Strategic investments in agricultural industries and Oregon's economic development

Graduation date: 1997This research is concerned with the current debate among Oregonians on how to\ud improve the standard of living and accelerate economic development in Oregon. The\ud main question is what economic activities make Oregon, and regions within Oregon\ud grow? To find out where Oregon's economic strength and weaknesses lie, first we have\ud to understand the income and employment contributions of different industries in Oregon.\ud Second, decisions for improving Oregon's economic growth may be guided by\ud investment in the production of goods for which Oregon is competitive relative to other\ud goods in domestic and international regions. Third, we can investigate and hypothesize\ud about reasons for strengths and weaknesses of Oregon's industries relative to other\ud industries locally, nationally, and internationally.\ud To provide a guideline for Oregon economic development, this study first\ud classifies Oregon's economic activities into eight major economic sectors: agriculture,\ud lumber and wood, high-tech, other manufacturing, non-financial private services,\ud financial services, other private services, and government services. In 1995, it is\ud estimated that these sectors generated about $72 billion in gross state product (GSP) for\ud Oregon's economy, employed over 1.4 million people and provided total payroll of\ud about $36.5 billion. Oregon's aggregate service sector, which includes both nongovernment\ud private services and government services, generated about 76% of Oregon's\ud gross state product (64% and 12% respectively), received about 76% of Oregon's payroll\ud (58% and 18% respectively), and employed about 80% of Oregon's total employment\ud (64% and 16% respectively). The wood sector contributed about 7% to Oregon's GSP,\ud received 6% of Oregon's payroll, and employed about 5% of Oregon's employment. The\ud agriculture sector generated about 7% of Oregon's GSP, received about 4% of Oregon's\ud payroll, and accounted for about 5% of Oregon's employment. The high-tech industries\ud contributed about 5% of Oregon's GSP, received 7% of Oregon's payroll, and employed\ud about 4% of employment.\ud Oregon exported about $ 9.43 billion in 1995. High-tech equipment exports\ud were about 46% of Oregon's total exports. The agriculture sector accounted for 26%,\ud of exports, the wood sector exported 15%, and other manufacturing products 13%.\ud While Oregon's recent growth has accured mostly through aggregate service activities,\ud the trade oriented sectors including agriculture, wood, and high-tech injected nearly\ud nine and half billion dollars of foreign revenue into the state's economy in 1995.\ud Second, this research utilizes state-level statistics along with "revealed\ud comparative advantage" methodology and computes competitiveness indexes. These are\ud calculated for individual industries in Oregon relative to the Pacific Northwest and the\ud United States economies to illustrate the strengths and weaknesses of the Oregon\ud economy. The comparison of Oregon's efficiency in the agricultural sector relative to the\ud PNW and U.S. indicates that, in the last seven years, Oregon's comparative advantage in\ud agricultural farm production (crops) has increased but its comparative advantage in food\ud processing has been declining since 1992. In fact, in 1994 and 1995 Oregon exhibited a\ud comparative disadvantage in food products relative to both the PNW and the United\ud States economies. One hypothesis advanced in this study is that such decline may be due\ud to the Oregon's higher labor costs relative to other states in the PNW and U.S. The\ud possibility that Oregon pays higher wages to workers in food production relative to the\ud PNW and U.S., combined with the notion that food production in Oregon is more labor-intensive\ud relative to the PNW and U.S. may account for the fact that Oregon's\ud comparative advantage in food processing has declined in recent years. With regard to\ud the wood sector, Oregon has a comparative advantage in lumber and wood products\ud relative to both the PNW and U.S. economies In the furniture and fixtures category\ud Oregon holds a clear comparative advantage against the PNW region, however it has a\ud distinct disadvantage compared to the United States economy. In the paper products,\ud Oregon holds a comparative advantage relative to the U.S., however, Oregon is at a\ud comparative disadvantage relative to the PNW (except for 1991 and 1992 when Oregon\ud had a slight comparative advantage). During the 1989-1995 time period, Oregon has\ud been more competitive relative to the PNW region in industrial machinery and computer\ud equipment. However, the degree of advantage has declined from 157% in 1989, to 105%\ud in 1995. Relative to U.S., Oregon improved its comparative advantage in the production\ud of same goods from -16% comparative disadvantage in 1989, to being +25% more\ud efficient in 1995. Similarly, Oregon held its comparative advantage in the production of\ud electric equipment and measuring instruments relative to PNW during 1989-1995 time\ud period. Relative to U.S., Oregon improved its efficiency in the production of electric\ud equipment from -37% inefficiency in 1989, to +5% of comparative advantage in 1995.\ud Oregon's comparative advantage in measuring instrument varied between 11% and 26%\ud over 1989-1995 time period.\ud With regard to recent arguments advanced against high-tech industries, the results\ud of this study indicate that Oregon is becoming more efficient (regionally as well as\ud nationally) in manufacture of high-tech products, this may be partially be due to\ud economies of scale associated with this sector. With regards to food processing\ud industries, it may be that costs associated with labor, materials, capital investment, and\ud other inputs are high relative to other regions. Hence, we cannot be competitive in those\ud industries. Alternatively, one may argue that labor productivity in Oregon's food\ud industry is lower than other regions. If this is the case, increasing training and education\ud programs to increase labor productivity, in addition to changing infrastructure, could\ud improve efficiency in food industries and thereby improve Oregon's economic\ud development