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Tradability, Productivity, and Regional Disparities: theory and UK evidence

Author

Listed:
  • Patricia Rice

    (Department of Economics and St. Anne’s College, University of Oxford)

  • Anthony J.Venables

    (Alliance Manchester Business School, The University of Manchester and Monash University)

Abstract

Spatial variation in the productivity of different sectors is a determinant of sectoral location, with consequences for wages, rents and the cost-of-living in each area. This paper develops an analytical framework which shows how productivity advantage in a highly tradable sector translates into higher nominal wages, rents, and cost of living in an area; in contrast, high physical productivity in non-tradables may result in lower wages, rents and revenue productivity. The theory’s prediction that an area’s bias towards highly tradable activities is positively correlated with its earnings is confirmed by empirical analysis of earnings data for the ITL3 areas of GB. As suggested by the theory, two factors drive this effect. Approximately one-third is a direct result of sectoral composition – on average across GB, tradable sectors pay higher wages. The remaining two-thirds is an equilibrium effect, arising as a productivity advantage in tradables translates into higher local employment and factor prices. While our primary analysis is on recent data, we show that our approach also captures the impact of the structural change that occurred in Britain during the 1970s and 1980s on regional earnings disparities.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Patricia Rice & Anthony J.Venables, 2022. "Tradability, Productivity, and Regional Disparities: theory and UK evidence," Working Papers 021, The Productivity Institute.
    • Handle: RePEc:anj:wpaper:021
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Regional economics; lagging regions; tradability; productivity; disparities;
    All these keywords.

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F60 - International Economics - - Economic Impacts of Globalization - - - General

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