Economic geography research: Manufacturing recovery in industrial regions?

Peter Sunley from the University of Southampton investigates the potential of advanced manufacturing for spatial rebalancing in this fascinating economic geography research focus

In responding to the problems of regional inequalities and ‘left behind’ communities, there are many policy questions concerning whether and how advanced manufacturing (AM) can contribute to rebuilding the economies of deindustrialised areas. Advanced or high-value manufacturing is usually defined as production activities that use high levels of technology and are relatively knowledge-intensive.

The benefits of such manufacturing are many: it involves higher value and higher productivity processes; it is a key generator of innovations; it is a source of significant exports; and, it typically creates well-paid jobs. From a geographical perspective, advanced manufacturing tends to be more spatially dispersed than other knowledge-intensive sectors. Recent policy support in Britain has focused on creating research centres, ‘hubs’ and ‘innovation districts’ that are often focused on technology-oriented missions in the hope that these will spark localised clusters of firms. But are such schemes effective and adequate in rebuilding AM in deindustrialised places?

Our work examines the evolution of advanced manufacturing across Britain. It compares traditional industrial regions (on the basis of past levels of manufacturing employment) with other areas and assesses the role of clusters. We focus on several significant and sizeable AM sectors: aerospace; other transport equipment; pharmaceuticals; chemicals; motor vehicles; and electronics. We have used data on GVA and employment at NUTS 2 and Local Authority levels and plant-level data from the Annual Business Survey. We are also using a survey of firms in these industries, and interviews with firms, business organisations and public officials in three case study regions (the East Midlands, North West and Scotland’s Central Belt).

Geographical patterns in advanced manufacturing

Different AM industries in Britain have had contrasting fortunes, with declines in pharmaceuticals and parts of electronics, but growth in aerospace and automobiles, prior to the current COVID-19 crisis. Since the 1970s, AM output and employment have grown in rural areas and towns, rather than in large cities, and these former areas have been more successful in attracting foreign direct investment. While traditional industrial regions in Britain contain assets such as an ‘engineering commons’ and skilled labour, these regions have also lost ground relative to other areas in terms of their shares of output and jobs.

However, there are important differences between industries. Some types of engineering-based manufacturing applying synthetic forms of knowledge – such as aerospace, motor vehicles and some defence-related manufacturing – have until recently been expanding in some traditional industrial regions, such as the North West, East Midlands and West Midlands. In contrast, industries characterised by science-based manufacturing utilising more analytically-oriented forms of knowledge – especially pharmaceuticals, and computers, electronics and optics – have retreated and declined in most traditional industrial regions. A key problem emerging from the COVID-19 recession is that it is precisely the former engineering-based manufacturing industries that are likely to be the most adversely affected.

Geographical proximity, clusters and productivity

To what extent will promoting co-location between AM in clusters of firms help to sustain and enhance their performance? Most of the existing evidence on the spatial concentration and clustering of firms use measures that are based on administrative (rather than economic) boundaries and are, therefore, influenced by the shape and size of these boundaries. To mitigate this problem, we have constructed plant-level measures of spatial proximity derived from bilateral distances between the postcode districts of plants. Separate indices measure proximity to plants in the same industry and proximity to plants in ‘related’ industries.

These indices have allowed us to investigate the extent of spatial concentration and its impact on productivity in AM industries. Contrasting the prevailing view, our results indicate that, in most AM industries, spatial concentration has a negative impact on total factor productivity in small plants and a positive effect in larger plants. Larger plants seem likely to benefit much more from localised knowledge spill-overs due to their higher levels of absorptive capacity. Similarly, we have also found that, for R&D and innovation rates, proximity effects are mostly small and more often negative. In terms of undertaking R&D and innovating, absorptive capacity appears to be much more important than proximity to other firms. The implication is that encouraging geographical concentration by itself will not greatly help SMEs in AM, but that local policies also need to help such firms raise their absorptive capacity, through the supply chain, knowledge exchange, collaboration and skills initiatives.

Place-based industrial strategies

AM firms in Britain face both radical shifts in terms of carbon transitions, digitalisation and the consequences of Brexit plus the profound challenge of the current COVID-19 economic crisis. In this context, local industrial strategies cannot rely solely on innovation centres and districts nor fall back on simply promoting those AM activities and firms selected/targeted before the current economic crisis. While these are undoubtedly delivering many benefits and localised strengths, our evidence suggests they are only partly connecting to the broader needs and challenges of many AM firms.

Further, the current crisis is unevenly disrupting and reconfiguring the medium to longer-term market prospects for some of these activities, especially aerospace, pharmaceuticals and vehicles. Connections between AM firms and university research and UK national Catapults centres have improved in some areas, but there continue to be significant problems in connecting innovation to commercialisation and supply chain applications, especially for small and medium-sized enterprises (SMEs). In our view, recovery and adaptability will demand more co-ordinated strategies, involving stronger local and regional collaborations between government, private firms and universities, and more support for retraining programmes and firm investments in emergent technologies and skills.

This is based on an Economic and Social Research Council Grant. For more information, see: www.manufacturing-regions.org.uk.

Reference

Harris, R., Moffat, J., Evenhuis, E., Martin R., Pike A., and Sunley P. (2019) Does spatial proximity raise firm productivity? Evidence from British Manufacturing, Cambridge Journal of Regions, Economy and Society 23, 467-487.

Additional authors

Emil Evenhuis (Department of Urbanisation and Transport, The Netherlands), Jack Harris (University of Southampton), Richard Harris (Durham University), Ron Martin (University of Cambridge), John Moffat (Durham University) and Andy Pike (Newcastle University).

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