Working paper: Structural change and productivity growth in cities

It is now widely acknowledged that structural change is integral to the process of economic growth and the evolution of capitalist development. Given the veritable explosion of interest in recent years in cities as ‘engines’ of wealth creation, trade, innovation and creativity, the issue of structural change would seem highly relevant to understanding the evolving economic performance of cities, particularly given the ongoing debates over structural specialisation versus diversity.

This paper examines the differing productivity growth paths of some 85 British cities since the beginning of the 1970s, and explores how far these paths reflect differences across cities in the pace and nature of structural change. We first find evidence that while productivity tended to converge across cities between 1971-1991, thereafter convergence ceased and was replaced by weak divergence. The paper then analyses the extent and nature of structural transformation in the various cities, using particular measures applied to 82 sectors of activity, between 1971 and 2014.

We find evidence of considerable structural convergence across cities and a general tendency for the degree of specialisation to fall. This then leads to a decomposition analysis which identifies the relative contribution of within-sector and between-sector (sectoral reorientation and relocation) effects to city productivity growth. The analysis reveals that within-sector productivity developments outweigh structural change in accounting for differences in productivity growth across most British cities. As such, the paper raises questions over the importance often assigned to specialisation as a motor of city growth, and points to the role of city-specific factors that influence the growth performance across most of a city’s sectors.

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This paper has been submitted to the Journal of Economic Geography