EconDev home

GLOSSARY of Selected Economic Development Terms

last updated:  Monday, April 25, 2005 10:32 PM

This is a class project prepared by Urban Planning 538: Economic Development Planning (Winter 2005, University of Michigan). The goal has been to create a handbook of useful resources and analysis on local economic development. The choice of topics reflects the interests of class participants (and is therefore not a comprehensive list of all economic development topics.) Each student has been individually responsible for writing two detailed entries for the handbook (see separate page), plus two short glossary entries (see below). The final version of the resource handbook will be posted by the end of April, 2005.

Project members (with email links): Avik BasuChristopher BryantGregory ClaxtonTimothy DavisJessica De WitJenifer HuestisKathleen MaurerMarisa McNee Paul RyckbostAriel SherizenNicole SitkoLindsay SmithAnna SokolAdam Zettel Prof. Scott Campbell

Term Definition [student author]

business incubator

A business incubator is a public or private organization that is designed to nurture the growth of entrepreneurs and their small businesses.  An incubator takes advantage of economies of scale by housing a number of small ventures under one roof and offering administrative support and business assistance needed by these to enlarge their businesses.  In exchange for paying monthly rent, incubator tenants receive critical support services (including, sometimes access to expensive machinery and equipment), at rates that they can not otherwise afford.  After a period of residency in the incubator, successful businesses have expanded and accumulated enough capital to support their capital and service needs. For more information, see: The National Business Incubator Association:; The USDA: [Lindsay Smith]

central place theory

An element of Location Theory (see below) addressing the concentration, distribution, and size of central settlements within a greater geographic system. The theory addresses how these central places relate to one another, as well as to their surrounding markets and hinterlands, physically, spatially, and economically. [Anna Sokol]

cost-benefit analysis

Cost-benefit analysis is a systematic method for estimating the economic effects of policy or programs. This method reduces all effects of proposed alternatives to the same unit of measure, usually dollars. This is one of the primary methods for policy or program evaluation/analysis when efficiency is the goal. In this method, the most effective policy or program is the one that generates the largest aggregate net benefits (in dollars).
More information:
[Marisa McNee]


The alternative present or future condition that exists for a location had intervention not taken place for economic development purposes. [Adam Zettel]

cumulative causation

A development theory that counters equilibrium theory of place economics. This theory suggests that inequality between locations cumulates instead of balancing out over time. Since decaying communities lack financial, political, and other resources, they are more likely to experience decline. Conversely, wealthy communities are more able to attract and retain resources. Hence, inequality delivers further inequality. [Adam Zettel]

eminent domain

Eminent domain is the government's right to take private property for public use without the owner‚s consent. However, the Fifth and Fourteenth Amendments to the Constitution provide that "private property [may not] be taken for public use without just compensation." This government power is used locally in economic development to reclaim blighted areas and to gain land for basic community redevelopment practices including schools, streets and highways, parks, airports, dams, reservoirs, public housing, hospitals and public buildings. see also:  [Nicki Sitko]

empowerment zone

Created to rebuild communities in America's poverty-stricken areas through incentives that would entice businesses back to the inner cities, EZ’s use the power of public and private partnerships, regulatory relief and tax breaks to build a framework of economic revitalization in areas that experience high unemployment and shortages of affordable housing. New EZ’s can take advantage of wage credits, tax deductions, bond financing and capital gains to stimulate economic development and job growth. see also: US Department of Housing and Urban Development [Jenifer Huestis]


This describes the act of an individual taking on the risk of a business. An entrepreneur can be a farmer or someone who owns a software design firm. It is their vision, risk, and often money that create a business. Entrepreneurship is central to local economic development. see also: [Timothy Davis]

environmental justice

Environmental Justice refers to the idea that everyone, regardless of race, national origin, income, etc. is entitled to equal protection from environmental and health hazards, to equal opportunity to live in healthy environment, and to equal access to the decision-making processes which impacts their communities.  Recognizing that minority and low-income communities bear a disproportionate number of environmental risks in their communities as compared to affluent communities, the Environmental Justice Movement has theoretical roots in the Civil Rights movement, though the term itself was coined later.  In 1987, the United Church of Christ’s Commission for Racial Justice released a report entitled “Toxic Waste and Race” in which they determined that race, more than class, ethnicity, or any other factor, is the single strongest determinant of which communities contain the highest number of environmental and health hazards.  (These hazards take the form of polluting industries, waste disposal sites and incinerators, etc.)  Studies since that time have been unable to disprove this finding.

For more information, see: Environmental Justice Resource Center at Clark Atlanta University; The University of Michigan Environmental Justice Initiative; U.S. EPA. [Lindsay Smith]

export base

In export base theory, industries are divided into two categories—basic and non-basic. Non-basic industries serve the local economy while basic industries export their products to another area. Export base specifically refers to the products of the basic industries (for example, the automobile in Detroit) and have been traditionally thought of as the primary driver for the economic growth and vitality of a region. [Avik Basu]


An externality is any valued effect (positive or negative) from actions related to production or consumption that affects a person or persons who did fully consent to it voluntarily.
Links for more information on this topic:
[Marisa McNee]

Fordism and post-Fordism

Fordism, named after Henry Ford, refers to a system of mass (mechanized) production and mass consumption of standardized products that was generally practiced from the 1940s-1960s. It is often characterized by homogenous assembly line production, economies of scale, and a greater division of labor leading to the “deskilling” of the workforce (see “Taylorism”).
Post-Fordism refers to the period after Fordism (beginning in the 1970s) characterized by “just-in-time” manufacturing, in which inventory is minimized as surplus is seen as unrealized revenue. It requires tremendous coordination, timing precision, and significant flexibility and multiskilling of workers. Efficient production is determined by the extent of teamwork throughout the production process, rather than the speed of the assembly line. [Katie Maurer]

forward and backward linkages

Linkages are relationships between different sectors along a product chain. A backward linkage from a given sector refers to the relationship it has with another sector from which it purchases inputs. A forward linkage from a given sector refers to the relationship it has with a sector to which it sells its output. [Avik Basu]


The frostbelt refers to the north-central and northeast US while the Sunbelt is the area of the southern and southwest US. The frostbelt is an area of post-industrial cities that is losing population and industry to the warmer Sunbelt, an area of great economic growth. The Sunbelt has grown with retirees and new manufacturing development in the last several decades and is highly politically conservative.   see also: [Nicki Sitko]


see detailed entry on this topic.

global city

University of Chicago Sociologist Saskia Sassen is credited with the creation of this term.  Sassen uses the concept of global city to talk about; “a new geography of centres and margins: The ascendance of information industries and the growth of a global economy, both inextricably cities accumulate immense concentrations of economic power while cities that were once major manufacturing centres suffer inordinate declines; the down-towns of cities and business centres in metropolitan areas receive massive investments in real estate and telecommunications while low income urban and metropolitan areas are starved for resources.” (source: Sassen, ‘The Global City: Strategic Site/New Frontier.” Global City then is a concept that can be used to categorize the contemporary economic growth against the decline of particular types of cities across the globe, both typologies sharing some similar economic, political, social, cultural, and spatial characteristics. For more information, see: Sassen, Saskia.  (2001) The Global City: New York, London, Tokyo. Princeton, NJ:  Princeton University Press; 2nd edition. see also: 1999 UCLA Global City-Regions Conference. [Lindsay Smith]

human capital

The skills and abilities that a person or group of people possess that may be used in employment or other productive labor. Unlike physical capital or physical labor, human capital is self-generating rather than scarce (that is, use of human capital builds experience, which builds more human capital) and is transportable and shareable. Human capital may also be distinguished between specific capital (skills and knowledge useful only to a single employer, such as the ability to work a particular kind of machine) and general capital (skills and knowledge useful across many or all employers, such as literacy). [Gregory Claxton]

import substitution

see detailed entry on this topic.

informal sector

Two groups of economic activity that are usually not included in official statistics or tax systems. On the one hand, "coping" activities, such as unpaid labor, casual work, or subsistence agriculture. Ont he other hand, the informal sector also includes illegal or unofficial business activities, such as tax evasion, avoidance of labor regulation, or criminal enterprises. For more information: World Bank [Gregory Claxton]

just-in-time production (JIT)

JIT is a philosophy of manufacturing that relies on minimal inventory and real-time production. A minimal amount of parts used in manufacturing are kept on site, and new parts are shipped in as needed in the production process, usually signaled through automated systems. Therefore, costly warehouse space is avoided and parts and final products are kept moving. For another brief introduction, see: [Paul Ryckbost]


Laissez-faire is a theory of economics developed from the French philosophy of „let things alone, let them pass" (Wikipedia). A Laissez-faire economy requires that government stay clear of economic policy and let the markets run themselves. Adam Smith promoted this, and used the imagery of the invisible hand to signify that free markets will correct their own efficiencies (the invisible hand) much faster and better than a government ever could. [Paul Ryckbost]

localization economies / urbanization economies

With regard to agglomeration economies, a localization economy refers to the situation in which firms derive the most benefit by being located near similar type firms belonging to the same industry. (Examples include Silicon Valley, Detroit, and Pittsburgh.) One downside, however, is the over dependency of that economy on the one industry and the potential instability it could create if demand for the product produced by the industry wavered, or if sources of production materials changed such that the one industry experienced a significant decline.
An urbanization economy refers to the situation in which firms derive the most benefits by being located near other firms in a diverse urban environment. Several distinct industries exist and it is the size of the city, rather than the size of a particular industry within an area that most impacts productivity. [Katie Maurer]

location theory

The theory concerned with the geographic location of economic activity, addressing the spatial location of economic activity as well as why certain activities develop in certain nations, regions, neighborhoods, or other geographic designations. [Anna Sokol]

market failure

A market failure occurs when the pursuit of private interest does not lead to efficient use of society’s resources or fair distribution of society’s goods. The four most common market failures are externalities, public goods, natural monopoly and information asymmetry.
Links for more information on this topic:
[Marisa McNee]

microcredit/microenterprise program

Refers to modest loans (usually less than $1000 per individual) that are provided to small groups (usually under 5 persons) of entrepreneurs who are too poor or unqualified to receive traditional loans.  Used as a tool for empowerment, the entire group becomes responsible for each individual’s timely repayment while supporting a coordinated enterprise that provides the group some level of self sufficiency.  Funding is used by groups for small-scale enterprises such as handmade jewelry, garments, clothing, or specialty food. (see also Virtual Library on Microcredit) [Jenifer Huestis]


A market type in which there is a sole supplier of a good, service, or resource that has no close substitutes and in which there is a barrier preventing the entry of new firms into the industry. see also [Ari Sherizen]


the concept as it relates to economic development is the added dollar amount that is associated with the addition of spending. For example, if a person visits a city and spends $1.00 and out of that dollar, another $0.50 is spent in the same city before it leaves the city. It can be said that for every dollar that someone visiting that city spends, the total economic impact will be $1.50 which would result in a multiplier of 1.5. This concept also can apply to jobs in a community as well. For example Multipliers may be calculated for the addition of a new factory in a community. Additional Sources: Definition [Christopher Bryant]

net present value

Net present value: To understand the value of a project that has financial returns over an extended period of time, the issue of the time value of money must be addressed. A dollar earned today can gain interest, so it is worth more than a dollar earned next year. For example, $100 earned today invested at 10 percent interest will be worth $110, $100 x (1+0.10), in one year. However, $100 earned one year from now will only be worth $100. Conversely, the $100 earned next year has a present value of $90.91, or $100/(1+0.10). The net present value of a project is the present value of all future cash flows less the initial monetary outlay. [Timothy Davis]


An oligopoly exists when a few companies dominate an industry. This concentration often leads to collusion among manufacturers, so that prices are set by agreement rather than by the operation of the supply and demand mechanism. For an oligopoly to exist, the few companies do not need to control all the production or sale of a particular commodity or service. They only need to control a significant share of the total production or sales. As in a monopoly, an oligopoly can persist only if there are significant barriers to entry to new competitors. (see )[Jessica de Wit]

opportunity costs

Opportunity cost is a term used in economics, to mean the cost of something in terms of an opportunity foregone (and the benefits that could be received from that opportunity), or the most valuable foregone alternative. For example, if a city decides to build a hospital on vacant land that it owns, the opportunity cost is some other thing that might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, and so on. see also [Ari Sherizen]

public goods

Public goods are, in varying degrees, non-excludable in use and non-rivalrous in consumption, or both. The problem with public goods is that the market, left to its own devices, is not likely to produce an adequate amount of any public good.
Links for more information on this topic:
[Marisa McNee]

spatial mismatch

This is the occurrence, when low-income city dwellers need jobs, and the jobs themselves are located to far away in the suburbs, thus being unattainable to the low-income city dwellers. This can result in increased employment and poverty within central cities. Additional Sources: Definition; see also: [Christopher Bryant]

sustainable development

While this term has many different meanings, a well-known definition comes from the Brundtland Commission. The World Commission on Environment and Development, the Brundtland Commission, defined sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs." In other words, development is essential to satisfy human needs and improve the quality of human life. At the same time, development must be based on the efficient and environmentally responsible use of all of society's scarce resources - natural, human, and economic.
(see also: [Jessica de Wit]


Terms to be covered in future years:

agglomeration economy, basic vs. non-basic employment, bifurcation, capital, capital markets, carrying capacity, clawbacks, common-pooled resources, community development corporations (CDCs), comparative advantage, core vs. periphery, cyclical versus structural change, debt vs. equity, deindustrialization, development linkages (payments), discount rate, dual labor markets, economic restructuring, elasticity, endogenous vs. exogenous development, equilibrium, equity planning, equity vs. efficiency, federalism, flexible specialization, globalization, growth pole, growth vs. development, high technology, hinterland, home rule, incremental planning, industrial milieu, industrial revenue (development) bond (IRB), innovation (process vs. product), linkages (forward and backward), liquidity, location quotient, mass production, new international division of labor (NIDL), polarization, polarized growth, prisoner's dilemma, producer services, product and profit cycles, public consumption benefit, public purpose doctrine, public-private partnerships, research and development (R&D), research parks, scale economy, skills mismatch, spatial division of labor, steady-state economics, strategic planning, suburb, supply-side vs. demand-side approaches, tax increment financing (TIF), Taylorism, technology innovation vs. diffusion, technology transfer, tragedy of the commons, transshipment points, unbalanced growth, underclass, underdevelopment, uneven development, urban hierarchies, urban partnerships, value added, venture capital, vertical integration and disintegration, zero-sum game