GEOGRAPHICAL VARIATIONS IN INDUSTRIAL COSTS
| Date | 01 February 1988 |
| DOI | http://doi.org/10.1111/j.1467-9485.1988.tb01028.x |
| Author | P. Tyler,B. C. Moore,J. R. Hodes |
| Published date | 01 February 1988 |
Sconirh
loumal
of
Polilicol
Economy,
Vol.
35.
No.
1,
February
1988
0
1988
Scottish Economic Society
GEOGRAPHICAL VARIATIONS
IN INDUSTRIAL COSTS
P.
TYLER
AND
B.
C.
MOORE
Department
of
Land Economy, University
of
Cambridge
AND
J.
RHODES
Department
of
Applied Economics, University
of
Cambridge
I
INTRODUCIION
This paper presents the findings of research whose objective was to
investigate the extent of geographical variations
in
industrial costs in
England. The emphasis in ‘the analysis undertaken was to assess whether
there were differences in industrial costs between mainly rural and mainly
urban areas, but also between broad regional areas with particular reference
to a comparison of cost differences between areas which qualified for regional
policy assistance and those which did not.
The reasons why some regions grow faster than others and for changes in
the geographical distribution of industry are not well understood. Several
schools
of
thought exist and each emphasises different possible explanations.
Whilst these schools of thought may well have validity in helping to explain
why regional growth rates differ, they often concentrate on single explana-
tions to what are likely to be complex and many faceted problems. They
ignore many phenomena which are likely to influence the competitiveness
of
a region. This research sought to
fill
some of these gaps by developing an
economic
framework with which to assess the overall competitiveness of a
region. The approach emphasizes the competitiveness of a region’s traded
goods sector, and the costs which firms face in that area, as being central to
the region’s pace of economic development.
A
backward peripheral region
may therefore face cost disadvantages or low productivity arising from high
transport costs or an inflexible labour force whilst a large urban area may
suffer cost disadvantages of high wages, high rent and rates, congestion costs
and declining agglomeration economies which render them less competitive
than they used to be. These are the kind of questions which this research has
developed a framework with which to analyze.
A
“costs” based framework
also enables
us
to quantify the influence
of
physical factors like remoteness,
22
Date
of
receipt
of
final manuscript:
25
July
1987.
GEOGRAPHICAL VARIATIONS IN INDUSTRIAL COSTS
23
congestion, cramped factory sites, etc., within an economic framework of
analysis. In this paper we develop a methodology with which to evaluate
regional variations in industrial costs and apply
it
to regional areas in
England because this was the country for which most data were available.
Before outlining the basis of our cost framework in more detail and the
methodology employed in our research, there is one further reason why
governments might wish to know the extent of geographical variations in
competitiveness and which has influenced our programme of research.
During the post-war period, successive British governments have sought to
influence the location of firms both between regions and within regions,
through various forms of decentralization policy. In designing these policies,
it
is important to know whether there are significant geographical variations
in efficiency, because if these policies worked to encourage economic activity
to high cost areas, there might well be some loss to national economic
efficiency and thus output. Moreover, if there are high and low cost areas, it
is necessary to know, and calibrate, the value of the incentives on offer to
various categories of assisted area. At the margin, the incentives would have
to offset any costs to firms from moving from low cost to high cost areas
if
the
policy was to be successful.
Research in this area should illuminate a little more the difficult question of
whether
in
the absence
of
regional policy the urban/rural shift of manufac-
turing in the Non-Assisted Areas would have benefited the Assisted Areas. If
it is established that cost differences between the hinterlands of London and
Birmingham and Assisted Area locations are relatively small, then there
is
a
presumption that,
ceteris paribus,
the urban/rural shift is unlikely to have had
a significant impact on the growth of manufacturing employment in the
Assisted Areas. Most of the dispersal out of the Non-Assisted conurbations
and big cities (in the absence of regional policy) may have been contained
within the hinterlands of these cities or other relatively low cost Non-Assisted
Areas within the South-East of England.
I1
A
FRAMEWORK
WIN
WHICH
TO
EVALUATE
THE
EXTENT
OF
GEOGRAPHICAL
VARIATION
IN
COSTS
IN
ENGLAND
Previous
work
The approach of earlier work which has attempted to identify geographical
variations in costs has nearly always been to compare costs
of
different
firms
in
two
or more areas at a point in time. Most studies in the United Kingdom
then go on to conclude that any costs differences between areas are small or
negligible when set against gross output of turnover. The main sources
of
data used for these studies have been the Census of Production data, data
on
inter-firm comparisons, profitability data from the Department of Industry
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