A Tale of Two Divides: Regional Growth and Resilience

in Italy and the UK

Ben Gardiner, Raffaele Lagravinese, Ron Martin, Pete Tyler

This work forms part of a larger project; How Regions React to Recession: Resilience, Hysteresis and Long Run Impacts (ESRC

Grant ES/1035811/1).

1. Motivation for the study

• Study the nature of the North-South regional divide in the United Kingdom and Italy;

• Understanding the dynamics of long-run growth trends (mostly productivity but also some empl);

• Considering growth differentials across regions in each country created by current financial crisis and past recessions (GVA and empl);

• Examine the role played by industrial structure;

North-South Evolutions; Italy and UK compared and contrasted

• Gonzalez (2010); Is the North-South distinction a relevant ‘policy geography’. UK compared and contrasted;

In Italy; • Barca(2001); New Trends and the Policy Shift in the Italian Mezzogiorno; • Malanima (2012); long-term decline; • Bryne, Fazio and Piacentino; general lack of TFP convergence. Contrary to

conventional wisdom, each region seems to follow its own growth path but importance of convergence;

• Ascari and Di Cosmo (2004); determinants of TFP in Italian regions and differences between North and South;

• Dunford and Greco (2007); impact of restructuring (privatisation) on steel companies and regional implications;

In United Kingdom; • Martin and Tyler (1991), Martin (2008), Martin, 2010, Gardiner et al (2013);

90

110

130

150

170

190

210

230

250

270

1970 1975 1980 1985 1990 1995 2000 2005 2010

Out

put L

evel

(197

1=10

0)

Italy

UK

2. Long-run patterns

Early-80s recessionary shock Early 90s recessionary shock Late 00s recessionary shock

90

95

100

105

110

115

120

125

130

135

1970 1975 1980 1985 1990 1995 2000 2005 2010

Empl

oym

ent L

evel

(197

1=10

0)

Italy

UK

2. Long-run patterns

Early-80s recessionary shock Early 90s recessionary shock Late 00s recessionary shock

90

110

130

150

170

190

210

230

1970 1975 1980 1985 1990 1995 2000 2005 2010

Prod

uctiv

ity Le

vel (

1971

=100

)

Italy

UK

2. Long-run patterns

Euro launch Early-80s recessionary shock

Early 90s recessionary shock Late 00s recessionary shock

Stereotypical North-South Divides (Italy)

95

100

105

110

115

120

125

130

135

1970 1975 1980 1985 1990 1995 2000 2005 2010

Empl

oym

ent L

evel

(197

0=10

0)

North-South Divides - Italy

North

South

Stereotypical North-South Divides (UK)

90

100

110

120

130

140

1971 1976 1981 1986 1991 1996 2001 2006 2011

Empl

oym

ent L

evel

(197

0=10

0)

North-South Divides - UK

North

South

Stereotypical North-South Divides (Italy)

100

120

140

160

180

200

Prod

uctiv

ity L

evel

(197

0=10

0)

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

year

north south

Stereotypical North-South Divides (UK)

100

110

120

130

140

150

160

170

180

190

1971 1976 1981 1986 1991 1996 2001 2006 2011

Prod

uctiv

ity Le

vel (

1971

=100

)

North

South

75

80

85

90

95

100

105

110

115

1970 1975 1980 1985 1990 1995 2000 2005 2010

Rela

tive

Prod

uctiv

ity (C

ount

ry =

100

)

Italy - North

Italy - South

UK - North

UK - South

Relative Productivity

UK North-South Productivity Gap Italy North-South

Productivity Gap

Cumulative Deviations in Italy

NUTS1 NUTS2

Cumulative Deviations in UK

NUTS1 NUTS2

Above 9pp2pp to 9pp-0.9pp to 1pp-3pp to -0.9pp-6pp to -3pp-9pp to -6pp-12pp to -9pp-14pp to -12ppbelow -14pp

Above 1pp-1pp to 1pp-7pp to -1pp-9pp to -7ppbelow -9pp

Productivity and Employment Growth Evolutions in UK and Italy

• Evolution of cumulative productivity and employment growth deviations

• Highlighting some extremes and segmenting (NUTS2) regions into the four possible quadrants

• Also noting regions that have shown ability to turn around / shift between quadrants

-25

-20

-15

-10

-5

0

5

10

15

20

25

-30 -20 -10 0 10 20 30

Cum

ulat

ive

Prod

uctiv

ity G

row

th 1

980-

2011

(rel

ativ

e to

nat

iona

l)

Cumulative Employment Growth 1980-2011 (relative to national)

North

South

Cumulative Productivity and Employment by 2011 (Italy)

Cumulative Productivity and Employment by 2011 (UK)

Productivity vs Employment Evolutions (Italy)

-9.0

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

0.0 5.0 10.0 15.0 20.0 25.0

Cum

ulat

ive

Prod

uctiv

ity D

iffer

ence

(rel

ativ

e to

na

tiona

l)

Cumulative Employment Difference (relative to national)

ite4 - Lazio

0.0

5.0

10.0

15.0

20.0

25.0

-20.0 -15.0 -10.0 -5.0 0.0

Cum

ulat

ive

Prod

uctiv

ity D

iffer

ence

(rel

ativ

e to

nat

iona

l)

Cumulative Employment Difference (relative to national)

itf2 - Molise

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

-12.0 -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0

Cum

ulat

ive

Prod

uctiv

ity D

iffer

ence

(rel

ativ

e to

nat

iona

l)

Cumulative Employment Difference (relative to national)

itg1 - Sicilia

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0

10.0 12.0

-10.0 -5.0 0.0 5.0

Cum

ulat

ive

Prod

uctiv

ity D

iffer

ence

(r

elat

ive

to n

atio

nal)

Cumulative Employment Difference (relative to national)

ite3 - Marche

Productivity vs Employment Evolutions (UK)

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

-30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0

Cum

ulat

ive

Prod

uctiv

ity D

iffer

ence

(r

elat

ive

to n

atio

nal)

Cumulative Employment Difference (relative to national)

ukg3 - West Midlands

-8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0

10.0

0.0 10.0 20.0 30.0

Cum

ulat

ive

Prod

uctiv

ity D

iffer

ence

(rel

ativ

e to

nat

iona

l)

Cumulative Employment Difference (relative to national)

ukj1 - Berkshire, Bucks and Oxfordshire

-20.0

-15.0

-10.0

-5.0

0.0

5.0

-40.0 -30.0 -20.0 -10.0 0.0

Cum

ulat

ive

Prod

uctiv

ity D

iffer

ence

(r

elat

ive

to n

atio

nal)

Cumulative Employment Difference (relative to national)

ukd5 - Merseyside

-9.0

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0 0.0 5.0 10.0 15.0 20.0 25.0

Cum

ulat

ive

Prod

uctiv

ity D

iffer

ence

(rel

ativ

e to

nat

iona

l)

Cumulative Employment Difference (relative to national)

ukh1 - East Anglia

Summary of Regional Evolutions

Country Quadrant 1 (high prod vs high empl)

Quadrant 2 (low prod vs high empl)

Quadrant 3 (low prod vs low empl)

Quadrant 4 (high prod vs low empl)

Italy itc4 itd1+2, itd3, itd5, ite1, ite2, ite4,

itc1, itc2, itg1

itc3, itd4, ite3, itf1, itf2, itf3, itf4, itf5, ift6, itg2

UK ukd2, uki1, ukj1, ukj2, ukj3 ukm5, ukm6

uke2, ukf2, ukf3, ukg1, ukg2, ukh1, ukh2, ukh3, ukj4 ukk1, ukk2, ukk3, ukk4, ukl2, ukn

ukc1, ukc2, ukd1, ukd3, ukd4, ukd5, uke1, uke3, uke4, ukf1, ukl1, ukm3,

ukg3, uki2, ukm2,

Northern Regions Southern Regions

Turnaround regions? itd5, ite1, ite3, uki1, ukj1, ukj2, ukj3

3. The Role of Industrial Structure Using dynamic shift Share to investigate the role of industrial

structure and regional characteristics on long-term national growth differential More formally:

Each of these three components can be expressed as follows:

Where: g = the growth of the variable X over the pre-defined time period (between t+n and t); gn = the national (percentage) growth of variable X during this period, gin = the national (percentage) growth by industry i of variable X during this period; and gij = the regional (percentage) growth by industry i of variable X during this period.

= = + +

)

)

Contribution of Industry-Mix, and Region-Specific Factors, to Long-Run Relative Output Performance (Italy, 1980-2011)

-30

-20

-10

0

10

20

30

itc3

(Lig

uria

)

itc1

(Pie

mon

te)

itc2

(Val

le d

'Aos

ta/V

allé

e d'

Aost

e)

itf5

(Bas

ilica

ta)

ite2

(Um

bria

)

itf2

(Mol

ise)

itg1

(Sic

ilia)

itf4

(Pug

lia)

itf6

(Cal

abria

)

ite1

(Tos

cana

)

itd4

(Friu

li-Ve

nezia

Giu

lia)

itd5

(Em

ilia-

Rom

agna

)

itf3

(Cam

pani

a)

itg2

(Sar

degn

a)

itc4

(Lom

bard

ia)

itf1

(Abr

uzzo

)

ite3

(Mar

che)

ite4

(Laz

io)

itd1

(Pro

vinc

ia A

uton

oma

Bolz

ano-

Boze

n)

itd2

(Pro

vinc

ia A

uton

oma

Tren

to)

itd3

(Ven

eto)

Cont

ribut

ion

to C

umul

ativ

e D

iffer

entia

l Gro

wth

(pp)

Region

Industry

Contribution of Industry-Mix, and Region-Specific Factors, to Long-Run Relative Employment Performance (Italy, 1980-2011)

-40

-30

-20

-10

0

10

20

30

itc3

(Lig

uria

)

itf4

(Pug

lia)

itf2

(Mol

ise)

itf5

(Bas

ilica

ta)

itf3

(Cam

pani

a)

itd4

(Friu

li-Ve

nezia

Giu

lia)

itc1

(Pie

mon

te)

itf6

(Cal

abria

)

ite1

(Tos

cana

)

itf1

(Abr

uzzo

)

itc2

(Val

le d

'Aos

ta/V

allé

e d'

Aost

e)

itg1

(Sic

ilia)

itd5

(Em

ilia-

Rom

agna

)

ite3

(Mar

che)

itc4

(Lom

bard

ia)

itg2

(Sar

degn

a)

ite2

(Um

bria

)

itd1

(Pro

vinc

ia A

uton

oma

Bolza

no-B

ozen

)

itd2

(Pro

vinc

ia A

uton

oma

Tren

to)

itd3

(Ven

eto)

ite4

(Laz

io)

Cont

ribut

ion

to C

umul

ativ

e Di

ffere

ntia

l Gro

wth

(pp)

Region

Industry

Contribution of Industry-Mix, and Region-Specific Factors, to Long-Run Relative Productivity Performance (Italy, 1980-2011)

-25

-20

-15

-10

-5

0

5

10

15

ite4

(Laz

io)

ite2

(Um

bria

)

itc2

(Val

le d

'Aos

ta/V

allé

e d'

Aost

e)

itc1

(Pie

mon

te)

itg2

(Sar

degn

a)

itg1

(Sic

ilia)

itd5

(Em

ilia-

Rom

agna

)

itc4

(Lom

bard

ia)

itd1

(Pro

vinc

ia A

uton

oma

Bolza

no-B

ozen

)

itd2

(Pro

vinc

ia A

uton

oma

Tren

to)

ite1

(Tos

cana

)

itf6

(Cal

abria

)

itd3

(Ven

eto)

itc3

(Lig

uria

)

itf1

(Abr

uzzo

)

ite3

(Mar

che)

itf5

(Bas

ilica

ta)

itd4

(Friu

li-Ve

nezia

Giu

lia)

itf2

(Mol

ise)

itf4

(Pug

lia)

itf3

(Cam

pani

a)

Cont

ribut

ion

to C

umul

ativ

e Di

ffere

ntia

l Gro

wth

(pp)

Region

Industry

Contribution of Industry-Mix, and Region-Specific Factors, to Long-Run Relative Output Performance (UK, 1980-2011)

-60

-40

-20

0

20

40

60

ukd5

(Mer

seys

ide)

ukc1

(Tee

s V

alle

y an

d D

urha

m)

uke3

(Sou

th Y

orks

hire

)

ukl1

(Wes

t W

ales

and

The

Val

leys

)

ukc2

(Nor

thum

berl

and,

Tyn

e an

d W

ear)

uke1

(Eas

t Yo

rksh

ire

and

Nor

ther

n Li

ncol

nshi

re)

ukg3

(Wes

t M

idla

nds)

ukm

3 (S

outh

Wes

tern

Sco

tlan

d)

ukd1

(Cum

bria

)

ukd3

(Gre

ater

Man

ches

ter)

uke4

(Wes

t Yo

rksh

ire)

ukd4

(Lan

cash

ire)

ukf1

(Der

bysh

ire

and

Not

ting

ham

shir

e)

ukg2

(Shr

opsh

ire

and

Staf

ford

shir

e)

ukh2

(Bed

ford

shir

e, H

ertf

ords

hire

)

uke2

(Nor

th Y

orks

hire

)

ukn

(Nor

ther

n Ir

elan

d)

ukm

6 (H

ighl

ands

and

Isla

nds)

ukm

2 (E

aste

rn S

cotl

and)

uki2

(O

uter

Lon

don)

ukh3

(Ess

ex)

ukj4

(Ken

t)

ukl2

(Eas

t W

ales

)

ukd2

(Che

shir

e)

ukf3

(Lin

coln

shir

e)

ukk4

(Dev

on)

ukf2

(Lei

cest

ersh

ire,

Rut

land

and

Nor

than

ts)

ukk1

(Glo

uces

ters

hire

, Wilt

shir

e an

d Br

isto

l/B

ath

area

)

ukk2

(Dor

set

and

Som

erse

t)

ukj3

(Ham

pshi

re a

nd Is

le o

f Wig

ht)

ukg1

(Her

efor

dshi

re, W

orce

ster

shir

e an

d W

arks

)

ukj2

(Sur

rey,

Eas

t an

d W

est

Suss

ex)

ukh1

(Eas

t A

nglia

)

ukk3

(Cor

nwal

l and

Isle

s of

Sci

lly)

uki1

(In

ner

Lond

on)

ukm

5 (N

orth

Eas

tern

Sco

tlan

d)

ukj1

(Ber

kshi

re, B

ucks

and

Oxf

ords

hire

)

Cont

ribu

tion

to

Cum

ulat

ive

Gro

wth

Dif

fere

ntia

l (pp

)

Region

Industry

Contribution of Industry-Mix, and Region-Specific Factors, to Long-Run Relative Employment Performance (UK, 1980-2012)

-40

-30

-20

-10

0

10

20

30

40

50

ukd5

(Mer

seys

ide)

ukg3

(Wes

t Mid

land

s)

ukm

3 (S

outh

Wes

tern

Sco

tland

)

ukc1

(Tee

s Va

lley

and

Dur

ham

)

ukd3

(Gre

ater

Man

ches

ter)

ukc2

(Nor

thum

berl

and,

Tyn

e an

d W

ear)

ukm

6 (H

ighl

ands

and

Isla

nds)

uke3

(Sou

th Y

orks

hire

)

ukd4

(Lan

cash

ire)

ukl1

(Wes

t Wal

es a

nd T

he V

alle

ys)

uki2

(O

uter

Lon

don)

uke1

(Eas

t Yor

kshi

re a

nd N

orth

ern

Linc

olns

hire

)

ukd1

(Cum

bria

)

ukm

2 (E

aste

rn S

cotla

nd)

uke4

(Wes

t Yor

kshi

re)

ukf1

(Der

bysh

ire a

nd N

ottin

gham

shire

)

ukh2

(Bed

ford

shire

, Her

tfor

dshi

re)

uki1

(In

ner L

ondo

n)

ukd2

(Che

shire

)

ukj4

(Ken

t)

ukg2

(Shr

opsh

ire

and

Staf

ford

shir

e)

ukj3

(Ham

pshi

re a

nd Is

le o

f Wig

ht)

ukf2

(Lei

cest

ersh

ire, R

utla

nd a

nd N

orth

ants

)

ukl2

(Eas

t Wal

es)

ukk1

(Glo

uces

ters

hire

, Wilt

shir

e an

d Br

isto

l/Ba

th a

rea)

ukm

5 (N

orth

Eas

tern

Sco

tland

)

ukj2

(Sur

rey,

Eas

t and

Wes

t Sus

sex)

uke2

(Nor

th Y

orks

hire

)

ukn

(Nor

ther

n Ir

elan

d)

ukf3

(Lin

coln

shire

)

ukg1

(Her

efor

dshi

re, W

orce

ster

shire

and

War

ks)

ukk4

(Dev

on)

ukh3

(Ess

ex)

ukk2

(Dor

set a

nd S

omer

set)

ukh1

(Eas

t Ang

lia)

ukj1

(Ber

kshi

re, B

ucks

and

Oxf

ords

hire

)

ukk3

(Cor

nwal

l and

Isle

s of

Sci

lly)

Cont

ribu

tion

to C

umul

ativ

e G

row

th D

iffer

enti

al (p

p)

Region

Industry

Contribution of Industry-Mix, and Region-Specific Factors, to Long-Run Relative Productivity Performance (UK, 1980-2011)

-30

-20

-10

0

10

20

30

40

50

ukn

(Nor

ther

n Ir

elan

d)

uke2

(Nor

th Y

orks

hire

)

ukd5

(Mer

seys

ide)

ukh3

(Ess

ex)

uke3

(Sou

th Y

orks

hire

)

ukk3

(Cor

nwal

l and

Isle

s of

Sci

lly)

ukl1

(Wes

t W

ales

and

The

Val

leys

)

uke1

(Eas

t Yor

kshi

re a

nd N

orth

ern

Linc

olns

hire

)

ukg2

(Shr

opsh

ire

and

Staf

ford

shir

e)

ukk4

(Dev

on)

ukk2

(Dor

set

and

Som

erse

t)

ukf3

(Lin

coln

shir

e)

ukc1

(Tee

s V

alle

y an

d D

urha

m)

uke4

(Wes

t Yor

kshi

re)

ukd1

(Cum

bria

)

ukc2

(Nor

thum

berl

and,

Tyn

e an

d W

ear)

ukl2

(Eas

t W

ales

)

ukh2

(Bed

ford

shir

e, H

ertf

ords

hire

)

ukf1

(Der

bysh

ire

and

Not

ting

ham

shir

e)

ukh1

(Eas

t A

nglia

)

ukk1

(Glo

uces

ters

hire

, Wilt

shir

e an

d Br

isto

l/Ba

th a

rea)

ukd4

(Lan

cash

ire)

ukj4

(Ken

t)

ukd3

(Gre

ater

Man

ches

ter)

ukg1

(Her

efor

dshi

re, W

orce

ster

shir

e an

d W

arks

)

ukm

3 (S

outh

Wes

tern

Sco

tlan

d)

ukd2

(Che

shir

e)

ukf2

(Lei

cest

ersh

ire,

Rut

land

and

Nor

than

ts)

ukj2

(Sur

rey,

Eas

t an

d W

est

Suss

ex)

ukm

2 (E

aste

rn S

cotl

and)

ukj3

(Ham

pshi

re a

nd Is

le o

f Wig

ht)

ukj1

(Ber

kshi

re, B

ucks

and

Oxf

ords

hire

)

uki2

(O

uter

Lon

don)

ukm

6 (H

ighl

ands

and

Isla

nds)

ukg3

(Wes

t M

idla

nds)

ukm

5 (N

orth

Eas

tern

Sco

tlan

d)

uki1

(In

ner

Lond

on)

Cont

ribu

tion

to

Cum

ulat

ive

Gro

wth

Dif

fere

ntia

l (pp

)

Region

Industry

4. Assessing Impact of Regions to Recessionary Shocks (for GVA and Empl)

• Our interpretation is that resilience as a concept captures both resistance to the shock and recovery from it

• Resistance and recovery indices both calculated the same = [(∆Xr/Xr) - (∆X/X)E ] / |∆X/X|E

– where E = national during recession (-ve growth) or recovery

(+ve growth) period – zero => no difference to expected (national) effect – positive => more resistant / stronger recovery than expected – negative => less resistant / lower recovery than expected

Resistance vs Recovery Indices - Italy Output Employment

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0

Aver

age

Reco

very

Inde

x

Average Resistance Index

North

South

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Ave

rage

Rec

ove

ry In

dex

Average Resistance Index

North

South

Resistance vs Long-Run Growth (Italy) Output Employment

1.0

1.5

2.0

2.5

3.0

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0

Long

-run

Gro

wth

(%pa

, 197

0-20

11)

Average Resistance Index

North

South

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

-2.0 -1.0 0.0 1.0 2.0

Long

-run

Gro

wth

(%pa

, 197

0-20

11)

Average Resistance Index

North

South

Resistance vs Recovery Indices - UK Employment Output

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Aver

age

Reco

very

Inde

x

Average Resistance Index

North

South

-1.0

-0.5

0.0

0.5

1.0

1.5

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0Aver

age

Reco

very

Inde

x

Average Resistance Index

North

South

Resistance vs Long-Run Growth (UK) Output Employment

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0Lo

ng-r

un G

row

th (%

pa, 1

980-

2011

)

Average Resistance Index

North

South

1.0

1.5

2.0

2.5

3.0

3.5

4.0

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0

Long

-run

Gro

wth

(%pa

, 198

0-20

11)

Average Resistance Index

North

South

5. Summary and Conclusions

• Spatial divides in Italy and the UK – wider in the UK (for employment) – clear north-south divergence, but more detail -> more variation

• Recession and resilience – resistance to slowdown and recession is positively associated

with ability to recover (moreso for employment) – more resilient regions tend to enjoy stronger long-run growth – clear north-south spatial patterns emerge

• Role of economic structure vs competitive effects – structure has a role to play but less obvious link to

performance – regional-specific factors are mostly dominant