is scotland a region? grant allan and kim swales urban and regional economics seminar group open...
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Is Scotland a Region?
Grant Allan and Kim Swales
Urban and Regional Economics Seminar Group
Open University of Wales
25th - 26th September 2013
Outline
• What is a region?
• Regional modelling
• Is Scotland a region?
• Sub-regional heterogeneity
• Impact of independence/greater
devolution
What is a region?
• Difficult question to answer in abstract.
• At least two ways to consider a region:• A homogeneous space (Gwilym Price)• A structured space (John Parr)
• Scotland is an administrative (devolved) region. Is it correct to treat it as an economic region?
• Recent Treasury Report “Macroeconomic and Fiscal Performance of Scotland” shows the performance of Scotland is comparable to the UK in recent past:
(gdp/worker), growth.
A region for policy modelling
• Considered the way the region has been defined in use.
• Outline the assumptions that we (FAI) make in regional modelling
• Ask why we have applied the model to Scotland
• Consider whether Scotland is an appropriate economy to be modelled in this way, given the heterogeneity within Scotland.
• Raise some issues on inter-regional models
Modelling Assumptions• Sectors have classical/neo-classical production technology
• Constant returns to scale technology• Competitive product markets
• Trade driven by imperfect competition (Armington assumptions)
• Open factor markets• Unified national financial market (exogenous r/i)• Unified (but imperfectly competitive) labour market• Inter-regional migration (flow equilibrium)• Typically no other fixed (region specific) input
• Industrial disaggregation (Industrial structure and linkages matter)
• Welfare transfers financed exogenously.• Impose no individual macroeconomic constraints
Classical long-run characteristics
• For demand shock, you get an extended IO model of the Batey-Madden type. (Industrial structure and linkages matter, endogenous population)
• For a supply (efficiency) shock you get the IO price-dual (Ghoshian) model.
• Structurally, the region has a large traded sector, so that the impact on export demand (and import substitution) are typically important for both demand and supply shocks.
• In the long-run it operates as a classic export-base type model
General characteristics
• In the short run fixed labour force and specific capital stocks limit full adjustment (reflected in prices).
• In many ways like a NEG model in the sense that imperfect competition in the market for traded goods is very important but with no increasing returns (long run expansion limited by export markets).
Why apply the model to Scotland?
• Data• Calibration: IO tables, National Account data• Parameter values
• Policy• Regional policy• Scottish specific policy (Scottish Office/Scottish
Enterprise)• Over time these arguments strengthened
• Devolution and Independence debate• Improved data sources
The system of regions in the UK
• Shouldn’t Scotland be modelled as part of a UK national system?• Almost certainly (Mark Partridge)
• What should a UK regional disaggregation look like?• Individual devolved regions?• Disaggregation of England?
How far do the assumptions hold?
• Essentially the model assumes homogeneity within the region
• Key economic characteristics should be similar:
• Labour market conditions
• Production function
• Or in some constant structure
Intra-Scottish labour market variation Employment rate (16-64), % Unemployment rate (16-64), %
NUTS3 levels 2004 2012 2004 2012Orkney Islands 83.4 81.3 1.6 5.3Shetland Islands 85.0 79.7 1.5 !Caithness & Sutherland and Ross & Cromarty 80.8 78.5 3.6 4.6Abderdeen City and Aberdeenshire 76.1 78.4 5.3 4.8Inverness & Nairn and Moray, Badenoch & Strathspey 78.0 76.0 4 4.6South Lanarkshire 73.0 75.1 4.5 5.3East Lothian and Midlothian 75.8 74.9 4.1 5.2Lochaber, Skye & Lochalsh, Arran & Cumbrae and Argyll and Bute 79.1 74.2 2.8 6.1West Lothian 76.9 74.0 3.8 5.5Falkirk 74.3 72.9 4.6 7.7Edinburgh, City of 74.0 72.8 5.2 5.8Scottish Borders 77.5 72.5 2.9 6.2Perth & Kinross and Stirling 75.1 71.8 4.1 8.1Eilean Siar (Western Isles) 77.8 71.3 5.1 8.1Inverclyde, East Renfrewshire and Renfrewshire 72.4 70.4 5.2 9.3East Dunbartonshire, West Dunbartonshire and Helensburgh & Lomond 73.8 70.0 4.7 8.3South Ayshire 71.8 69.9 6.7 10.9North Lanarkshire 69.1 69.5 6.4 12.8Clackmannshire and Fife 74.5 69.1 5.2 9.8Angus and Dundee City 69.4 69.0 7.2 8.3Dumfries and Galloway 75.6 67.2 3.9 10.1East Ayrshire and North Ayrshire Mainland 66.6 64.1 8.1 12.7Glasgow City 62.9 59.7 7.9 12
Employment rates
55
60
65
70
75
80
85
90
Aber
deen
City
Aber
deen
shire
Angu
s
Argy
ll an
d Bu
te
Clac
kman
nans
hire
Dum
frie
s an
d G
allo
way
Dun
dee
City
East
Ayr
shir
e
East
Dun
bart
onsh
ire
East
Lot
hian
East
Ren
frew
shir
e
Edin
burg
h, C
ity o
f
Eile
an S
iar
Falk
irk Fife
Gla
sgow
City
Hig
hlan
d
Inve
rcly
de
Mid
loth
ian
Mor
ay
Nor
th A
yrsh
ire
Nor
th L
anar
kshi
re
Ork
ney
Isla
nds
Pert
h an
d Ki
nros
s
Renf
rew
shire
Scotti
sh B
orde
rs
Shet
land
Isla
nds
Sout
h Ay
rshi
re
Sout
h La
nark
shire
Stirl
ing
Wes
t Dun
bart
onsh
ire
Wes
t Lot
hian
Empl
oym
ent r
ate,
16-
64, %
Local Authority area (1-32)
2004
2012
Unified labour market
• Difficult to argue that this is a unified labour market with such big variation in unemployment and employment rates.
• But perhaps there is an underlying urban/rural structure (high employment rates in the rural (particularly highland)) regions. Low employment rate and high unemployment rate in urban regions.
• Doesn’t appear to be the case
GVA per head
0
20
40
60
80
100
120
140
160
180An
gus
and
Dun
dee
City
Clac
kman
nans
hire
and
Fife
East
Lot
hian
and
Mid
loth
ian
Scotti
sh B
orde
rs
Edin
burg
h, C
ity o
f
Falk
irk
Pert
h &
Kin
ross
and
Stir
ling
Wes
t Lot
hian
East
Dun
bart
onsh
ire, W
est…
Dum
frie
s &
Gal
low
ay
East
Ayr
shire
and
Nor
th A
yrsh
ire…
Gla
sgow
City
Inve
rcly
de, E
ast R
enfr
ewsh
ire a
nd…
Nor
th L
anar
kshi
re
Sout
h Ay
rshi
re
Sout
h La
nark
shire
Aber
deen
City
and
Abe
rdee
nshi
re
Caith
ness
& S
uthe
rland
and
Ros
s &
…
Inve
rnes
s &
Nai
rn a
nd M
oray
,…
Loch
aber
, Sky
e &
Loc
hals
h, A
rran
&…
Eile
an S
iar (
Wes
tern
Isle
s)
Ork
ney
Isla
nds
Shet
land
Isla
nds
Eastern Scotland South Western Scotland NE Highlands and islands
GVA
per
hea
d, 1
997
and
2010
, Sco
tlan
d =
100
NUTS 3 regions
1997
2011
GVA per employee
0
20
40
60
80
100
120
140
160
180
Angu
s an
d D
unde
e Ci
ty
Clac
kman
nans
hire
and
Fife
East
Lot
hian
and
Mid
loth
ian
Scotti
sh B
orde
rs
Edin
burg
h, C
ity o
f
Falk
irk
Pert
h &
Kin
ross
and
Stir
ling
Wes
t Lot
hian
East
Dun
bart
onsh
ire, W
est…
Dum
frie
s &
Gal
low
ay
East
Ayr
shire
and
Nor
th A
yrsh
ire…
Gla
sgow
City
Inve
rcly
de, E
ast R
enfr
ewsh
ire a
nd…
Nor
th L
anar
kshi
re
Sout
h Ay
rshi
re
Sout
h La
nark
shire
Aber
deen
City
and
Abe
rdee
nshi
re
Caith
ness
& S
uthe
rland
and
Ros
s &
…
Inve
rnes
s &
Nai
rn a
nd M
oray
,…
Loch
aber
, Sky
e &
Loc
hals
h, A
rran
&…
Eile
an S
iar (
Wes
tern
Isle
s)
Ork
ney
Isla
nds
Shet
land
Isla
nds
Eastern Scotland South Western Scotland NE Highlands and islands
GVA
per
em
ploy
ee in
201
0, S
cotl
and
= 10
0
NUTS 3 regions
Gross Domestic Household Income
0
20
40
60
80
100
120
140
160
180An
gus
and
Dun
dee
City
Clac
kman
nans
hire
and
Fife
East
Lot
hian
and
Mid
loth
ian
Scotti
sh B
orde
rs
Edin
burg
h, C
ity o
f
Falk
irk
Pert
h &
Kin
ross
and
Stir
ling
Wes
t Lot
hian
East
Dun
bart
onsh
ire, W
est…
Dum
frie
s &
Gal
low
ay
East
Ayr
shire
and
Nor
th A
yrsh
ire…
Gla
sgow
City
Inve
rcly
de, E
ast R
enfr
ewsh
ire a
nd…
Nor
th L
anar
kshi
re
Sout
h Ay
rshi
re
Sout
h La
nark
shire
Aber
deen
City
and
Abe
rdee
nshi
re
Caith
ness
& S
uthe
rland
and
Ros
s &
…
Inve
rnes
s &
Nai
rn a
nd M
oray
,…
Loch
aber
, Sky
e &
Loc
hals
h, A
rran
&…
Eile
an S
iar (
Wes
tern
Isle
s)
Ork
ney
Isla
nds
Shet
land
Isla
nds
Eastern Scotland South Western Scotland NE Highlands and Islands
GD
HI p
er h
ead,
199
7 an
d 20
10, S
cotl
and
= 10
0
NUTS 3 regions
1997
2010
Shift share full calculations
National share Industry mix Regional shift
𝐺𝑉𝐴𝑖𝑗𝑡+𝑛10𝑖=1 − 𝐺𝑉𝐴𝑖𝑗𝑡
10𝑖=1 = ∆ 𝐺𝑉𝐴𝑖𝑗𝑡+𝑛10
𝑖=1 = ൭ 𝐺𝑉𝐴𝑖𝑗𝑡10𝑖=1 ∗𝑔𝑛൱+ቌ 𝐺𝑉𝐴𝑖𝑗𝑡
10𝑖=1 ∗ሺ𝑔𝑖𝑛 −𝑔𝑛ሻቍ+ቌ 𝐺𝑉𝐴𝑖𝑗𝑡
10𝑖=1 ∗൫𝑔𝑖𝑗 −𝑔𝑖𝑛൯ቍ
Absolute GVA change,
1997-2010, (£m)
National share (£m)
Industry mix (£m)
Regional shift (£m)
Eastern
Scotland
Angus and Dundee City 435.7 977.2 -83.1 -458.5Clackmannanshire and Fife 656.7 1203.5 -238.6 -308.1East Lothian and Midlothian 425.4 446.1 -77.7 57.0Scottish Borders 209.6 306.0 -58.4 -38.0Edinburgh, City of 4362.4 2834.9 1201.8 325.7Falkirk 600.5 505.4 -130.8 225.9Perth & Kinross and Stirling 837.0 813.3 48.8 -25.1West Lothian 611.7 695.6 -137.4 53.4
South Wester
n Scotla
nd
East Dunbartonshire, West Dunbartonshire and Helensburgh & Lomond 381.4 604.1 -10.6 -212.1Dumfries & Galloway 328.9 463.1 -96.6 -37.6East Ayrshire and North Ayrshire mainland 164.4 727.8 -194.8 -368.6Glasgow City 3636.3 3422.7 892.7 -679.1Inverclyde, East Renfrewshire and Renfrewshire 54.2 1316.2 -185.7 -1076.3North Lanarkshire 1369.6 869.2 -144.8 645.2South Ayrshire 268.7 435.8 -48.4 -118.6South Lanarkshire 655.7 993.3 -202.6 -135.1
NE Aberdeen City and Aberdeenshire 3402.0 2515.2 -312.4 1199.2
Highlands and
Islands
Caithness & Sutherland and Ross & Cromarty 340.6 247.3 -27.0 120.3Inverness & Nairn and Moray, Badenoch & Strathspey 1087.7 494.3 -113.2 706.6Lochaber, Skye & Lochalsh, Arran & Cumbrae and Argyll & Bute 251.5 320.5 -49.2 -19.9Eilean Siar (Western Isles) 42.4 86.3 -9.2 -34.7Orkney Islands 55.4 68.3 -22.4 9.4Shetland Islands 120.2 94.5 -24.1 49.8
Cumulative Regional shift by region
-1500
-1000
-500
0
500
1000
1500
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Cum
ulati
ve R
egio
nal S
hift
ele
men
t of G
VA g
row
th, £
m
Aberdeen Ci ty and Aberdeenshire
Inverness & Nairn and Moray, B adenoch & Strathspey
North Lanarkshire
Falkirk
Cai thness & Sutherland and Ross & Cromarty
Edinburgh, City of
Shetland Islands
Perth & Kinross and Stirling
East Lothian and Midlothian
West Lothian
Orkney Islands
Lochaber, Skye & Lochalsh, Arran & Cumbrae and Argyll & Bute
Dumfries & Galloway
Scotti sh Borders
Eilean Siar (Western Isles)
South Ayrshire
South Lanarkshire
East Dunbartonshire, West Dunbartonshire and Helensburgh & Lomond
Clackmannanshire and Fife
East Ayrshi re and North Ayrshire mainland
Angus and Dundee City
Glasgow City
Inverclyde, East Renfrewshire and Renfrewshire
GDP figures
Much less easy to tell a rural/urban story.
Glasgow has low productivity and negative differential growth in the shift share analysis although favourable structure. Dundee has both low industry mix and regional shift.
Edinburgh and Aberdeen are major sources of growth
Growth Sectors in space
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Aber
deen
City
Aber
deen
shire
Angu
sAr
gyll
and
Bute
Clac
kman
nans
hire
Dum
frie
s an
d G
allo
way
Dund
ee C
ityEa
st A
yrsh
ireEa
st D
unba
rton
shire
East
Lot
hian
East
Ren
frew
shire
Edin
burg
h, C
ity o
fEi
lean
Sia
rFa
lkirk Fife
Gla
sgow
City
Hig
hlan
dIn
verc
lyde
Mid
loth
ian
Mor
ayN
orth
Ayr
shire
Nor
th L
anar
kshi
reO
rkne
y Is
land
sPe
rth
and
Kinr
oss
Renf
rew
shire
Scotti
sh B
orde
rsSh
etla
nd Is
land
sSo
uth
Ayrs
hire
Sout
h La
nark
shire
Stirli
ngW
est D
unba
rton
shire
Wes
t Lot
hian
Shar
e of
tota
l Sco
ttish
em
ploy
men
t in
Gro
wth
Sec
tors
, 201
1
Local Authority area (32)
Food and drink Energy including renewables Lifesciences
Sustainable tourism Financial and business services
Is Scotland a Region?
• Is It appropriate to treat Scotland as a unified region?• Does spatial structure affect performance.• Does the intra-regional location of a shock affect the
regional impact? • At present Scotland has two primary geographical sources
of GDP growth: Edinburgh and Aberdeen (with Inverness and North Lanark). Does Scotland face the same issue of polarised growth as the UK?
• Should there be more spatially unbalanced industrial policy in Scotland?
• Independently of the independence vote, will sub-regional concerns become much more prominant?
Scottish Government/ESRC-funded modelling• North Sea oil+gas is an important input:
• Likely that there will be an augmented set of (semi?) official IO accounts
• Should be formally modelled• Labour market:
• Greater skill disaggregation (unskilled more region specific)
• Is geographic disaggregation needed?• Income distribution
• Household disaggregation• Should there sub-regional disaggregation
• Scotland RUK NEG model