MSA (19th of 358) both rank extremely high in terms of the average number of patents developed per year during the period from 2007 – 2011 (Patenting). Both of the region’s two MSAs have striven to develop tight relationships with their world-class research universities, while these schools had striven to develop and maintain close partnerships with the leading research and development companies in the Research Triangle area. All of this effort has clearly paid off in terms of producing an innovative and creative workforce that serves to stimulate the regional economy by making the firms they work for competitive on a global basis.

Figure 16 shows the relative number of patents produced per worker for most of the major U.S. metropolitan areas. Figure 17 shows the specific patenting activity for the Durham-Chapel Hill, NC MSA in terms of several key indicators including the number of patents, patents/thousand jobs, patenting growth for the area relative to the entire U.S., and the top patenting companies in the area. Figure 18 shows the same information for the Raleigh-Cary MSA. Finally, Tables 3 and 4 list the top twenty patenting companies for the Durham-Chapel Hill MSA and the Raleigh-Cary MSA, respectively.

Potentially the most telling fact, as shown in Table 5, is that both of the MSAs associated with RTP are in the top twenty MSAs in America in terms of Patents per Million Residents for the period from 2007 – 2011 (Rothwell et al, 14). Another way to interpret this information is that if one viewed the productivity of the two RTP related MSAs as one joint enterprise, then the Research Triangle area would rank fifth overall on that same list, making the combined area on of the most powerful engines for innovation in the world.

 

 

  1. VIII.  Conclusions and Summary

From its humble beginnings in the mid-1950s to today, Research Triangle Park has experienced a world of change and growth, the majority of which has had an extremely positive economic effect on the Research Triangle area of North Carolina. Most of this success can be attributed to four primary factors:

  • Timing: the idea for the Park occurred during a period in which both private industry and state and local government saw the immense potential for significant investments in advanced research and development. The vision and faith that North Carolina’s leadership showed in sticking with the creation of such a unique economic entity is commendable;
  • University Partnerships: the linkage with the three surrounding world-class universities allowed the RTP to build excellent working relationships with the school’s scientists and engineers and also employ the best and brightest graduates of these universities. The formal establishment of a permanent academic entity, the TUCASI, also helped to play a significant role in cementing this relationship;
  • Clustering: the critical mass of diversified businesses with their highly skilled scientists and engineers has enabled RTP to form a knowledge-based cluster that has demonstrated the ability to leverage these skills in innovative and creative ways to sustain long-term economic sustainability and growth. As shown in the recent Metropolitan Policy Program study on patent trends, the two MSAs associated with the Research Triangle Park both reside in the top twenty for Patents per million residents (Rothwell et al, 14). This is a clear indication that the concentration of talent in the Research Triangle area is extremely effective at creating new ideas, which as the patent study indicates is essential for economic growth.
  • Commitment: there has been a long-term commitment on the part of both state and regional leadership that has allowed RTP to flourish (Weddle et al, 8). Without this kind of balanced leadership commitment between government and industry an economy runs the risk of either becoming stagnant or resorting to means that run contrary to a free trade economy.

While both MSAs clearly suffered during the most recent economic downturn, the Great Recession of 2008 that was initiated by “flawed government policies and reckless and unscrupulous personal and corporate behavior in the United States,” various assessments have concluded that both Durham-Chapel Hill and Raleigh-Durham have taken steps toward a healthy recovery (Stiglitz).

Clearly, beyond the economic benefit that RTP has provided to the area, the worth of the knowledge contained in the Research Triangle areas’ libraries and museums, the beauty in their orchestras, musical and theater companies, the spirit associated with their collegiate football, basketball, and other sports teams must all be accounted for lest we forget that the most important part of a city is the humans that walk their streets and parks. As Jane Jacobs noted in her monumental work on urban environments, The Death and Life of Great American Cities, “dull, inert cities, it is true, do contain the seeds of their own destruction and little else. But lively, diverse, intense cities contain the seeds of their own regeneration, with energy enough to carry over for problems and needs outside themselves” (Jacobs). It is clear that the cities of Durham, Chapel Hill, Raleigh, and Cary have all striven over the last several decades to be more than dull with the hope that their residents continue to do so.


Works Cited

 “Adam Smith”. Library of Economics and Liberty. 2008. Web. 7 April 2013.                         < http://www.econlib.org/library/Enc/bios/Smith.html>

Berube, Alan, and Joseph Parilla. “Metro Trade: Cities Return to Their Roots in the Global Economy”. The Brookings Institution – Metropolitan Policy Program. 26 November 2012. Web. 30 March 2013.                                                                                                               <http://www.brookings.edu/~/media/research/files/papers/2012/11/26%20metro%20trade/26%20metro%20trade.pdf >

Friedhoff, Alec, and Siddharth Kulkarni. “Metro Monitor – March 2013”. The Brookings Institution – Metropolitan Policy Program. 28 March 2013. Web. 14 April 2013.            < http://www.brookings.edu/research/interactives/metromonitor#M39580-recovery-overall-nv>

Istrate, Emilia, and Carey Anne Nadeau. “Global MetroMonitor 2012: Slowdown, Recovery, and Interdependence”. The Brookings Institution – Metropolitan Policy Program. 30 November 2012. Web. 14 April 2013.                                                                          <http://www.brookings.edu/~/media/research/files/reports/2012/11/30%20global%20metro%20monitor/30%20global%20monitor.pdf>

Jacobs, Jane. The Death and Life of Great American Cities. New York: Random House, 2011. Print.

Link, Albert N., and John T. Scott. “The Growth of Research Triangle Park”. Department of Economics Dartmouth College. 2000. Web. 14 April 2013. <http://www.dartmouth.edu/~jtscott/Papers/00-22.pdf>

“Patenting and Innovation in Metropolitan America”. The Brookings Institute. 1 February 2013. Web. 20 April 2013. <http://www.brookings.edu/research/interactives/2013/metropatenting>

“Population: Estimates and Projections – States, Metropolitan Areas, Cities”. United States Census Bureau, United States Department of Commerce. n.d. Web. 13 April 2013. <http://www.census.gov/compendia/statab/cats/population/estimates_and_projections–states_metropolitan_areas_cities.html>

“Regional Data – Gross Domestic Product by Metro Area”. United States Department of Commerce – Bureau of Economic Analysis. 29 September 2011. Web. 13 April 2013.                                                                                                                                    < http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1>

“Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future”. Committee on Prospering in the Global Economy of the 21st Century: An Agenda for American Science and Technology, National Academy of Sciences, National Academy of Engineering, Institute of Medicine. 2007. Web. 13 April 2013.                                                                                                                                    < https://download.nap.edu/catalog.php?record_id=11463>

Rothwell, Jonathan, Mark Muro, and José Lobo. “Patenting Prosperity: Invention and Economic Performance in the United States and its Metropolitan Areas”. Metropolitan Policy Program, the Brookings Institute. 1 February 2013. Web. 20 April 2013.              <http://www.brookings.edu/~/media/research/files/reports/2013/02/patenting%20prosperity%20rothwell/patenting%20prosperity%20rothwell>

Smith, Adam. An Inquiry Into the Nature and Causes of the Wealth of Nations. Indianapolis: Liberty Fund, 1982. Print.

Stiglitz, Joseph. Freefall: America, Free Markets, and the Sinking of the World Economy. New York: W.W. Norton & Company, Inc., 2010. Print.

“The 2011 Statistical Abstract. The National Data Book. Appendix II – Metropolitan and Micropolitan Statistical Areas: Concepts, Components, and Population”. United States Census Bureau, United States Department of Commerce. n.d. Web. 13 April 2013.        < http://www.census.gov/prod/2011pubs/11statab/app2.pdf>

“The Research Triangle Park – Media Resources”. Research Triangle Foundation of North. 2011. Web. 13 April 2013.                                                                                    <Carolina http://www.rtp.org/about-rtp/media-resources>

“Triangle Universities Center for Advanced Studies, Inc.: A Brief History”. The Research Triangle Foundation of North Carolina. n.d. Web. 13 April 2013.                                                                                                          <http://www.rtp.org/sites/default/files/TUCASI%20Background_0.pdf>

Wallsten, Scott. “Do Science Parks Generate Regional Economic Growth? An Empirical Analysis of their Effects on Job Growth and Venture Capital”. AEI-Brookings Joint Center for Regulatory Studies. March 2004. Web. 30 March 2013.                                  < http://regulation2point0.org/wp-content/uploads/downloads/2010/04/php0i.pdf>

Weddle, Rick L., “Research Triangle Park: Past Success and the Global Challenge”, Understanding Research, Science and Technology Parks: Global Best Practices. Ed. Charles W. Wessner. Committee on Comparative Innovation Policy: Best Practice for the 21st Century, National Research Council. Pages 103-109. 2009. Web. 28 March 2013.   < http://www.nap.edu/openbook.php?record_id=12546&page=127>

Weddle, Rick L., Elizabeth Rooks, and Tina Valdecanas, “Research Triangle Park: Evolution and Renaissance”. The Research Triangle Foundation of North Carolina. June 2006. Web. 26 March 2013.                                                                                                          < http://www.rtp.org/sites/default/files/RTP_History_0.pdf>

Wessner. Charles W., Editor, Understanding Research, Science and Technology Parks: Global Best Practices. Committee on Comparative Innovation Policy: Best Practice for the 21st Century, National Research Council. 2009. Web. 28 March 2013.                      < http://www.nap.edu/openbook.php?record_id=12546&page=127>

 

 

 


Appendix I – Figures and Tables

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Figure 1. Number of Jobs, Number of Projected Jobs, and Number of Research & Development Firms Located in Research Triangle Park since 1960 through a 2016 projection. Source: Weddle, Rick L., “Research Triangle Park: Past Success and the Global Challenge”, Understanding Research, Science and Technology Parks: Global Best Practices. < http://www.nap.edu/openbook.php?record_id=12546&page=127>

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Figure 2: Map of Research Triangle Park and list of associated companies by industry sector. Source: Research Triangle Foundation of North Carolina. <http://rtp.org/sites/default/files/Map%20info%40rtp%202012%20industry_final_0.pdf>

 

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Figure 3: The two major Metropolitan Statistical Areas (MSA) associated with Research Triangle Park, the Durham-Chapel Hill, NC MSA and the Raleigh-Cary, NC MSA. Source: U.S. Census Bureau.    <http://www2.census.gov/geo/maps/metroarea/stcbsa_pg/Nov2004/cbsa2004_NC.pdf>

 

 

 

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Table 1: Durham-Chapel Hill, NC Metropolitan Statistics Area population by county. Source: U.S. Census Bureau’s Statistical Abstract of the United States: 2011 – Appendix II. <http://www.census.gov/prod/2011pubs/11statab/app2.pdf>

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Table 2: Raleigh-Cary, NC Metropolitan Statistics Area population by county. Source: U.S. Census Bureau’s Statistical Abstract of the United States: 2011 – Appendix II. <http://www.census.gov/prod/2011pubs/11statab/app2.pdf>

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Figure 4: Comparison of Population for the Durham-Chapel Hill Metropolitan Statistical Area and the Raleigh-Cary, NC Metropolitan Statistical Area from 1969 – 2011. Source: U.S. Department of Commerce’s Bureau of Economic Analysis. <http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1>

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Figure 5: Comparison of the Per Capita Personal Income (Dollars) for the Durham-Chapel Hill, NC Metropolitan Statistical Area and the Raleigh-Cary, NC Metropolitan Statistical Area from 1969 – 2011. Source: U.S. Department of Commerce’s Bureau of Economic Analysis. <http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1>

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Figure 6: Comparison of Gross Domestic Product (GDP) in millions of current year dollars for the Durham-Chapel Hill, NC Metropolitan Statistical Area and the Raleigh-Cary, NC Metropolitan Statistical Area from 2001 – 2010. Source: U.S. Department of Commerce’s Bureau of Economic Analysis. <http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1>

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Figure 7: A Comparison of change in Per Capita Personal Income as measured by percentage comparison to the National Average from 1970 through 2005 for the state of North Carolina and select cities. Source: Weddle, Rick L., “Research Triangle Park: Past Success and the Global Challenge”, Understanding Research, Science and Technology Parks: Global Best Practices. <http://www.nap.edu/openbook.php?record_id=12546&page=127>

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Figure 8: Raleigh-Cary, NC Metropolitan Statistical Area economic recovery ranking among the top 100 largest United States’ MSAs as reported by the Metro Monitor for the March, 2013 timeframe. Source: the Brooking Institution’s Metro Monitor. <http://www.brookings.edu/research/interactives/metromonitor#M39580-recovery-overall-nv>

 

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Figure 9: Global MetroMonitor 2012 Generated Economic Performance Ranking for the Durham-Chapel Hill, NC Metropolitan Statistical Area out of 300 metropolitan economies worldwide. Source: the Brookings Institution’s Metro Monitor. <http://www.brookings.edu/research/interactives/global-metro-monitor-3>

 

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Figure 10: Global MetroMonitor 2012 Generated Economic Performance Ranking for the Raleigh-Cary, NC Metropolitan Statistical Area out of 300 metropolitan economies worldwide. Source: the Brookings Institution’s Metro Monitor. <http://www.brookings.edu/research/interactives/global-metro-monitor-3>

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Figure 11: Global Metro Monitor November generated economic growth data from 2011 to November 2012 for the Durham, NC metropolitan area measured against the world’s 300 largest metropolitan economies in terms of comparison with their country’s real GDP per capita and employment change. Source: the Brookings Institution’s Global Metro Monitor. <http://www.brookings.edu/research/interactives/global-metro-monitor-3>

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Figure 12: Global Metro Monitor November generated economic growth data from 2011 to November 2012 for the Durham, NC Metropolitan Statistical Area and the Raleigh-Cary, NC Metropolitan Statistical Area measured against the world’s 300 largest metropolitan economies in terms of comparison with their country’s real GDP per capita and employment change. Source: the Brookings Institution’s Global Metro Monitor. <http://www.brookings.edu/research/interactives/global-metro-monitor-3>

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Figure 13: Global Metro Monitor 2012 generated economic growth data from 2011 to November 2012 for the Durham, NC Metropolitan Statistical Area and the Raleigh-Cary, NC Metropolitan Statistical Area measured against the world’s 300 largest metropolitan economies in terms of  real GDP per capita and unemployment change. Source: the Brookings Institution’s Global Metro Monitor. <http://www.brookings.edu/research/interactives/global-metro-monitor-3>

 

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Figure 14: Global Metro Monitor November generated economic growth data from 2011 to November 2012 for Durham, NC Metropolitan Statistical Area and the Raleigh-Cary, NC Metropolitan Statistical Area measured against the world’s 300 largest metropolitan economies in terms of  comparison with their country’s real GDP per capita and employment change. Source: the Brookings Institution’s Global Metro Monitor. http://www.brookings.edu/research/interactives/global-metro-monitor-3

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Figure 15: Timeline of innovation. Graph of patents granted to U.S. inventors per 1,000 U.S. residents by year of grant from 1790 – 2011. Source:  the Brookings Institute. <http://www.brookings.edu/research/interactives/2013/metropatenting>

 

 

 

 

 

 

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Figure 16: Number of U.S. Patents granted per worker in 2011. Source:  the Brookings Institute. <http://www.brookings.edu/research/interactives/2013/metropatenting>

 

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Figure 17: Durham-Chapel Hill, NC Metropolitan Statistical Area summary of patent activity (by year of application) for the period 2007 – 2011. Source: the Brookings Institute. <http://www.brookings.edu/research/interactives/2013/metropatenting>

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Figure 18: Raleigh-Cary, NC Metropolitan Statistical Area summary of patent activity (by year of application) for the period 2007 – 2011. Source: the Brookings Institute. <http://www.brookings.edu/research/interactives/2013/metropatenting>

 

 

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Table 3: 22 Largest U.S. Patent assignees in the Durham-Chapel Hill, NC Metropolitan Statistical Area in 2011. Source: the Brookings Institute. <http://www.brookings.edu/research/interactives/2013/metropatenting>

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Table 4: 20 Largest U.S. Patent assignees in the Raleigh-Cary, NC Metropolitan Statistical Area in 2011. Source: the Brookings Institute. <http://www.brookings.edu/research/interactives/2013/metropatenting>

 

 

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Table 5: Top twenty Metropolitan Statistical Areas in in terms of Patents per Million Residents for the period from 2007 – 2011. The Raleigh-Cary, VC MSA ranks 12th and the Durham-Chapel Hill, NC MSA ranks 14th. Taken together, the Research Triangle region would rank fifth overall on this list with 2,284 patents per million residents over the period 2007 – 2011. Source: the Brookings Institute. <http://www.brookings.edu/~/media/research/files/reports/2013/02/patenting%20prosperity%20rothwell/patenting%20prosperity%20rothwell>

 

The Research Triangle Park as a Regional Employer and Engine of Growth

by Christopher Bradford  DP_BradfordChristopher

The Research Triangle Park as a Regional Employer and Engine of Growth

Introduction

Since its establishment in 1959, the Research Triangle Park (RTP) has been a prominent fixture in the regional economy. North Carolina’s historical textile, tobacco and furniture industries experienced significant decline in the decades following the Second World War, and many jobs were lost in what is now the Research Triangle area (Link and Scott 2003). In the 1950s, several figures in state and local government, business and academia began to discuss development plans to increase employment and diversify the regional economy (Link 1995). The culmination of these efforts was the RTP, a complex that would focus on burgeoning high-technology industries. The RTP “began” in earnest in 1959, when the Research Triangle Institute and the Chemstrand Corporation located in the park (Link and Scott 2003).

Since then, the RTP has grown significantly. The RTP’s success can be measured by the total number of firms that occupy the park and by the total employment of these firms. Both of these metrics have generally increased throughout the past five decades. Today, the RTP houses 178 firms that cumulatively employ over 39,000 workers. Analysis of the composition of RTP firms reveals a trend whereby most recent entrants to the park are smaller firms with relatively few employees. The RTP’s success as a regional employer and engine of economic growth is also suggested by secondary metrics such as the growing average income in the area since the park’s creation.

The RTP’s substantial growth over its five-decade existence can be examined by considering the park as an agglomeration economy. The park has grown by attracting firms that specialize in high-technology fields. As the number of firms specializing in similar fields has grown, so have the agglomeration advantages of the RTP. Yet despite the RTP’s past successes as a regional employer and engine of economic growth, questions exist about the sustainability of its suburban industrial cluster model moving forward.

 

Literature Survey

The RTP can be viewed as an agglomeration economy that specializes in high-technology industries, particularly in the life sciences and information technology (see Figure 6). Alfred Marshall (1890) claimed that economic clustering provides benefits in terms of labor pooling, information flow and access to specialized inputs. Saxenian (1994) proposes that agglomeration economies are particularly important for high-technology industries. Through physical proximity, scientists, engineers and managers can develop localized networks for efficient information sharing and innovation. Jenkins et al (2008) argue that the agglomeration effects of research parks are significant and are responsible for increasing the proportional growth of jobs in high-technology industries.

One of the RTP’s prominent agglomerative features is the high level of educational attainment of the park’s employees and of the residents of the Triangle region more broadly. Forty-six percent of the workforce in the 13-county Triangle area held college degrees in 2011, well above the national and state averages of 36% and 26.5%, respectively (US Census Bureau 2013). Moretti (2003) finds that for each one-percentage increase in the share of college degree holders in a MSA, the average wage for all workers rises by between 0.6 and 1.2%.

Glaeser and Saiz (2003) find evidence that highly skilled cities, where a high percentage of workers have college or advanced degrees, are becoming more productive and growing faster than less-skilled cities. The authors cite the importance of human capital in allowing cities to “reinvent” themselves and adapt to economic change. The Triangle region illustrates aspects of such a “reinvention city,” having transformed itself in a half-century from an economy predicated on cigarette, textile and furniture manufacturing to a highly educated technological hub. Goldstein (2005) argues that it has been the development of the Triangle region’s knowledge infrastructure that has transformed the area in recent decades. He reasons that the success of the RTP owes much to the three prominent research universities in the area – Duke University, UNC-Chapel Hill and NC State University. RTP firms and these universities have mutually benefitted from one another’s presence, with firms gaining research experience and universities learning how to better commercialize their own research.

Kodrzycki and Muñoz (2009) find that leadership and long-term collaboration between the public and private sectors are essential for the economic revitalization of post-industrial areas such as the Triangle region. Several studies (Link 1995 and 2003, Rohe 2011) emphasize the creative leadership and close cooperation between private industry, the Triangle’s three leading universities and local and state government that has allowed the RTP to thrive. Sternberg et al (2010) describe the RTP as a cluster driven by the private sector but dependent upon cooperation with state government and several regional nonprofit organizations, such as the Research Triangle Foundation (RTF) and Research Triangle Regional Partnership (RTRP). Goldstein (2005) emphasizes the importance of public sector investments for attracting firms to the RTP, citing in particular the expansion of the Raleigh-Durham International Airport and Interstate 40.

However, there is much literature that questions the efficacy of industrial clustering in today’s rapidly changing economic climate. Ioannides et al (2008) predict that increasingly cheap and efficient information sharing, particularly due to the Internet, will lead to more spatially diffuse economic activity. The authors also predict that larger cities will experience more rapid economic and population growth than smaller cities, as larger cities typically have more robust consumer amenities and are thus more attractive to young professionals. These predictions imply that isolated suburban clusters such as the RTP may be outmoded economic engines in the future.

Moreover, in a comparison of numerous counties similar in terms of population and high-technology employment, Wallsten (2004) finds that research parks typically exert no positive effect on regional economic development. Analyzing high-technology clusters in Texas, De Silva and McComb (2011) find that positive locational effects exist for firms in the same industry located between one and 25 miles apart. Locating within one mile of a same-industry firm, on the other hand, correlates with increased firm mortality.

In contrast to these skeptical prognoses on the merits of high-technology clustering, Weddle et al (2006) contend that the RTP has exerted substantial economic spillover effects beyond the park’s boundaries. The percentage of firms engaged in “new-line” industries, including chemicals, electronics, communications, business services and engineering, rose from 15% at the time of the RTP’s founding to 51% in 2001. The authors attribute growth in these sectors to the presence of RTP firms engaged in new-line industries. In sum, vastly different opinions exist in the literature on the efficacy of industrial clustering.

 

Description of Data

The economic growth of the RTP can be viewed in terms of the number of firms that have located in the park over time. As shown in Figure 1, the number of RTP tenants has steadily increased by the decade. As of January 2013, 178 firms are located in the RTP, up from 21 at the end of the 1960s. The number of firms nearly doubled, from 21 to 38, in the 1970s. The park experienced its most significant numerical increase in tenants between 2000 and 2007, adding 45 firms in this period.

Figure 2 shows patterns of RTP firm entry over time according to current number of employees. Data were available for 168 of the 178 firms currently located in the RTP. Of these 168 firms, 120, or over 70%, have fewer than 50 employees. The vast majority of firms that employ fewer than 50 entered the RTP recently: over 88% of these firms have entered since 2000, with 35% having entered since 2010. Firms with small workforces display the most temporally skewed entry pattern. Of the 16 firms employing between 50 and 99 workers, half entered the RTP before 1990. Of the ten firms employing between 100 and 249, four entered before 1990. Seven of the 12 firms with 250-999 employees entered before 1990. Half of the ten largest firms with over 1000 employees entered before 1990. While they represent a far smaller sample size, larger employers have entered the park with a far more even temporal distribution than firms with employment below 50.

Historically, as the number of firms housed in the park has grown, so has the park’s total employment. Today, the RTP’s cumulative full-time employment stands at around 39,000 (RTF). As shown in Figure 4, total RTP employment increased annually with only one exception in the years from 1960 to 2000. Total employment has grown with something of a bi-sigmoidal distribution, with rapid increases in the mid-1960s and again in the early to mid-1980s. The significant employment increase from 1965 to 1966 is due to the entry of IBM and what is now the National Institute of Environmental Health Sciences (NIEHS), both of which were and remain very large employers (Link and Scott 1995). The 1980s oversaw a tripling in employment in the park, from just over 10,000 at the beginning of the decade to well over 30,000 by the end. However, beginning in the early 2000s, total employment declined from a peak of over 43,000 employees to around 37,000. In this period, the RTP and the surrounding region experienced an acute decline in the telecommunications industry. Nortel Networks in particular was responsible for a large number of lost jobs in the RTP. The firm had over 8,500 RTP employees in the late 1990s, but cut RTP employment to 1,850 by 2009, when Ericsson acquired the struggling company (Rohe 2011).

In the formative years of the RTP, developers pursued a recruitment strategy aimed at large corporations (Rohe 2011). The entry of IBM, NIEHS, Glaxo (later GlaxoSmithKline) and the EPA were major boons for the RTP in its early years. Large firms still feature prominently in the RTP. Currently, IBM and GlaxoSmithKline employ some 10,000 and 4,500 workers respectively (Greater Durham Chamber of Commerce). However, a large and increasing number of current RTP tenants are smaller employers. As shown in Figure 5, 43% of RTP firms in 2013 have fewer than 10 employees. Sixty-two percent of firms employ fewer than 25, and 71% employ fewer than 50 workers. Figure 6 illustrates the industries in which current RTP firms specialize. Biotechnology/life sciences dominate, with 45% of firms involved in these fields. A further 18% of RTP firms are engaged in information and communication technology. The RTP has attracted firms in these industries throughout its existence. Of the 24 current tenants that entered the park by 1979, 10 specialized in biotechnology/ life sciences or information and communication technology.

Data on the Triangle region indicate a correlation between the park’s growth and regional economic success. Since the establishment of the RTP, income in the area has grown considerably compared to state and national averages. In 1969, when the RTP housed 21 firms, average per capita income was 86% and 89% of the national average in the Durham-Chapel Hill and Raleigh-Cary MSAs, respectively (Figure 8). Relative per capita income peaked for the Durham-Chapel Hill MSA in 1993, at 105% of the national average, and for the Raleigh-Cary MSA in 2000, at 115%. In 2007, these figures were 104% and 102%, respectively. Though a crude metric that fails to discern between employees of different firms, the average salary for an employee of an RTP company was $56,000 in 2004. This figure is 45% above the national average and roughly 30% higher than the average income for both the Durham-Chapel Hill and Raleigh-Cary MSAs (Weddle et al 2006).

 

Analysis

The increase in the number of firms occupying the RTP over time is a testament to the agglomeration effects from which the park benefits. As the number of tenant firms specializing in a certain field has grown, the RTP’s agglomeration effects have in turn increased. Agglomeration effects are especially pronounced for RTP firms specializing in biotechnology/life sciences, with around 80 firms operating in this sector today. The RTP benefits significantly from the abundance of well-educated professionals in the regional labor pool. Highly educated workers are essential to the RTP: in 2006, five percent of the RTP’s employees held a PhD (Weddle 2006). In 1998, one-quarter of new professional employees hired by RTP firms held degrees from UNC-Chapel Hill, Duke or NC State University (Link 2002). According to Rohe (2011), these universities have cooperated increasingly with RTP firms to commercialize research since the 1980 Bayh-Dole Act.

Data show a pattern whereby smaller firms that employ relatively few workers have tended to enter the park more recently. Additionally, there appears to have been a great deal of firm turnover in the RTP in recent years. While direct data on firm exits from the RTP was not available, secondary analysis of firm entry indicates significant turnover. Though entry data for 10 firms are missing, of the 21 firms housed in the RTP by 1969, only 7 are currently listed as tenants. Of the 38 tenants housed by 1979, 22 remain. Thirty-six of the 70 firms housed in the park in 1989 remain. Sixty of the 112 firms housed in 1999 remain, as do 122 of the 157 firms located in the park by 2009.   Currently, the RTP houses 178 firms, up from 157 in 2007. However, 63 firms entered the park between 2008 and 2013. Again, the implication is that numerous firms must have left the RTP over this period. It is likely that many of these exiting firms were start-ups nurtured in the RTP that then left the park. Indeed, according to the RTF, the five incubators and business accelerators in the RTP have helped establish over 250 start-up and spin-off firms over the years. Goldstein (2005) notes that the RTP has had considerable success in creating spin-off firms in the past two decades, but has failed to catalyze the growth of larger high-technology facilities beyond the park’s boundaries.

It appears that the trend whereby smaller firms comprise a higher percentage of the RTP’s total tenants reflects a desire on behalf of planners to attract start-ups. On its website, the RTF prominently advertises the park’s five incubators and business accelerators, which currently nurture “nearly 80 start-up and early state companies.” The RTF states that flexible, cost-efficient leases are available for start-ups, and specifically for start-ups that have emerged from university research. This strategic emphasis on attracting smaller firms may be partly due to the fact that only 700 acres are free for development in the park (RTF). Nonetheless, in the RTF’s 2012 “Master Plan” for future development of the park, leaders called for a continued effort to maintain existing large firms in the RTP as well as to attract new large firms. The plan proposes that the park further diversify its tenants by industry and size to ensure the RTP’s continued success.

The campaign to attract start-ups also likely recognizes increased competition for attracting large firms, as well as changes in overall corporate strategies for research and development. Depillis (2012) argues that many large companies are reluctant to make the costly long-term investments in permanent infrastructure that they did in the RTP’s infancy. Instead, firms increasingly prefer to lease space for projects on an ad hoc basis. Depillis also suggests that the RTP’s isolated, sprawling complexes are unappealing to many young professionals. To address changes in employee preferences, the RTF has called for a renovation of the park that will implement residential and commercial spaces (Rohe 2011). However, in addition to requiring substantial changes in zoning laws, this plan has met with doubts that employees, especially young professionals, want to live and work in a suburban business campus.

The growth of the RTP in terms of the park’s number of tenants and employees over the years has indeed coincided with economic growth in the Triangle region (Figures 7 and 8). Average wages have risen, unemployment has remained below national and state averages and population has increased (Rohe 2011). Weddle et al (2006) argue that the growth of the RTP has exerted spillover effects that have spurred the growth of new-line industries in the counties surrounding the park. Total employment in the seven counties closest to the park increased by nearly 700,000 between 1970 and 2006. These gains were most pronounced in the core counties of Wake, Orange, and Durham, all of which experienced employment increases of well over 200% in this period (Rohe 2011). Hence, regional employment growth in the past several decades has correlated with greater proximity to the RTP. Weddle et al (2006) also note that the RTP contributes to the regional economy directly in terms of construction employment and real estate, income and sales tax yields. However, while it is notable that the successes of the RTP have correlated with regional economic growth, it is difficult to establish a causal relationship between the former and the latter.

Though the RTP has certainly exerted positive economic effects on the surrounding area, it is unreasonable to conclude that the park is single-handedly responsible for regional economic growth. In the 13-county Triangle area, population increased by 29.2% from 2001-2011, compared to the national average of 9.3% (NCOSMB, US Census Bureau). However, during this period, the RTP shed several thousand jobs. Total park employment began to rebound in 2005 and has continued to grow since, but today’s employment figures are still below the peak of the early 2000s. The rapid population growth in the area despite the park’s decreasing employment in the past decade suggests that other features of the regional economy must have appealed to immigrants. Healthcare and education are two candidates: the two sectors have been the region’s fastest-growing industries over the past two decades (NC Dept. of Commerce).

Additionally, the growth of the RTP has certainly not proven to be a panacea for issues of poverty and income inequality that plague parts of the Triangle. In 2009, nearly 19% of Durham city residents lived in poverty, with poverty rates at 25.7% for black and 36.3% for Hispanic residents. In addition, the median household income for white families, over $61,000, was far higher than the figures for black ($33,000) and Hispanic ($38,000) families (City Data). These economic malaises of the Triangle area require solutions that the RTP has proven unable to provide.

 

Conclusions

Data have illustrated that in terms of the total number of firms and total employment, the RTP has grown substantially over the past five decades. The park’s 178 firms currently employ around 39,000 full-time workers. The RTP has illustrated a trend in recent decades toward housing an increasing number of smaller, lower-employing firms. As of January 2013, 71% of the RTP’s 178 firms employ fewer than 50 workers, with 43% of its firms employing fewer than 10 (Figure 5). The park appears to be successful in attracting new firms, having added 106 new firms since 2000 and 46 since 2010 (Figures 2,3). Substantial regional economic growth has occurred since the park’s founding, as evidenced by the growth of regional income compared to the national average (Figures 7,8).

Yet the RTP faces numerous challenges in retaining its competitive advantage in high-technology employment in the years to come. With less than one-tenth of its total area available for development, the RTP faces spatial constraints that limit its ability to attract the large firms that drove the park’s early growth. Competition for attracting new firms has increased greatly with the proliferation of research parks and development initiatives both domestically and internationally. Moreover, the RTP faces a decline in several of its prominent industries. From 1999 to 2003, the park experienced a 30% decline in employment in the manufacturing of high-technology equipment (Rohe 2011). Additionally, the information technology sector, long a large employer in the RTP, has suffered over the past two decades. The park has lost thousands of jobs in this sector since the late 1990s, as evidenced by the decline of Nortel Networks.

The data indicate that the RTP has been fairly successful in attracting new firms with small staffs. However, the turnover rate has been high for these firms. One possible implication of this is that once start-ups mature sufficiently, they find the environment of the RTP undesirable or unfavorable to their sustained growth. The isolated nature of the RTP complex itself might contribute to this pattern. A 1988 survey of RTP firms found that 47% of these companies would not have located in the Triangle area if the RTP had not existed (Rohe 2011). It would be instructive to conduct a contemporary equivalent of this survey to observe whether the features of the park still proved as attractive to firms, or whether firms desired new amenities not offered by the RTP.

Moving forward, it remains to be seen whether the efforts to modernize the RTP as a mixed-use complex featuring residential and commercial space are successful in attracting new firms and workers to the park. More fundamentally, further research is needed to determine the role of traditional suburban research parks in housing start-ups and small firms specializing in high-technology fields. The RTP contributed hugely to modernizing the regional economy in the latter half of the 20th century following the decline of traditional manufacturing in the area. Today, the park’s leaders must demonstrate a similar ability to adapt to new trends in employment in order to preserve the RTP’s status as a successful regional employer and engine of economic growth.

 

 

 

 

Appendix

Figure 1

DP_Bradford-1

Data from: Rohe 2011.

Figure 2

DP_Bradford-2

Data from: “2013 Company Directory.” Research Triangle Foundation of North Carolina. 2013.

Figure 3: Data on Firm Entry

Date of Entry for All Current Firms (data available for 168 of 178 current tenants)
Year Number of Firms % all Firms
1959-1969

7

4.2

1970-1979

15

8.9

1980-1989

14

8.3

1990-1999

24

14.3

2000-2009

62

36.9

2010-2013

46

27.4

168 total 100% total
 

 

   

 

Under 50 Employees Number Firms % Firms this size
1959-1969

3

2.5

1970-1979

5

4.2

1980-1989

4

3.3

1990-1999

14

11.7

2000-2009

52

43.3

2010-2013

42

35

120 total 100% total

 

50-99 Employees Number Firms % Firms this size
1959-1969

1

6.25

1970-1979

4

25

1980-1989

3

18.75

1990-1999

1

6.25

2000-2009

4

25

2010-2013

3

18.75

16 total 100% total

 

 

 

 

 

 

 

 

100-249 Employees Number Firms % Firms this size
1959-1969

0

0

1970-1979

2

20

1980-1989

2

20

1990-1999

4

40

2000-2009

2

20

2010-2013

0

0

10 total 100% total

 

250-999 Employees Number Firms % Firms this size
1959-1969

0

0

1970-1979

2

16.7

1980-1989

5

41.7

1990-1999

3

25

2000-2009

1

8.3

2010-2013

1

8.3

12 total 100% total
     

 

 

1000+ Employees Number Firms % Firms this size
1959-1969

3

30

1970-1979

2

20

1980-1989

0

0

1990-1999

2

20

2000-2009

3

30

2010-2013

0

0

10 total 100% total

 

Data from: “2013 Company Directory.” Research Triangle Foundation of North Carolina. 2013.

 

 

 

 

 

Figure 4: Total Employment of RTP Firms

 

Source: The Research Triangle Foundation of North Carolina.

 

 

 

 

 

 

 

 

 

 

 

Figure 5

 

Data from: Research Triangle Foundation of North Carolina. 2013.

Figure 6

 

Data from: Research Triangle Foundation of North Carolina. 2013.

Figure 7

 

Data from: Economagic.com. 2013.

Figure 8

 

Data from: Economagic.com. 2013.

References

“2013 Company Directory.” The Research Triangle Foundation of North Carolina (RTF). January 2013.

 

De Silva, Dakshina G. and Robert P. McComb. “Geographic concentration and firm survival.” Munich Personal RePEc Archive. Paper No. 32906. 2011.

 

Depillis, Lydia. “Dinosaur Makeover: Can Research Triangle Park Pull Itself Out of the 1950s?” The Atlantic. 12 Oct 2012.

 

“Durham, North Carolina.” City Data. 2013. http://www.city-data.com/city/Durham-North-Carolina.html.

 

Glaeser, Edward L and Albert Saiz. “The Rise of the Skilled City”. Harvard Institute of Economic Research. Discussion Paper No. 2025. 2003.

 

Goldstein, Harvey. “The Role of Knowledge Infrastructure in Regional Economic Development: The Case of the Research Triangle.” Canadian Journal of Regional Science. Vol. 28, No. 2, Pp. 199-220. 2005.

 

Ioannides, Yannis Melelaos, Henry G. Overman, Esteban Rossi-Hansberg and Kurt Schmidheiny. “The Effect of information and communication technologies on urban structure.” Economic Policy. Vol. 54, Pp. 201-242. 2008.

 

Jenkins, Craig J, Kevin T Leicht and Arthur Jaynes. “Creating High-Technology Growth: High-Tech Employment in U.S. Metropolitan Areas, 1988-1998”. Social Science Quarterly. Vol. 89, No. 2, Pp. 456-481. 2008.

 

Kodrzycki, Yolanda K and Ana Patricia Muñoz. “Reinvigorating Springfield’s Economy: Lessons from Resurgent Cities”. Federal Reserve Bank of Boston. Community Affairs Discussion Paper No. 09-7. 2009.

 

“Large Employers/Manufacturers.” The Greater Durham Chamber of Commerce. 2013. http://durhamchamber.org/.

 

Link, Albert N. From Seed to Harvest: The Growth of Research Triangle Park. The Research Triangle Foundation of North Carolina. 2002.

 

Link, Albert N and John T Scott. “The Growth of Research Triangle Park”. Small Business Economics. Vol. 20, Pp. 167-175. 2003.

 

Marshall, Alfred. Principles of Economics. London, MacMillan & Co. 1890.

 

“Metropolitan Statistical Area Data.” Economagic.com: Economic Time Series Page. 2013.

 

Moretti, Enrico. “Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data.” Journal of Economics. Vol. 121. Pp. 175-212. 2004.

 

North Carolina Department of Commerce Division of Employment Security. 2013. https://www.ncesc.com/default.aspx.

 

North Carolina Office of State Budget and Management (NCOSBM). 2013. http://www.osbm.state.nc.us/.

 

“The Research Triangle Park.” Research Triangle Foundation of North Carolina (RTF). 2013. www.rtp.org.

 

“The Research Triangle Park (RTP).” Research Triangle Regional Partnership (RTRP). 2013. http://www.researchtriangle.org/.

 

Rohe, William M. The Research Triangle: From Tobacco Road to Global Prominence. Philadelphia. University of Pennsylvania Press. 2011.

 

“State and County Quick Facts: Durham, North Carolina.” United States Census Bureau. 2013.

 

Sternberg, Rolf, Matthias Kiese and Dennis Stockinger. “Cluster policies in the US and Germany: varieties of capitalism perspective on two high-tech states”. Environment and Planning C: Government and Policy. Vol. 28, Pp. 1063-1082. 2010.

 

Wallsten, Scott. “Do Science Parks Generate Regional Economic Growth? An Empirical Analysis of their Effects on Job Growth and Venture Capital.” AEI-Brookings Joint Center for Regulatory Studies. 2004.

 

Weddle, Rick L., Elizabeth Rooks and Tina Valdecanas. “Research Triangle Park: Evolution and Renaissance.” Research Triangle Foundation: IASP World Conference Paper. 2006.

Rezoning and Development: The 751 South Project in Durham, NC

By Stephanie Xu  DP_XuStephanie

Introduction

A key debate during North Carolina’s 2012 election cycle revolved around the proposed development of 164 acres in southwest Durham County, an area now widely referred to as 751 South.  The development called into question zoning practices and decisions, as the Durham Planning Commission finally approved 751 South to be rezoned from its former Rural Residential designation to a Low-Medium Density Residential designation.  Yet even as Southern Durham Development (SDD), the company spearheading the project, moves forward with its plans, environmental activists and local community leaders have spoken up against the development, citing an irreversible environmental impact, including damage to Jordan Lake and its aquifer.

Amidst the political debate, this paper seeks to examine whether or not the 751 development will be beneficial to Durham using economic analyses.  We first review the origins of zoning policies to gain a better understanding of the sensitivity of rezoning.  Then, we look more deeply into 751 South and the research that has been conducted about the project, including an independent economic impact analysis and a cost-benefit analysis by Durham County.  From the data available, 751 South is a viable and necessary development that will bring a great deal of benefits to Durham County, ranging from job creation to privately-funded highway improvements.

Literature Review

The practice of zoning as a method of urban planning and land use regulation has been surrounded by equity and segregation debates over the past few decades.  A wide body of literature about the topic exists, with a range of focuses, from its early implementation in the early 1900s to its efficiency to its effect upon race and class segregation.  This paper examines the history and progression of zoning practices and policies, as they are crucial to understanding the associated controversies.  We then look into the impact of zoning upon income distribution and equity, first through a more dated but resourceful paper by Fernandez and Rogerson (1997), and then through a 2006 paper by Calabrese, Epple, and Romano.  Lastly, we explore literature concerning the relationship between zoning laws and public health initiatives.

Fischel (2004) offered a comprehensive overview of zoning from its early 1900s origins to modern day policy reforms to address the exclusionary products of such regulations.  Fischel posited that zoning was not a necessary practice until the advent of buses and trucks that allowed businesses to locate farther from streetcar tracks and stations.  Until then, workers were able to buy houses in the suburbs without fear of encroaching business.  However, companies’ newfound capability to transport resources threatened the residential environment that workers found so valuable.  Thus, zoning was the only way to give homeowners security and assurance that their neighboring land wouldn’t become a noisy business district.  Several decades later, the problem was exacerbated by a sudden increase in highway construction in the 1960s.  Firms could now move out of high-density urban areas even more easily.  Failing or struggling cities and suburbs welcomed the influx of businesses for the accompanying fiscal benefits.  Meanwhile, only well-off communities could afford to keep businesses out.  Fischel argued that it was in this environment that income distribution began to play such a strong role.  In this paper, he sought to find a way to keep home values stable, as zoning was initially created to accomplish, without causing the exclusion with which we are faced today.  To resolve this, he proposed selective home equity insurance, despite his acknowledgement of the administrative problems and risks of moral hazard and adverse selection.

Fernandez and Rogerson (1997) and Calabrese et al. (2006) investigated the impact of zoning upon equity, but differed in their approaches in a critical way.  Both used a two-community model with two different income distributions.  Both also made a point of stratification as a natural occurrence, with or without zoning laws.  But the former required in their model that individuals committed to one community or another before any voting took place, and before they bought any property.  Calabrese et al., on the other hand, based their argument upon the Tiebout rationale that people could “vote with their feet” and choose to reside in towns that align with their personal preferences.

Thus they arrived at different conclusions.  Fernandez and Rogerson found that in general, zoning made the richest better off and the poorest worse off, but left a great deal of ambiguity about those in the middle.  Poor individuals who moved from a more affluent community to a lesser one because of zoning policies tended to be better off, while individuals who move to a richer community tend to be worse off.  Calabrese et al. finds an overall increase in efficiency and welfare as a result of zoning, due to their assumptions under the Tiebout model.  They conclude that because residents can move after a community votes on tax rates and local public goods, “aggregate welfare gains arise from better Tiebout matching of preferences to levels of public-good provision” (Calabrese et al. 2006, 4).  Comparing these two scholarly works highlights a decisive factor in zoning theory: that the order in which individuals vote on taxes and public goods, buy property, and choose their community affects the predictions of the ensuing welfare gains or losses.

751 South: Background

Until July 2012, the 751 South region was designated as Rural Residential, which permits four or fewer units per acre of land.  Since the Durham Planning Commission approved the rezoning application by a vote of 8-5 in favor, 751 South is now a Low-Medium Density Residential area and is allowed anywhere from four to eight units per acre of land.

SDD’s plan for the development allocates 300,000 square feet to retail space, 300,000 square feet to office space, 645 apartments, 358 condominiums, 170 townhomes, and 107 single-family houses.  Their plan also includes a 26-acre donation to Durham to build a new elementary or middle school, a new fire department, and a new sheriff’s office.  Finally, SDD has committed to investing the full $6 million needed to improve Highway 751 to expand its capacity and relieve congestion in the area.

 

751 South: Economic Analysis

The economic impact of the 751 project come in two phases: the construction phase and the permanent operating phase.  Benefits, as outlined by the ERA Economic Impact Analysis, come in many forms, the most significant being in job creation and increased property and sales tax revenue.  Other benefits include SDD’s full funding of the highway renovations and planned donation of 26 acres of land for the purpose of constructing a new public school, and new sites for the fire and police departments.  In total, the value of these contributions exceeds $11.4 million, saving the expense of taxpayer money.  The costs that have been examined include the costs to construct, the cost to equip and staff new fire and police departments, and other operating costs of the new landscape.  Overall, without any reliable data on environmental costs, the benefits to developing the 751 South project exceed the costs by a tremendous amount.

Phase 1: Construction

This building phase of the 751 South project brings changes in three components: direct, indirect, and induced impacts.  Direct impacts refer to the initial changes in industries; indirect impacts refer to changes in inter-industry transactions as demand grows; and finally, induced impacts refer to changes in local spending that result from the changes in the industry sectors.  Intuitively, any development dollars spent and re-spent in Durham County will generate additional income for both companies and their employees as money circulates through a cycle of spending.  ERA acknowledges that there will be some leakages, so this multiplier effect will not be entirely contained within Durham County, but overall the benefits are significant.  Figure 1 breaks down the impacts into three construction phases over ten years, noting the three types of effects upon output, employment, and labor outcome.

Figure 1

DP_Xu-1

 

ERA has predicted that the direct $414.5 million investment in the project will bring an additional $107.4 million in indirect output and $44.5 million in induced output.  The project is also set to create an estimated 2,419 jobs purely for the development of the site as well as another 1,333 jobs in indirect and induced impacts.  In turn, the job creation results in an increase in labor income in Durham County totaling $166.9 million during the ten-year construction phase

Phase 2: Permanent Operations

The economic impact of the operating activities of retail, office, and consumer spenders is permanent and proves more substantial than the Phase 1 impacts.  The benefits can be broken down into jobs and income, household spending, and tax revenue.  First, using data from the American Planning Association, the new retail and office buildings will house 1,050 new professional office jobs and 683 new retail jobs.  Additionally, the new occupants who will occupy the housing at 751 South will create demand for 714 other jobs for a total of 2,980 new jobs at build-out with an estimated annual labor income of $154.2 million.  Figure 2 provides an exact breakdown of the predicted permanent jobs, which range from construction positions to legal personnel.

Figure 2

DP_Xu-2

Second, 751 South is predicted to house 1,280 new households with a total estimated disposable income of over $98.9 million that will contribute to the new industries and businesses in the area.

Finally, the new development is forecast to bring in about $5.7 million in annual property taxes to Durham and additional revenue in sales taxes.  Data based upon local experience and internal market research examined similar communities such as Colvard Farms and Meadowmont and yielded estimates of $3.2 million for Durham County with an additional $2.4 million for the city if the project area is annexed.

Conclusion

The two economic analyses provided suggest that development in full of SDD’s project for 751 South would be the appropriate policy decision, but fail to acknowledge any environmental impact research that may reduce the perceived benefits of the development.  The economic impact analysis by ERA explores the various benefits that will come from 751 South, ranging from sales and property tax revenues to thousands of permanent jobs to privately-donated land for Durham Public Schools, the Fire Department, and the Police Department.  The cost-benefit analysis by BMS demonstrates that full completion of SDD’s proposal would bring profits sooner than any alternative scenario.  Intuitively, completion of only 48.1% or 21.9% of the project yields slower returns and fewer returns for a lower investment.

The policy question comes down to a balance between environmental risks of developing 751 South and other needs that 751 South would help fulfill for Durham.  While maintaining the status quo would eliminate the environmental concerns, this option leaves Durham with many of its problems unsolved.  Overcrowding in Durham Public Schools will remain an issue, as will the traffic congestion along the 751 and NC-54-I-40 corridors.  While the existing economic studies have revealed a number of economic benefits that would accompany the 751 South project, there has yet to be conducted an official environmental impact assessment that would lend credence to the environmental objections to it.  Without such evidence, a fully informed policy choice cannot be formed.

 

References

Economic Research Associates. Project Report: 751 South Economic Impact Analysis,

Prepared for Southern Durham Development (March 29, 2009), www.era.aecom.com.

 

Budget and Management Services. Cost Benefit Report: 751 South Project Voluntary

Annexaction Petition (March 31, 2011), ww2.durhamnc.gov/annexation/751_Report/pdf/04.pdf.

 

 

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