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Leapfrogging

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For other uses, see Leapfrogging (disambiguation).

Leapfrogging is a concept used in many domains of the economics and business fields, and was originally developed in the area of industrial organization and economic growth. The main idea behind the concept of leapfrogging is that small and incremental innovations lead the dominant firm to stay ahead. However, sometimes, radical innovations will permit to new firms to leapfrog the ancient and dominant firm.[1] The phenomenon can occur to firms but also to leadership of countries, or cities where a developing country can skip stages of the path taken by industrial countries, enabling them to catch up sooner, particularly in terms of economic growth.[2]

Additionally, leapfrogging can be seen when it comes to the development or urbanization of more rural areas. Leapfrog development occurs when developers skip over land to obtain cheaper land further away from cities, thus, leaving huge areas empty between the city and the new development.

Industrial organization

In the field of industrial organization (IO), the main work on leapfrogging was developed by Fudenberg, Gilbert, Stiglitz and Tirole[3] (1983). In their article, they analyze under which conditions a new entrant can leapfrog an established firm.

That leapfrogging can arise because an established monopolist has a somewhat reduced incentive to innovate because he is earning rents from the old technology.[4] This is somewhat based on Joseph Schumpeter's notion of ‘gales of creative destruction’.[5] The hypothesis proposes that companies holding monopolies based on incumbent technologies have less incentive to innovate than potential rivals, and therefore they eventually lose their technological leadership role when new radical technological innovations are adopted by new firms which are ready to take the risks. When the radical innovations eventually become the new technological paradigm, the newcomer companies leapfrog ahead of the formerly leading firms.

International competition

Similarly a country which has leadership can lose its hegemony and be leapfrogged by another country. This has happened in history a few times. In the late eighteenth century, the Netherlands was leapfrogged by the UK, which was the leader during the whole nineteenth century, and in turn the US leapfrogged the UK, and became the hegemonic power of the 20th century.

There are several reasons for this. Brezis and Krugman (1993,[6] 1997[7]) suggest a mechanism that explains this pattern of "leapfrogging" as a response to occasional major changes in technology. In times of small and incremental technological change, increasing returns to scale tend to accentuate economic leadership. However, at times of a radical innovation and major technological breakthrough, economic leadership, since it also implies high wages, can deter the adoption of new ideas in the most advanced countries. A new technology may well seem initially inferior to older methods to those who have extensive experience with those older methods; yet that initially inferior technology may well have more potential for improvements and adaptation. When technological progress takes this form, economic leadership will tend to be the source of its own downfall.

In consequence, when a radical innovation occurs, it does not initially seem to be an improvement for leading nations, given their extensive experience with older technologies. Lagging nations have less experience; the new technique allows them to use their lower wages to enter the market. If the new technique proves more productive than the old, leapfrogging of leadership occurs.

Brezis and Krugman have applied this theory of leapfrogging to the field of geography, and explain why leading cities are often overtaken by upstart metropolitan areas. Such upheavals may be explained if the advantage of established urban centers rests on localized learning by doing. When a new technology is introduced, for which this accumulated experience is irrelevant, older centers prefer to stay with a technology in which they are more efficient. The changes to technological leadership can reveal the challenges concerning the effects of backwardness on the willingness to innovate or adopt radical and new ideas.[8] New centers, however, turn to the new technology and are competitive despite the raw state of that technology because of their lower land rents and wages. Over time, as the new technology matures, the established cities are overtaken.

Leapfrogging in developing countries

More recently the concept of leapfrogging is being used in the context of sustainable development for developing countries as a theory of development which may accelerate development by skipping inferior, less efficient, more expensive or more polluting technologies and industries and move directly to more advanced ones.

Leapfrog democracies can refer to countries that have huge developments that more typically advanced countries might only have much later.

The mobile phone is an example of a “leapfrog” technology: it has enabled developing countries to skip the fixed-line technology of the 20th century and move straight to the mobile technology of the 21st. It is proposed that through leapfrogging developing countries can avoid environmentally harmful stages of development and do not need to follow the polluting development trajectory of industrialized countries.[9]

The adoption of solar energy technologies in developing countries are examples of where countries do not repeat the mistakes of highly industrialized countries in creating an energy infrastructure based on fossil fuels, but "jump" directly into the Solar Age.[10]

Developing countries with existing natural gas pipelines in place can use it to transport hydrogen instead, hence leapfrogging from natural gas to hydrogen.[11][12]

Tunneling through

A closely related concept is that of ‘tunneling through’ the Environmental Kuznets Curve (EKC).[13] The concept proposes that developing countries could learn from the experiences of industrialized nations, and restructure growth and development to address potentially irreversible environmental damages from an early stage and thereby ‘tunnel’ through any prospective EKC. Environmental quality thereby does not have to get worse before it gets better and crossing safe limits or environmental thresholds can be avoided. Although in principle the concepts of leapfrogging (focused on jumping technological generations) and tunnelling through (focused on pollution) are distinct, in practice they tend to be conflated.

Millennium Development Goals

The concept of environmental leapfrogging also includes a social dimension. The diffusion and application of environmental technologies would not only reduce environmental impacts, but can at the same time contribute to sustainable economic development and the realization of the Millennium Development Goals (MDGs) by promoting greater access to resources and technologies to people who currently have no access. Regarding electricity currently nearly one third of the world population has no access to electricity and another third has only poor access. Reliance on traditional biomass fuels for cooking and heating can have a serious impact on health and the environment. There is not only a direct positive link between sustainable renewable energy technologies and climate change mitigation, but also between clean energy and issues of health, education and gender equity.[14]

Examples

A frequently cited example is countries which move directly from having no telephones to having cellular phones, skipping the stage of copperwire landline telephones altogether.[15]

The use of ethanol fuel in Brazil, where ethanol produced from sugarcane for transportation replaces gasoline, provides evidence that leapfrogging is a possible alternative to business-as-usual development.

Another notable example is mobile payment. Popularity of mobile payment is much higher in China than that in developed countries. In most parts of the developed world, credit cards have been popular since the second half of 20th century. In China, however, credit cards are not so popular. After 2013, Alipay and WeChat began to support mobile payment using QR code on smart phones. Both of them have been extremely successful in China and are expanding overseas now.[16] Mobile payment gets success in China because the major method of transactions before is cash. Cash has obvious disadvantages compared with mobile phones and credit cards, but difference between mobile payment and credit cards is not so great.

Necessary conditions

Leapfrogging can occur accidentally, when the only systems around for adoption are better than legacy systems elsewhere, or situationally, such as the adoption of decentralized communication for a sprawling, rural countryside. It may also be initiated intentionally, e.g. by policies promoting the installation of WiFi and free computers in poor urban areas.[17]

The Reut Institute has carried out extensive research regarding the common denominators of all the different countries that have successfully 'leapt' in recent years. It concludes that to leapfrog a country needs to create a shared vision, leadership by a committed elite, 'Inclusive growth', relevant institutions, a labor market suited to cope with rapid growth and changes, growth diagnostics of the country's bottlenecks and focused reforms as well as local and regional development and national mobilization.

Promotion by international initiatives

Japan's Low-Carbon Society 2050 Initiative has the objective to cooperate with and offer support to Asian developing countries to leapfrog towards a low-carbon energy future.[18]


Leapfrog Development

How Does Leapfrog Development Occur?

Leapfrog development can occur for numerous reasons. Often, developers are more likely to hold onto land closer to cities and instead develop less valuable land further from urban centers.  Moreover, some developers prefer to build in large open areas as it can be easier and less restricted than building in cities.[19] Other reasons for leapfrog development include household preferences, available amenities, minimized commutation costs and the costs and regulations involved in construction.[20]

Leapfrog Development in Phoenix, Arizona

There are plenty of leapfrog developments outside of the urban center of Phoenix, Arizona, making it an excellent subject to examine the effects of such developments. Additionally, western cities are typically less built-up and enclosed versus northeastern and midwestern cities, making leapfrog developments and their effects more noticeable. Starting in the 1940s, developers in Arizona began to develop communities a considerable distance away from Phoenix as the land prices were very low. These communities are categorized as leapfrog developments as a substantial amount of land was "skipped" over.

Common Issues With Leapfrog Developments

Leapfrog developments can have several common problems including vacant land left between cities and developments, inefficient land distribution, increased pollution due to an increase in traffic and congestion, and the extension of amenities that can be costly.[21]

Common Issues in Phoenix

Phoenix’s earlier planned communities provided amenities, but that did not prevent problems from arising later. For instance, developers planned on bringing businesses, jobs, libraries, and other amenities to these communities but could not meet the growing demand. Due to the limited employment opportunities within these communities, people living in these developments were forced to commute, which created concerns about an increase in pollution. Additionally, it was found to be expensive to extent gas, sewage, and water lines from the city and its neighboring areas to the new distant communities.[22]

Arizona Government's Response to Issues in Phoenix

Arizona Groundwater Management Act

In 1980, the state and local governments in Arizona passed the Arizona Groundwater Management Act, making leapfrogging in more remote Arizona areas more difficult. Under this act, developments were required to show they had access to a one-hundred-year supply of water that would not contribute to the depletion of groundwater. Effectively, this meant that developers had to rely heavily on municipal water-lines, making it far more costly for them to expand in areas distant from existing municipalities.[22]

Development Impact Fees

The cost of extending infrastructure can be exorbitant, so many places like Phoenix issued development impact fees. Developers would subject to these fees if they built new communities distant from the city. The additional expense discouraged leapfrog developments and removed at least part of the hefty financial burden the city bore by extending infrastructure for these developments.[22]

Developers and those opposed to the development impact fees argued that these fees would hurt the home buyers by increasing the cost of properties. Additionally, they argued that the fees could hurt lower-income families due to rising rents and delay in construction of new affordable housing units. Another concern was that impact fees would cause people, businesses, and the associated tax revenue to move to areas without development impact fees.[22]

However, results of an Arizona task force show that the impact fees would not have a major affect on homeowners. Impact fees were unlikely to drastically increase home prices, "with a $3,000 fee the increase in the monthly mortgage payment for a 30-year level payments loan at 10 percent would be $52.70".[22] The only instance in which homeowners and low-income families would be negatively affected would be a situation in which the impact fees increased drastically. but this scenario is judged as unlikely to occur.[22]

Phoenix decided to suspend these development impact fees in a section of the city due to fear that several commercial developments would leave and opt to develop elsewhere.[22]

Infill Housing Program
What is Infill Development?

When leapfrogging occurs, infill development will often follows. The eventual development of the vacant land between the city and the leapfrog development is called infill. As infill development increases, leapfrog development will eventually slow over time. [19]

Phoenix's Infill Housing Program

Phoenix's Infill Housing Program started in 1995. The program used incentives to encourage building developments or homes on land between leapfrog developments and the city that had been “skipped” over.[22] These incentives included eliminating some or all of the cost of fees for permits, zoning, and water as well as a potentially expedited development process. Phoenix's mayor stated that the Infill Housing Program seems to be successful, but progress is slow.[22]

Phoenix's infill housing program may be working slowly because infill developments transpire more slowly than other types of developments. A study of leapfrog developments in Maryland found that infill developments occur at an annual rate of about one percent, meaning that the skipped over land is is developed at about one percent per year.[19]

See also

References

  1. ^ Aiginger, Karl; Finsinger, Jörg (2013). Applied Industrial Organization: Towards a Theory-Based Empirical Industrial Organization. Berlin: Springer Science & Business Media. p. 67. ISBN 9789048144525.
  2. ^ Miller, Robert R. (2001). Leapfrogging?: India's Information Technology Industry and the Internet. Washington, D.C.: World Bank Publications. pp. vii. ISBN 9780821349502.
  3. ^ Fudenberg, Drew, Gilbert, Richard J., Stiglitz, Joseph and Tirole, Jean (1983). Preemption, Leapfrogging, and Competition in Patent Races. " European Economic Review. p. 22: 3–31.{{cite book}}: CS1 maint: multiple names: authors list (link)
  4. ^ Tirole, Jean (1988). The Theory of Industrial Organization. Cambridge: MA: MIT Press. p. 391–2.
  5. ^ Schumpeter, J. (1942). Capitalism, Socialism and Democracy. New York: Harper.
  6. ^ Brezis, E., P. Krugman, and D. Tsiddon. (1993). Leapfrogging: A Theory of Cycles in National Technological Leadership. American Economic Review. pp. 1211–1219.{{cite book}}: CS1 maint: multiple names: authors list (link)
  7. ^ Brezis, E. S.; P. Krugman (1997). Technology and Life Cycle of Cities. Journal of Economic Growth. p. 2: 369–383.
  8. ^ Barro, Robert; Sala-i-Martin, Xavier (2003). Economic Growth. Cambridge, MA: MIT Press. pp. 375. ISBN 9780262025539. OCLC 2614137.
  9. ^ Goldemberg, J. (1998). "Leapfrogging Energy Technologies". Energy Policy. 2 (10): 729–741.
  10. ^ http://www.wupperinst.org/globalisation/html/leap.html Wuppertal Institute on Leapfrogging
  11. ^ Hydrogen Energy in the Developing World: A leapfrogging opportunity
  12. ^ SC has asked to explore but can Delhi afford hydrogen fuel?
  13. ^ Munasinghe, M. (1999). "Is environmental degradation an inevitable consequence of economic growth: tunneling through the environmental Kuznets curve". Ecological Economics. 29 (1): 89–109. doi:10.1016/S0921-8009(98)00062-7.
  14. ^ Vijay Modi, V., 2004. Energy services for the poor. Commissioned paper for the Millennium Project Task Force 1. December 14, 2004
  15. ^ Look at the difference in ICT diffusion: India ICT Diffusion, History and Forecast compared with Belgium ICT Diffusion, History and Forecast from International Futures
  16. ^ "Discover Berjaya Hotels & Resorts". 2015-06-22.
  17. ^ Cascio, J. "Leapfrog 101" Archived 2007-01-24 at the Wayback Machine WorldChanging, December 15, 2004.
  18. ^ Ministry of the Environment (Japan), 2007. 'Building a Low Carbon Society'
  19. ^ a b c Irwin, E., Zhang, W., & Wrenn, D. (2012, November 4). Tests of the urban economic model using a new measure of leapfrog development. Retrieved from https://www.academia.edu/2600520/Tests_of_the_urban_economic_model_using_a_new_measure_of_leapfrog_development
  20. ^ Chen, Yong, et al. “Market Thinness, Income Sorting and Leapfrog Development across the Urban-Rural Gradient.” Regional Science and Urban Economics, vol. 66, 2017, pp. 213–223., doi:10.1016/j.regsciurbeco.2017.07.001.
  21. ^ Akher, S. T., & Noon, M. H. (2016). Modeling spillover effects of leapfrog development and urban sprawls upon institutional delinquencies: A case for Pakistan. Procedia - Social and Behavioral Sciences, 216, 274-294.
  22. ^ a b c d e f g h i Heim, Carol E. “Leapfrogging, Urban Sprawl, and Growth Management: Phoenix, 1950–2000.” American Journal of Economics and Sociology, vol. 60, no. 1, 2001, pp. 245–283., doi:10.1111/1536-7150.00063.
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