Economic Benefits of Sister City Relationships and Urbanization Trends

Economic Benefits of Sister City Relationships Economic Benefits of Sister City Relationships Associate Professor Vasilis Sarafidis Department of Econometrics and Business Statistics, Monash University

The age of urbanisation There is strong historical evidence that the growth of cities mainly stems from two facts (see e.g. Getz, 1979) : the development of technologies that enable large-scale production; and the growth of markets large enough to take advantage of these technologies. Future development in both of these factors suggests that the number and/or average size of urban centres and cities will grow. A recent study by McKinsey predicts that by 2030 urban population will reach 75% of total global population; According to a 2014 UN report, by 2050 there will be over two billion more people living in large urban centers around the world than today.

Urban population in the world Urban Population (percentage of total population) 60 90 89 55 88 87 50 86 45 85 84 40 83 82 35 81 30 80 Urban population in the World Urban population in Australia

Urban centres drive global economic growth It is cities and not nations that are driving the global economy, and are the engines of growth through productivity, innovation and job creation. David Adam, Founder of Global Cities Indeed, by 2030 more than 90% of global GDP is likely to result from urban activity; 1/3 of global GDP will come from just 100 cities; Increased urbanisation and environmental changes will pose new problems; For example, according to the 2012 OECD s environmental outlook: By 2050, water demand for household use is forecasted to rise by 55%; The number of people living in places facing a severe water stress is projected to double during the same period, reaching about 4 billion people.

The role of sister city relationships in global economy Is there a role for sister city relationships in today s rapidly changing world? The Global Cities Index attributes 2.5% of a city s total score to the number of sister-city relations. Why? What economic benefits can be realised by establishing international sister city relationships? What are the key characteristics of international Sister City relationships in Australia? How have these changed over time? What makes for a successful sister city relationship?

Structure of the remainder of the talk A brief history of the evolution of Sister City relationships. Key statistical facts about international Sister City relationships in Australia. Economic arguments in favour of establishing sister city relationships. How to make a Sister City relationship economically successful. Concluding remarks.

A Brief History As an organised modern phenomenon, sister city relationships became popular in Europe as a means of pursuing peace, reconstruction and reconciliation, following the devastation of WWII (O Toole, 2001). 1948 Switzerland agreement between French and German mayors; 1951 establishment of the Council of European Municipalities and Regions; 1956 establishment of Eisenhower s People-to-People Program . Van Ewijk and Baud (2009) estimate that about 70% of local governments are currently involved in cooperation at the international level based on a formal agreement. 2/3 of those have been supported through international associations.

The Australian Example Parkes (NSW) Coventry (UK) in 1939: Australia s first international alliance. Lismore (NSW) Yamatotakada (Japan) in 1963: first twinning under Sister Cities scheme. Lloyd (2010) suggests many Australian partnerships arose from sentimental attachmentsto Britain and to the homelands of subsequent migrants . More recent partnerships, however, have seen a move away from this traditional pattern, placing much stronger emphasis on economic benefits, trade and development. This trend is likely to continue in the future, as increasing media and ratepayers pressure may force councils to demonstrate value for money.

Distribution of councils involved in international relations Key Statistical Facts (1) No. of councils involved % of councils involved nationally Total no. of councils % of population nationally State % of councils Cumulative % NSW 152 62 41% 38% 38% 32% VIC 79 42 53% 26% 64% 26% QLD 73 21 29% 13% 77% 20% WA 139 17 12% 11% 88% 11% SA 68 11 16% 7% 95% 7% TAS 29 6 21% 4% 99% 2% NT 16 2 13% 1% 100% 1% Total 556 161 29% 100% 100% Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

Distribution of international relationships Key Statistical Facts (2) % of population nationally State No. of relationships % of national Cumulative % NSW 162 41% 41% 32% VIC 83 21% 62% 26% QLD 68 18% 80% 20% WA 43 11% 91% 11% SA 20 5% 96% 7% TAS 9 2% 98% 2% NT 7 2% 100% 1% Total 392 100% 100% Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

Type of international relationships Key Statistical Facts (3) Type NSW VIC QLD WA SA TAS NT Total % Sister City 127 54 64 34 16 9 6 310 79% Friendship City 27 21 3 6 3 1 61 16% Cooperative Agreement 1 5 6 1% Informal Relationship 2 1 3 1% Unknown 7 1 1 2 1 12 3% Total 162 83 68 43 20 9 7 392 100% Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

Most Common Countries Key Statistical Facts (4) State Japan China USA Italy Timor-Leste Total NSW 37 31 14 13 162 VIC 18 19 17 83 QLD 22 15 68 WA 10 43 SA 11 8 20 TAS 4 9 NT 2 7 National 101 79 35 27 25 Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

Activity Areas Key Statistical Facts (5) Number* % of active relationships* Area Education & student exchange 108 62% Cultural, art exchange 87 50% Trade, business development 47 27% Sporting 23 13% Community development 11 6% Note:* Not mutually exclusive Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

Partner Countries; Trends Key Statistical Facts (6) Period Country No. started 1980-1984 Japan USA 13 5 1985-1989 Japan USA 10 9 1990-1994 Japan China 26 4 1995-1999 China Japan 16 15 2000-2004 China 16 10 Timor-Leste 2005-2009 Timor-Leste China 9 6 2010-2013 China USA 16 3 Source: Gooding, A., Gibbs, M., Woods, R., Pillora, S. and Smith, R. (2015), Sister Cities and International Alliances, ACELG, Sydney.

Economic Benefits: Economies of Scale and Scope Scale economies arise due to efficiencies formed by increasing the volume of a given activity/service. Scope economies arise due to efficiencies formed by increasing the variety of activities/services provided. In the present context, both concepts come down to the effect of learning by doing. Direct costs per activity/service Average time per activity/service Experience curve Learning curve Cumulative volume/variety of activity/service

Economic Benefits: Economies of Scale and Scope Certain limitations imply that cities can only grow as much, and provide only a sub-optimal volume/range of activities and services: Physical space; Fixed capacity and infrastructure ; Budget constraints. Sister city partnerships can allow local governments to move down the learning/experience curve at a relatively small cost, i.e. without growing pains : Relatively cheap access to know-how and transfer of knowledge; Capacity building and strengthening of urban and regional governance; Increase foreign direct investment.

Economic Benefits: Gravity Model of International Trade It predicts bilateral trade volumes, based on economic distance between two units and the economic size of the units. Trade volumes decrease with distance: ???= ? (????? ?????)/??????????. Distance shapes the cost of entry into a market: geographical, cultural, network. Sister city partnerships can substantially lower economic distance by: Facilitating understanding of cultural similarities & differences; Increasing international reputation; Reducing transactions costs and search costs in negotiations.

Trade Volumes in Victoria The Victorian economy, while remaining diverse, is currently transitioning away from its traditional base in manufacturing and is moving towards services Trade volumes of the Victorian Economy, percentage of national GDP GSP Exports of goods Imports of goods Exports of services Imports of services 24% 9% 27% 26% 24% Exports of Services Other 26% Education Education 43% Tourism Consulting 6% Consulting Other Tourism 25%

Choosing the right partner Carefully select your partner based on complementarity and potential for synergies: the interaction of two cities so that their combined effect is greater than the sum of their individual city-specific effects: Identify demographic, geographical and technological similarities and differences; Identify key industries and economic opportunities. Analyse current and projected economic conditions, as well as trade and investment climate; Pay attention to the history/prospects of diplomatic relations between the two countries; Pay attention to past Sister City relationships already established by the foreign city. Have the been successful and why?

Setting up a good business plan Establish clear motives and objectives for forming a relationship; What are your short- and long-term goals? How can these be achieved? Match expectations: ensure the two councils involved have non-conflicting objectives. Incorporate specific measurable activities and areas of co-operation. Define clear roles for management of the relationship. Who is responsible for what? Secure sufficient funding.

Managing the relationship effectively Ensure there is regular contact with the partnership city/local government; Keep it open and transparent internally as well as externally: inform the local community; Engage with the media; Establish a robust framework for continuous evaluation.

Concluding Remarks Globalisation and the pace of technological progress are beyond our control. It is what do we do with this development that matters. It is imperative that small open economies, like in Victoria, to be outwards looking into their economic and trade policies. Establishing and maintaining effective Sister City relationships can provide several economic advantages and open new opportunities for growth and development.

Thank you for your attention! Have any questions? Keep calm and ask questions