Is There a Rural-Urban Divide? Location and Productivity of UK Manufacturing

Abstract

We compute aggregate productivity of manufacturing industries by urban, rural less sparse and rural sparse locations in the UK from firm-specific total factor productivities, which are estimated by a semi-parametric algorithm within 4-digit manufacturing industries using FAME data over the period 1994-2001. We analyse the productivity differentials across location categories by decomposing them into industry productivity effect and industry composition effect. Our analysis indicates that at the end of twentieth century a rural-urban divide in manufacturing productivity still remains but there is a tendency of convergence between rural and urban location categories possibly due to increased competitive pressure. The industry composition effect is positively correlated with the industry productivity effect suggesting that locations with high productivity are also characterised by industrial structure enhancing productivity.

Keywords: Total factor productivity, structural estimation, rural-urban definition, UK manufacturing

JEL Classification: D24, R11, R30