ECONOMIC DEVELOPMENTLearning from research

Donald Barr, Economic & Evidence

The rationale for intervening to develop the economy: The role of Research

• Look at how research has been used to make better

policy and strategy – the frameworks for intervention

• Consider how different types of evidence are used to

gain different insights

• Learn a bit about export propensity along the way

This session we will:

Start with a proposition…

“Exporting is good, the region doesn’t export much…..

….so we should do something to improve our exports”

“Exporting is good, the region doesn’t export much: we should do something

to improve our exports”Exporting• Is exporting good?

If so why?• How much does the

region export?• How much could /

should the region export and why doesn’t it?

• What would you need to do to improve exports?

Generic• Test the received wisdom – is it

really a good idea to start with?• Examine the macro-economic

evidence – is there really a problem?

• Look in more detail: If there is a problem what are the underlying causes?

• What, if anything, can be done about the underlying causes?

What’s so good about exporting?

The literature review – what others have already established. Exporters have:

• higher productivity

• higher R&D intensity

• higher propensity to innovate

• higher rates of revenue growth

In short they are more competitive but there is a question of causality…..

Discussion 1

ANot competitive and

not exporting

BCompetitive but

not exporting

CNot competitive

but exporting

DCompetitive

and exporting

Groups B and C: what sort of firms? What could be the policy implications?

Discussion 2

ANot competitive and

not exporting

DCompetitive

and exportingC

Not competitivebut exporting

BCompetitive but

not exporting

?

“Exporting is good, the region doesn’t export much: we should do something

to improve our exports”Exporting• Is exporting good?

If so why?• How much does the

region export?• How much could /

should the region export and why doesn’t it?

• What would you need to do to improve exports?

Generic• Test the received wisdom – is it

really a good idea to start with?• Examine the macro-economic

evidence – is there really a problem?

• Look in more detail: If there is a problem what are the underlying causes?

• What, if anything, can be done about the underlying causes?

SW performance 1Index of Exports as a proportion of GVA, 2005

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

NorthEast

EastMidlands

Wales SouthEast

East NorthernIreland

NorthWest

WestMidlands

Yorkshireand theHumber

Scotland London SouthWest

Ind

ex

UK

= 1

00

Goods exports and proportion of total GVA: bottom of the class

SW performance 2

Index of Exports as a proportion of goods GVA, 2004

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

London SouthEast

East NorthEast

Wales NorthernIreland

NorthWest

EastMidlands

WestMidlands

Scotland Yorkshireand theHumber

SouthWest

Ind

ex

UK

= 1

00

Goods exports as a proportion of goods GVA: still bottom

“Exporting is good, the region doesn’t export much: we should do something

to improve our exports”Exporting• Is exporting good?

If so why?• How much does the

region export?• How much could /

should the region export and why doesn’t it?

• What would you need to do to improve exports?

Generic• Test the received wisdom – is it

really a good idea to start with?• Examine the macro-economic

evidence – is there really a problem?

• Look in more detail: If there is a problem what are the underlying causes?

• What, if anything, can be done about the underlying causes?

Where should we be?

3.23314159950.7876291669723824Sub Total

1.7717205300.96930855970288Scientific instruments and controls33

1.471092490.795923374521Furniture, fittings, temp buildings36

0.143223061.1025382232314216Other Transport Equipment35

23.3444546600.3159744190838Road Vehicles 34

6.0179608070.172316171323582Electrical Machinery & Appliances.31

3.6318592700.36185830511735Telecomms & Sound Equipment.32

51.2985982230.1728676167630Office Machines & Adp Machines30

1.4620806610.578135361428684Machinery manufacture29

0.992686470.63170030270709Metal manufacture28

2.072465150.6375216119115Metals27

3.774684330.6884732124155Non-metallic materials26

0.923558020.59229281388687Plastics25

1.877785792.801168231416601Chemicals and Pharmaceuticals24

0.0522520.984527346151Electric Current40

4.221240174.0711938729369Fuels10,23,11

0.211354120.52330346631492Textiles17

1.921136541.8811116459281Paper and pulp21

34.253953060.0782411541Cork and wood02,20

4.4411262750.1537088253475Leather goods, footwear18. 19

0.752953981.05409881391754Food and Live Animals0

FactorExports with SW structure

and SE propensity

FactorExports with SW propensity and

SE structure

Actual exports

Sector descriptionSIC

54321

3.23314159950.7876291669723824Sub Total

1.7717205300.96930855970288Scientific instruments and controls33

1.471092490.795923374521Furniture, fittings, temp buildings36

0.143223061.1025382232314216Other Transport Equipment35

23.3444546600.3159744190838Road Vehicles 34

6.0179608070.172316171323582Electrical Machinery & Appliances.31

3.6318592700.36185830511735Telecomms & Sound Equipment.32

51.2985982230.1728676167630Office Machines & Adp Machines30

1.4620806610.578135361428684Machinery manufacture29

0.992686470.63170030270709Metal manufacture28

2.072465150.6375216119115Metals27

3.774684330.6884732124155Non-metallic materials26

0.923558020.59229281388687Plastics25

1.877785792.801168231416601Chemicals and Pharmaceuticals24

0.0522520.984527346151Electric Current40

4.221240174.0711938729369Fuels10,23,11

0.211354120.52330346631492Textiles17

1.921136541.8811116459281Paper and pulp21

34.253953060.0782411541Cork and wood02,20

4.4411262750.1537088253475Leather goods, footwear18. 19

0.752953981.05409881391754Food and Live Animals0

FactorExports with SW structure

and SE propensity

FactorExports with SW propensity and

SE structure

Actual exports

Sector descriptionSIC

54321

SW with SE structure? Exports fall

by 22%

SW structure with SE sector

propensity? Exports treble!

Explaining the difference: Export drivers

• Firm Size and Age, • Skills Level • Innovation and R&D• Co-operation with Others• Foreign Ownership, • Capital Intensity • Agglomeration Effects• Industry

• Community Innovation Survey (CIS), waves 3 and 4

• Inter-Departmental Business Register (IDBR)• Annual Business Inquiry (ABI)• CapStock

Explaining the difference: Data sources

Table 4.2: Probability of Exporting (CIS4)

1 2 3 4 5 Sample size 3603 3603 3603 3603 2789

South West 0.523

(0.080)*** 0.644

(0.107)*** 0.686

(0.114)** 0.712

(0.120)** 0.746

(0.151)

North West 0.668

(0.097)*** 0.723

(0.114)** 0.819

(0.130) 0.832

(0.132) 0.895

(0.162)

Yorkshire and Humberside 0.602

(0.093)*** 0.701

(0.114)** 0.777

(0.130) 0.780

(0.130) 0.851

(0.163)

North East 0.545

(0.105)*** 0.673

(0.131)** 0.736

(0.143) 0.746

(0.147) 0.765

(0.173)

West Midlands 0.560

(0.087)*** 0.668

(0.109)** 0.708

(0.119)** 0.699

(0.119)** 0.708

(0.137)*

Wales 0.494

(0.070)*** 0.708

(0.107)** 0.754

(0.115)* 0.788

(0.122) 0.795

(0.125)

South East 0.835

(0.098) 0.888

(0.109) 0.945

(0.121) 0.944

(0.122) 0.981

(0.161)

East Midlands 0.538

(0.090)*** 0.713

(0.125)* 0.783

(0.139) 0.809

(0.147) 0.841

(0.176)

East 0.758

(0.164) 0.906

(0.203) 0.956

(0.218) 0.984

(0.225) 1.139

(0.292) London benchmark

Manufacturing 5.080

(0.501)*** 3.513

(0.384)*** 4.668

(0.528)*** 4.188

(0.481)*** 3.965

(0.537)***

Construction 0.253

(0.056)*** 0.207

(0.048)*** 0.245

(0.060)*** 0.241

(0.058)*** 0.244

(0.073)***

Wholesale 1.006

(0.111) 1.192

(0.140) 1.498

(0.185)*** 1.352

(0.171)** 1.448

(0.207)**

Hotels and catering 0.446

(0.088)*** 0.354

(0.076)*** 0.451

(0.105)*** 0.465

(0.108)*** 0.408

(0.118)***

Transport 1.095

(0.154) 0.771

(0.120)* 1.006

(0.163) 0.973

(0.159) 1.019

(0.199) Other benchmark

Firm output – 1.169

(0.054)*** 1.154

(0.056)*** 1.093

(0.054)* 1.067

(0.061)

Employment – 1.060

(0.046) 1.064

(0.048) 1.011

(0.047) 0.971

(0.052)

Capital – 1.381

(0.047)*** 1.343

(0.048)*** 1.276

(0.045)*** 1.250

(0.051)***

Proportion with degrees – – 1.020

(0.002)*** 1.020

(0.002)*** 1.020

(0.002)***

European owner – – – 1.430

(0.205)** 1.293

(0.214)

Japanese owner – – – 2.925

(1.188)*** 3.009

(1.600)**

American owner – – – 1.804

(0.300)*** 1.527

(0.286)**

Other foreign owner – – – 1.285

(0.327) 1.154

(0.300) UK owner benchmark

Post millennium birth – – – – 0.606

(0.087)***

Innovation (product or process) – – – – 1.764

(0.172)***

Has website – – – – 1.290

(0.147)**

Economic potential – – – – 0.931

(0.071)

% of area that is rural – – – – 0.997

(0.002)*

Llunit 0.959

(0.027) 0.657

(0.030)*** 0.694

(0.033)*** 0.707

(0.034)*** 0.699

(0.038)*** Pseudo R2 0.117 0.189 0.218 0.231 0.240 Hosmer-Lemeshow (Prob.) 1167.85** 3595.30 3648.44 3615.84 2821.99 Log pseudo-likelihood -2112.480 -1940.297 -1871.501 -1839.112 -1406.831 Exclusion of compound vars. (prob.) – – – – –

Notes: In all logistic estimates, the dependent variable is Exporter. Odds ratios are presented with their robust standard errors presented in parentheses. *, ** and *** signify significance at the 10%, 5% and 1% level respectively. Constants omitted as per ONS requirements. Source: ONS.

Micro economic findings

•Firm size (output and employment)

•Level of capital

•Proportion with degrees

•Nationality of ownership

•Innovation activity

These are the significant drivers of inter-regional differences in export performance. Once these are adjusted for the differences cease to be statistically significant – there is no special South West factor!

“Exporting is good, the region doesn’t export much: we should do something

to improve our exports”Exporting• Is exporting good?

If so why?• How much does the

region export?• How much could /

should the region export and why doesn’t it?

• What would you need to do to improve exports?

Generic• Test the received wisdom – is it

really a good idea to start with?• Examine the macro-economic

evidence – is there really a problem?

• Look in more detail: If there is a problem what are the underlying causes?

• What, if anything, can be done about the underlying causes?

• This research has been used to make better policy

and strategy: it demonstrated just how poor the

region’s export performance really was and identified

the weakness to be largely those associated with our

relatively poor productivity.

• It was a good example of how different types of

evidence are used to gain different insights

• And I hope you discovered something about export

propensity along the way

CONCLUSIONS