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London most productive region in the UK

London is over 50% more productive than any other region in the UK, according to new research at the School.

In light of the UK Government’s plans to level-up the rest of the UK to ensure little disparity between regions for work, wages and opportunities, the study suggests there’s a long way to go to level-up the rest of the UK in terms of productivity.

Professors of Economics, Richard Harris and John Moffatt, aimed to understand the differences in regional productivity levels, and the underlying factors which have enabled London to become so much more productive than the rest of the UK.

The research

The study explored factors as to why London-based industry was much more productive than those in the other UK regions such as:

  • the larger levels of multinational ownership
  • higher engagement in research and development (R&D)
  • the size of firms
  • engagement in exporting.

The researchers obtained the estimates of total-factor productivity (TFP) of all plants (i.e., local workplaces) between 1997-2018, for the 11 administrative regions in Great Britain and they were able to use this data to effectively measure the impact each factor had on organisational and industry productivity comparing this on a regional scale.

Results

London was revealed to be 52-54% more productive than the South East, the second most productive region. Wales was identified as the least productive region of the 11.

Differences in plant characteristics such as size or multinational ownership had a small impact and were not the most dominant reason as to why London’s productivity was significantly higher. The study found that London dominates because its plants benefit from their location – factors such as governance, infrastructure, physical geography and agglomeration (clustering) economies. 

“The task of levelling up the UK from the Conservative government is both an ambitious but difficult one. When it comes to the manufacturing sector, the difference in the levels of productivity is large between London and elsewhere, whilst in terms of the services sector, this difference is even higher.

As plant characteristics cannot explain this difference, the obvious way for the Government to help boost productivity across the board – such as increasing the proportion of plants engaged in exporting, R&D or foreign-owned – will not have the desired effect of ensuring elsewhere is working as efficiently and effectively as London.” Professor Richard Harris

Levelling-up

The researchers believe the findings can help identify the size of the task faced in ‘levelling-up’ as well as avoid policy initiatives for levelling up that may actually have only a limited impact on productivity and which are unlikely to close the gap with London.

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