Surveys of Applied Economics: Volume 1: Surveys I–IV PDF
Preview Surveys of Applied Economics: Volume 1: Surveys I–IV
SURVEYS OF APPLIED ECONOMICS Volume 1 SURVEYS OF APPLIED ECONOMICS THE ROYAL ECONOMIC SOCIETY THE SOCIAL SCIENCE RESEARCH COUNCIL VOLUME 1 SURVEYS I-IV © The Royal Economic Society and the Social Science Research Council 197 3 Softcover reprint of the hardcover 1st edition 1973 All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission First published 19 73 Reprinted 1 9 76 , 19 80 Published by THE MACMILLAN PRESS LTD London and Basingstoke Companies and representatives throughout the world ISBN 978-1-349-01862-8 ISBN 978-1-349-01860-4 (eBook) DOI 10.1007/978-1-349-01860-4 CONTENTS Foreword by PHYLLIS DEANE Vll I REGIONAL ECONOMICS, WITH SPECIAL REFERENCE TO THE UNITED KINGDOM 1 A. J. BROWN II PRICE BEHAVIOUR OF FIRMS 45 AUBREY SILBERSTON III TECHNICAL PROGRESS 115 CHARLES KENNEDY and A. P. THIRLWALL IV MODELS OF CONSUMER BEHAVIOUR 177 ALAN BROWN and ANGUS DEATON FOREWORD THE articles which appear in this volume are the first in a series of Surveys specially commissioned by the Social Science Research Council and the Royal Economic Society and originally published in the Economic Journal. Each survey is designed to provide a comprehensive review of research results in a major area of applied economics, including reference where appropriate to relevant theoretical work. Each is written by a specialist but aimed at the general economist rather than the specialist in the field covered. The first of the Surveys reprinted here, that by A. J. Brown on Regional Economics, was originally published in the December 1969 Economic Journal but since it dealt with a subject oflive current research activity it was revised and brought up to date in September 1972. The article by Aubrey Silber ston on Price Behaviour of Firms appeared in the September 1970 Economic Journal. The other two articles-by Charles Kennedy and A. P. Thirlwall on Technical Progress and by Alan Brown and Angus Deaton on Models of Consumer Behaviour-appeared in the March and December issues respectively of the 1972 Economic Journal. Five further articles in the series have already been commissioned and Volume 2 of Surveys of Applied Economics is planned for publication in 1975. These volumes thus represent a continuation into the field of applied economics of the Surveys of Economic Theory, Volumes 1-3, 1965-6, published by Macmillan for the Royal Economic Society and the American Economic Association. PHYLLIS DEANE January 1973 I REGIONAL ECONOMICS, WITH SPECIAL REFERENCE TO THE UNITED KINGDOM1 By A. J. BROWN Introduction 1 Inter-regional Differences in Income and Expenditure 5 Regional Unemployment Differences 10 Inter-regional migration 14 Location of Industry . 18 Regional Employment Growth and Structure 24 Regional Multipliers and Inter-regional Repercussions 25 The Criteria and Objects of Regional Policy . 29 The Instruments of Policy 33 REGIONAL economics is a field of study which has meant different things to different people. To some it has meant primarily the study of the economy and the economic problems of a particular region-generally one that is part of a wider area within which free trade prevails, and within which movements of labour and capital are not subject to control. To others it has meant the wider study of the relative economic performances and the economic interactions of a number of such regions. Studies of both these kinds have been undertaken in many countries, with the United States very decidedly in the lead so far as the volume and the variety of the work are concerned, and to survey the whole literature of the subject im partially would be a large task, the fruits of which could hardly be usefully compressed into article length. The aim of the present survey, therefore, is to consider primarily the work relating to regional economic problems and their analysis in the United Kingdom, with such references to studies of uther countries as will serve to set British problems in perspective and to suggest approaches that might in future be applied to investigation of them. Since regional economics is the study of one or more regional economies, which one would expect to be characterised by a much higher degree of " openness " than the national econ01nies to which most macro-economics 1 In preparing this article I have been indebted to many economists, but especially to my colleagues john Bowers, Paul Cheshire, Harold Lind, Edward Webb, Robert Weeden and Vivian Woodward of the National Institute of Economic and Social Research, whose joint work is concerned with many of the topics surveyed here, and has recently been summarised in a book [21]. For helpful comments and suggestions on what I have written I am indebted to them and also to David Worswick of the National Institute and to Michael Burrows and Rodney Crossley of the University of Leeds. 2 SURVEYS OF APPLIED ECONOMICS: I explicitly or implicitly relates, it might be supposed that the theory of the subject would have developed out of international economics by the modi fication of the usual international models to allow for inter-regional factor movements. That, however, has not been the main line of development. John R. Meyer [133], in his survey of the theory of regional economics, has shown that much that is classified under that head springs from attempts (often by geographers) to find criteria for the definition of regions, that much again comes from location theory, which grew up largely independent of the main stream of international economics, and that a great deal has been contributed by the techniques of inter-industry input-output analysis and programming. International multiplier theory has certainly made a con tribution, but, like other branches of international economics, has not been easy to apply in the absence of information about inter-regional flows of goods and services. The range of topics and techniques-inter-industry macroeconomics, location and agglomeration theory, planning techniques that have been grouped together under the heading of" regional economics," or" regional science," are well set out in a number of general works, notably those of lsard [104] and H. W. Richardson [167, 168] but these do not possess the degree of unity and cohesion (limited though it is) that the body of theory relating to international economics can claim. The present writer has attempted [21] to present the short-term equilibrium of regions as a pattern of inter-regional factor-flows related to differences in rates of growth of indigenous factor-supplies and of demand for regional products, to dis tinguish the issues raised by the short-run mechanism from those pertaining to the medium-run consequences of factor immobility and the long-run significance of changes in the geographical distribution of population, resources and economic activity. But on the whole regional economic studies have consisted of piece-meal attempts to cope with particular prob lems rather than of extensions of the oldest branch of spatial economics international economics-to the regional field. And, in the United Kingdom especially, the problems thus coped with have been concrete and applied rather than abstract and theoretical. Regional economics starts from the diagnosis of regional problems. What, then, are the regional problems from which it starts? Most obviously they are whatever are felt as inter-regional economic inequities. The main examples of these are inequalities in regional levels of income, poverty, unemployment, migration and economic growth rate. Rather less obviously, however, they may spring from apparent violations not of equity but of the general national advantage-an inter-regional distribution of population, for instance, marked by overpopulation in the sense of ex ternal diseconomies of congestion in some regions and perhaps under population in a corresponding sense in others: or perhaps a geographical distribution of the population which is thought to make national defence more difficult, or is for some other important reason less than optimal, BROWN: REGIONAL ECONOMICS, WITH SPECIAL REFERENCE TO U.K. 3 without necessarily involving inequity between one region and another. In short, any economic circumstance that gives rise to a regional sense of grievance, or any that give rise to a general, or a governmental, belief that the inter-regional distribution of population and economic activity is seriously wrong, may be said to constitute a regional problem. One should perhaps add that regional issues are involved in many governmental deci sions (in regard to transport policy, for instance), even where there is no sense of grievance or mislocation. Before proceeding from this point to consider what regional problems, and of what intensity, are to be found in the United Kingdom (or, for that matter, any other country) one may well ask what the regions in question are-how and by what criteria they are delimited. The definition of regions has, of course, been very much a geographers' subject, and attempts to divide up England into regions that are in some sense " natural " are associated with C. B. Fawcett [67], H. J. E. Peake [161], R. E. Dickinson [58], E. W. Gilbert [75] and E. G. R. Taylor [191] among others. B. C. Smith surveys the results [179]. The focusing of a region's life on a single capital is generally a principle of such divisions. Approaches from a more specifically administrative point of view, such as that of G. D. H. Cole [39] and that of the Royal Commission on Local Government, 1966-69 (Cmnd. 4040), reach fairly similar conclusions, in principle if not in detail. The economist who wishes to study the regional economics of the United King dom, however, must necessarily work with the geographical areas for which statistics are available. For the most part, these are the Standard Regions used by the Board of Trade, and the Census, up to 1966, when they were replaced by a slightly different set of New Standard Regions-eleven in number, if Northern Ireland is included. The differences, and changes, in the regions used for various British official statistics constitute a considerable subject of study, requiring an (as yet unwritten) monograph for their exposi tion. The principles of delimitation cannot be uniform. Most of the standard English regions are "conurbation regions," based on the importance for their economic life of some urban nucleus, sometimes a double or more complex one. But with Wales, Scotland and Northern Ireland political self-consciousness is much more important than anything else in defining the regional unit, and some regions (Wales, the South-West, East Anglia) do not depend on a single centre, or cluster of centres. The notable fact about British regional classification, from an economist's point of view, is that the regions have much of the nature of" city regions," in that each contains town and country, and a wide range of activities from the most highly centralised to the most dispersed; but that the facts of British geography make it impossible to define a set of city regions each depending on a single urban focus, without those regions being too many and too diverse for either administrative or planning purposes. SURVEYS OF APPLIED ECONOMICS: I How much has the United Kingdom suffered from the circumstances that constitute regional problems? In average real income per head, the British regions are remarkably similar. J. G. Williamson's calculations [211] of population-weighted coefficients of variation of regional income averages for twenty-three countries show the United Kingdom with a value of0·14, the only lower ones being those for New Zealand, Australia and the Netherlands. The United States, similarly treated, gives a value of 0·18, Germany and France values of 0·20 and 0·28 respectively, while Brazil yields an extreme value of 0· 7. Williamson's general thesis is that the poorest countries tend to be geographically fairly uniform in their poverty (India's coefficient is 0·27), that the partially developed and not very poor ones (Brazil, Colombia, Puerto Rico, the Philippines, all with coefficients over 0·5) show the greatest regional inequality, and that above this level these is a general tendency for equality to grow with the level of development and income. Such a pattern is certainly understandable, especially in the light of the consideration that urbanisation tends to go with development and rise of average income, while the biggest geographical income differ ences within countries are likely to be urban-rural ones-hence the relative equality in the countries which are most nearly all urban (United Kingdom) or all rural (India), with the intermediate ones showing greater inequality. (Australia and New Zealand escape from this scheme of things mainly by having outstandingly high agricultural incomes.) At all events, the degree of both inter-regional and urban-rural income equality within the United Kingdom is notable, a fact to which A. E. Holmans [96] has drawn attention. Outward migration, on the other hand, is a source of considerable dis quiet in some British regions, most notably Scotland, where it is of very long standing. But, again, its scale (about 30,000 a year) is much smaller absolutely and relatively than that of migration from, say, the Italian Mezzogiorno-a region some three and a half times as populous, losing population by net emigration more than six times as fast. The Scottish emigration can perhaps be regarded as more serious in the sense that it reduces the rate of increase of the Scottish population nearly to zero, whereas that of the Mezzogiorno is still about 5% a decade. At the other end of Europe, however, the four northernmost counties of Sweden, with a popula tion of some 900,000 and with a natural increase above the national average, were declining in population at 0·6% a year in the period 1960-64 [25] though the rate subsequently declined. The United Kingdom can hardly claim to provide an extreme case of net emigration from any region, as these things go, though the phenomenon is still one to be taken seriously. Differences between regions in unemployment rates are also neither startlingly great nor startlingly small in the United Kingdom in comparison with those found elsewhere. From some points of view it would seem that differences of this kind should be measured absolutely-as the excesses of the unemployment rate in a region over the national average, or over the lowest
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