Is there a rural-urban divide? Location and productivity of UK manufacturing

Abstract

We compute the productivity gaps in manufacturing industries by urban, rural less sparse and rural sparse locations in the UK. This is done by using 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, by each location. We analyse the productivity differentials across locations by decomposing them into firm differences within the same industry and by differences that are explained by industry composition effects. 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. Even though industry productivity is different by location, industry composition effects are positively correlated with industry productivity by location suggesting that locations with high productivity are also characterised by industrial structures with higher productivity.