The introduction of a new industry or the expansion of an
existing industry in an area also encourages growth in other industrial sectors.
This is known as the multiplier effect which in its simplest form is how many
times money spent circulates through a country's economy.
Money invested in an industry helps to create jobs directly in
the industry, but it also creates jobs indirectly elsewhere in the economy. New
industrial development, for example, requires construction workers who
themselves require housing, and services such as schools and shops. An increased
demand for food will benefit local farmers who may increase their spending on
fertiliser.
Workers employed directly in the new industry increase the
local supply of skilled labour, attracting other companies who benefit from
sharing this labour pool. Other companies who supply components or use the new
industry's products are attracted to the area to benefit from reduced transport
costs.
Spin-off effects include new inventions or innovations that may
lead to further industrial development and new linkages.
Through this multiplier effect, an area can develop as a growth
pole, as illustrated in the diagram below.
Simplified diagram to show the development of an
industrial region (after Gunnar Myrdal)
