What would happen to the state's economy if rural Minnesota went away? Would the Twin Cities area notice?
You bet it would, according to a study commissioned by Minnesota Rural Partners (MRP) and the U.S. Department of Agriculture. The paradigm-shifting study released earlier this year shows just how intertwined the economies of rural and urban Minnesota are.
The University of Minnesota's Extension Center for Community Vitality played a significant role in the effort, starting with an educator who asked the provocative question above.
Extension Educator Neil Linscheid posed the question when MRP representatives told him they wanted to unambiguously demonstrate how the economies of rural and urban Minnesota are connected.
One way to prove a connection would be to track all the economic threads that bind the seven-county Twin Cities area with Greater Minnesota — the rest of the state. But that would be enormously time-consuming.
So Linscheid suggested looking at what would happen if those threads were cut, and steered MRP to William Lazarus, Ph.D., professor and Extension economist with the University's Department of Applied Economics, who he believed could help conduct such research.
That he did, and his analysis is an integral part of the study. In addition, Educator Dave Nelson and Analyst Writer Brigid Tuck, also with the Extension Center for Community Vitality, contributed to the study, which was coordinated by Kate Searls, consultant and researcher for MRP. She wrote the report on the results, entitled Estimating Rural and Urban Minnesota's Interdependencies.
Proving a hypothesis
The study essentially proves MRP's hypothesis that the economies of rural and urban Minnesota are interdependent. That economic dependence is "real, measurable and significant," Searls adds. Jane Leonard, senior manager at the Bush Foundation and former MRP president, was pleased with the validation. "We knew it in our hearts, but the study made it real," she says. Here are a few of the study's key findings:
- Rural Minnesota provides critical jobs in a number of the most sought-after industry clusters (groups of related businesses that have grown up close to one another). In fact, 40 percent of Minnesota's total employment in 17 traded industry clusters occurs in rural Minnesota.
- Forty-seven percent of Minnesota's manufacturing cluster output originates in rural Minnesota.
- Minnesota's urban region receives substantial economic benefits from improved prosperity among its rural neighbors.
- For example, if rural Minnesota's manufacturing cluster experiences a 6 percent growth in output ($1 billion), the urban area picks up 16 percent of all the jobs gained and 38 percent of all additional output.
- The reverse is also true: a $1 billion decrease in manufacturing output in rural Minnesota results in 1,043 jobs lost and a loss of nearly $208 million in revenue among Twin Cities-area businesses.
In everyday terms, the study shows that improvements in rural manufacturing performance sends economic ripples into the Twin Cities—and not just because rural people shop at the Mall of America. Economic activity in rural Minnesota results in new white-collar urban jobs and new sales for city-based suppliers.
Shutting down assumptions
These findings shut down the often-heard assumption that the Twin Cities area alone is the economic engine that drives the state. "Our intuition was that this urban-centric view was missing the mark by a long shot," Searls said. "But we needed to test our thinking with a study."
This was a pilot study, so the focus was narrow and the structure was simple. Researchers began by using "cluster analysis" tools provided by the Innovation in American Regions Project to arrive at estimates of the distribution of jobs between the Twin Cities seven-county region (urban) and the rest of Minnesota (rural).
Lee Munnich with the University of Minnesota's Humphrey Institute for Public Affairs and Burke Murphy of Minnesota's Department of Employment and Economic Development contributed insights regarding cluster analysis in theory and in practice.
Combining analytical tools
Lazarus used a new multi-regional analysis component of IMPLAN to conduct an input-output (I-0) analysis and arrive at estimates of linkages between rural and urban businesses and economies. He also compared two industry clusters (manufacturing and agribusiness) using the IMPLAN tool.
Combining I-O analysis with cluster analysis is a relatively new idea that validates the cluster approach and more important, describes economy-wide impacts — including consumer activity. "I do think this is the first time that we've been able to look at how regions [urban and rural in this case] interact in a dynamic way — not just look at gross numbers and make assumptions," says Brigid Tuck.
Industry cluster analysis typically concentrates on "traded" industry sectors, which encompass businesses that export their goods and services outside the region and therefore bring new revenue into the region. However, cluster analysis excludes "non-traded," or non-exporting industry sectors — typically those involved in consumer spending and investing activities.
In Minnesota, this excludes about 30 percent of total rural output and 36 percent of total urban output. Input-output analysis re-inserts these dollars into the picture.
The pilot study uncovered some interesting details. For instance, Tuck finds it noteworthy that agribusiness' output generates additional business-to-business spending (indirect effects), while manufacturing's increased output results in more consumer activity (induced effects). Another discovery is that agriculture-related businesses buy most of their inputs (equipment, supplies and other resources) from local providers, while manufacturing businesses buy fewer inputs locally but pay higher wages that spur more consumer spending at local retail stores.
Informing local decisions
As Tuck explains, this helps decision makers better analyze their economic development options, which is core to Extension's work in Community Vitality programming. "The question for community decision makers becomes, 'Do we want to encourage more agribusiness, which buys equipment from local suppliers, or manufacturing, which encourages consumer spending but imports its sprockets from China?' So the community gets to act on the values that are more important to it."
MRP representatives also hope the findings will inform policy making across the state. Toward that end, they are exploring continued partnerships with the University of Minnesota, as well as new collaborations with other groups, to build on the study's research. For now, they simply hope the study will get people thinking about rural Minnesota in new ways—and bridge the urban-rural divide.
Regarding that "battle," Searls recently told the AgriTalk radio program, "Our message is one of interdependency. It's not about 'the fight should be solved this way.' We say the fight should be dissolved. We're both going to sink, or we're both going to prosper. There's not going to be urban prosperity without rural prosperity."
- Read the full Minnesota Rural Partners study or contact Kate Searls.
- For information on how Extension's Economic Impact Analysis Program can help your community's economic development efforts, contact Brigid Tuck or your local Extension educator.
- For information on IMPLAN multi-regional analysis, contact William Lazarus.
- For information on cluster analysis, contact Lee Munnich.
Reviewed in 2011