The Local Business Environment and Local Economic Development: Comparing Approaches

Recent years have seen an increasing effort in developing and transformation countries to im-prove the business environment. The focus has mainly been at reducing red tape and improv-ing the regulatory environment. Initially addressing primarily the national level, the focus has started to shift towards regional and local levels since it is here that government agencies di-rectly interact with businesses. In this way, an overlap has emerged between the business en-vironment approach and the local economic development (LED) approach. However, from the LED perspective, a favourable business environment involves a broad set of locational factors which is only partly shaped by government. Another important difference refers to the inter-vention approach. While BE interventions have a tendency to be top-down and to depend on external consultants, the LED approach emphasises bottom-up processes and a strong in-volvement of local actors. A consistent effort to reduce red tape and improve the local regu-latory environment is an important element of bottom-up LED processes. It is important, though, to understand that an effort to fight red tape has little impact on the competitive ad-vantage of a location. In fact, an argument can be made that efforts to improve the business environment will have a stronger impact in already strong locations, so that it can ultimately widen the gap between growing and lagging locations and thus reinforce spatial disparities.

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