The Service Sector in a Hierarchy of Rural Places: Potential for Export Activity

Abstract

Over the last decade policy questions about the service sector and economic development have focused on service exports from urban areas. Only recently have concerns about the service sector of rural areas been reflected in the literature (Stabler and Howe 1988; Bender 1987; Stabler 1987; Bohm, Herzog, and Schlottman 1986; Smith 1984). In parallel with the discussion of urban services, this literature considers the following questions: (1) Which services should be classified as exports from rural areas? (2) Should an apparent deficiency of rural residentiary services be subject to active policies of recruitment and incubation? (3) Is there a growing class of footloose industries that can bring urban service employment to the countryside?' Although official data accurately document the extent of service activity outside metropolitan areas, much less is known about how rural and urban services complement each other, or how the mix of services changes at different levels of a hierarchy of rural services. Understanding the function of rural places as exporters of services to both higher or lower level places in the hierarchy is essential to answering the policy questions posed above. This article develops and applies a simple empirical methodology based on the location quotient to identify the existence, direction, and nature of service trade within a hierarchy of places. Our methodology rests upon the well-known foundations of central place theory set forth by Christaller (1966). It assumes a hierarchy of places in which the market area of each place is nested in the market area of the next highest order place, an extent of trade within the hierarchy that is dominated by agglomerative economies, and a flow of agglomerative services from higher to lower levels (Christaller 1966). We further presume that profit seeking entrepreneurs will seek out and find most profitable local and export activities. Unlike the models of the urban hierarchy that constrain service sector activities to some mix of residentiary production and sales in the immediate hinterland, our model of basic imports and exports allows basic service activities to arise throughout the hierarchy. Our model empirically distinguishes between those exports that originate in a higher order place and flow only to lower order places in the appropriate hinterland and those exports that cross hinterland borders.2 The first part of this paper briefly reviews the traditional techniques for identifying exports. A general methodology is then developed which determines the nature, direction, and extent of trade in service activities within a rural hierarchy of places. This model is applied to 49 service