Critical Perspectives: Resilience After The Crisis Session 2

Transcription

1 Critical Perspectives: Resilience After The Crisis Session 2 Professor Pete Tyler University of Cambridge Global Forum on Urban and Regional Resilience Virginia Tech Steger Centre for International Scholarship, Riva San Vitale, Switzerland July 2015 The findings reported in this presentation are taken from a research project on How Regions React to Recessions: Resilience and The Role of Economic Structure undertaken by Prof Ron Martin (University Cambridge), Prof Peter Sunley (University of Southampton), Ben Gardiner (Cambridge University and Cambridge Econometrics) and Prof Pete Peter Tyler (Cambridge University) as part of a study financed by the Uk Economic and Social research Council (ESRC Grant ES/ /1).

2 Renewed interest in regional business cycles Identifying relative contribution of national and regionally specific factors; Artis et al, 2009); Developing time series and statistical methods to separate trend, cycles and their interaction (Zarnowitz and Ozyildirim, 2006); Synchronicity of regional business cycles over time (Panteladis and Tsiapa, 2011, Bierbaumer-Polly, 2012); Implications of asymmetries in regional business cycles for monetary integration, Barrios and de Lucio, 2003, Partridge and Rickman, 2005) Across Europe the recession and the new age of austerity that has followed continues to impact regional economic growth in a highly differentiated manner with the weakest regions the most affected 2

3 Key issues Regional variation in depth of recessionary contraction has created significant regional inequalities; May not be merely transitory, but have longerlasting impacts; Regions with differing degrees of resilience to recessions and different abilities to recover; For some regions there may be permanent or hysteretic effects on their regional growth pathmay not re-bound to the original growth path but end-up on a lower one. 3

4 Research in Cambridge How Regions React to Recession: Resilience, Hysteresis and Long Run Impacts: Prof Ron Martin (University Cambridge), Prof Peter Sunley (University of Southampton), Ben Gardiner (Cambridge University and Cambridge Econometrics) and Prof Pete Peter Tyler (Cambridge University) The aim of the project is to determine how the regions and sub regions of the UK have differed in their response to and recovery from successive major economic recessions, and the extent to which these differences in response and recovery have affected long-run regional and sub-regional growth paths, and hence regional economic disparities. Ideas from evolutionary theory and evolutionary economics, including the notions of resilience and adaptation, are informing the research. It is part of a number of projects being undertaken by the Centre for Geographical Research; 4

5 Research in Cambridge: how regions react to recessions: resilience and the role of economic structure Specific discussion today around how regions in the United Kingdom appear to have reacted to recessions, their apparent resilience and the possible role of economic structure in this; Considered the geographies of four economic cycles across the regions of the UK; Constructed measures of regional resistance to, and recovery from, successive recessions to assess regional variations and the factors that appear to affect regional resilience and ability to adapt to change; Particularly interested in the contribution of economic structure on the resilience of UK regions to recession; However, it appears that the same sector may perform quite differently in different regions and this influences how regions respond and react to economic cycles; What might be the reasons for this? Importance of local competitiveness on resilience 5

6 Analysing regional reactions to economic cycles Common approach is to isolate cyclical movements by de-trending data (band-pass filter approaches (Partridge and Rickman, 2005)-involves smoothing ); Different approach is to assume cycles are movements around some longrun equilibrium time path-use time-series error correction models to estimate long-run equilibrium time path and the speed of adjustment to cyclical shocks that move regions from path; Or, use explanatory structural model to generate a counterfactual path to isolate cyclical disturbance; Thus, recessions considered as an economic shock that disrupts normal growth path of regional economy; Concept of resilience is useful in examining how regions are affected by recessions because it reflects how a region reacts and recovers from a disruption-how long to return or bounce-back -or does it never return to its original state? 6

7 Resilience; key concepts (see Cambridge Journal of Regions, Economy and Society, 2010) Martin (2012) identified four key aspects of regional resilience to recessionary shocks; Resistance (degree of sensitivity or depth of reaction to the shock); Recovery (speed and degree of recovery from the shock); Re-orientation (reorientation and adaptability of regional economy in response to shock); Renewal (extent to which regional economy returns to its pre-shock growth or hysteretic shift to a new path 7

8 Characterisation of regional resilience (Martin and Sunley, 2015) Risk (or vulnerability) of region s firms, industries, workers and institutions to shocks; Resistance of firms, industries, workers and institutins to impact of shocks; Adaptive reorientation; ability of region s firms, industries, workers and institutions to undergo the adjustment and adaptations required to resume core functions; Degree and nature of recoverability from shock 8

9 Regional resilience to recessions (Adapted from Martin and Sunley, 2015) 9

10 Measuring resistance to, and recoverability from, recessionary shocks Several different possible measures of resistance and recoverability; Simple straight forward proportionate falls or increase in a chosen indicator (employment or output); But better to: Compare contractions and expansions relative to an expected or counterfactual change in the region; Interested in how different UK regions (cities etc) are impacted relative to a common national wide recession so we have used the national economy to produce our counterfactual; Thus, other things being equal, each region s emplyment would contract (recession) and expand (recovery) at the same rate as a nation 10

11 Assessing impact of regions to recessionary shocks Our interpretation is that resilience as a concept captures both resistance to the shock and recovery from it Resistance index = [( Xr/Xr) - ( X/X) E ] / X/X E where E = national during recession (-ve growth) period zero => no difference to expected effect positive => more resistant than expected negative => less resistant than expected Recovery index = ( Xr/Xr) / ( X/X) E change period defined as trough-to-peak > 1 => stronger (than expected) performance = 1 => neutral (as expected) recovery < 1 => weaker (than expected) recovery 11

12 Combinations of resistance and recoverability Good resistance but weak recoverability MOST RESILIENT Good resistance and good recoverability > Resistance <0.0 Weak resistance and weak recoverability LEAST RESILIENT Weak resistance but good recoverability < >0.0 Recoverability 12

13 UK Employment over the last four recessionrecovery cycles, (Source of data: Office for National Statistics (Note: The most recent cycle is as yet incomplete). 13

14 Recessions and recovery in the United Kingdom Four main recession-recovery cycles in the United Kingdom over the past forty years, peak to peak; ; , and 2008 onwards (as yet incomplete); In employment terms the proportionate drop in employment in the downturns of and was three times that in the recessions of and and it took employment twice as long to recover to pre-recession peak level 14

15 Employment in the UK regions over the last four recession-recovery cycles, Source of data: Cambridge Econometrics Regional Economic Data Base Note: National recessionary downturns are shown shaded 15

16 Employment in UK regions in last four recessionary-recovery cycles Regional differences in intensity of employment contraction in four recessions and speed (extent) of subsequent recovery; Also, quite divergent long-run employment trajectories across the regions; Regional employment paths diverged during the and recessions but a lot less in downturns of and ; Significant divergence in recoveries of and and also since 2010, but less so in long recovery ; Overall result has been marked cumulative divergence of employment growth paths across UK regions 16

17 Regional resistance and recoverability for the last four economic cycles, UK (Notes: Calculated using equations (2) and (3). The cycle for is as yet incomplete (see Footnote 7). p-values in parentheses). 17

18 Regional resistance and recoverability for the last four economic cycles in the United Kingdom Apart from recession-recovery cycle of there has been a positive relationship between resistance and recoverability across regions. THOSE REGIONS MOST RESISTANT TO RECESSION HAVE ALSO EXPERIENCED THE STRONGEST RECOVERY; This relationship is at its strongest for the recession and subsequent recovery; Recession and recovery cycle appears quite different to others; Some regions, most notably South East, East of England and South West, recover strongly (compared to national economy) somewhat regardless of their resistance to recession; Other regions, North East, Scotland and the North West, show weak recoverability irrespective of their resistance to recession; Some regions have undergone marked shifts in resilience from one recessionrecovery cycle to next; London, Northern Ireland and the West Midlands; Also, some evidence of attenuation in differences in regional resilience across the United Kingdom 18

19 Correlations between regional resistance to different recessions Note: p-values in parentheses Resistance Resistance Resistance Resistance (0.879) (0.016) (0.473) Resistance (0.702) (0.278) Resistance (0.346) 19

20 Correlations between regional resistance to diferent recessions Caution against resional resilience as some fixed attribute or capacity; Also, recessions differ in their likley casues and thus different regional reactions might be expected; Also, long term changes in factors like industrial structure may also change regional resistance and recovery from recession; A number of factors will affect the vulnerability of regions to recessionary shocks, their resistance to the shocks and their adaptability and recoverability 20

21 Determinants of regional economic resilience (Source: Martin and Sunley, 2015) 21

22 The role of industrial structure and industrial specialisation in affecting regional reactions to economic cycles Some see industrial specialisation as a major driver of regional economic growth (Storper, 2013); Others argue that diversity is important (Hausmann et al, 2013); Others, diversified specialisation (Farhauer and Kroll, 20110; Others related variety (Frenken, Van Oort and Verburg, 2007) But a number of other factors will also be important including age of business, wage costs, skills, culture, entrepreneurship etc 22

23 The role of industrial structure Using dynamic shift Share to investigate the role of industrial structure and regional characteristics on long-term national growth differential More formally: = = + + Each of these three components can be expressed as follows: ) ) Where: g = the growth of the variable X over the pre-defined time period (between t+n and t); g n = the national (percentage) growth of variable X during this period, g in = the national (percentage) growth by industry i of variable X during this period; and g ij = the regional (percentage) growth by industry i of variable X during this period. 23

24 The contribution of industry mix and region-specific effects to regional differential resistance and recoverability; last four recession-recovery cycles 24

25 Contribution of industrial structure Relative contribution of industrial structure and regional specific effects has varied from one recession-recovery cycle to the next; Effects of structure has been negative in northern regions that were historically relatively more dependent on manufacturing; More positive on southern regions less industrial and more service orientated. London particularly advantaged; In almost all cases the regional effect exceeds the industrial effect 25

26 Factors contributing to regional effect Outcome of interactions between firms-cumulative build-up of stronger service markets in some cities and regions; Co-evolution of firms and their institutional context may be extremely important determinates of their regional resistance and adaptability (Gertler, 2010); Institutional contexts may contribute to differences in recoverability. Importance of educational institutions highlighted by Krugman as fundamentals that affect the amount of educated/skilled labour. More educated/skilled the more mobile; Innovativeness of region s firms; Knowledge spillovers from innovative behaviour; Entrepreneurial activity; supportive eco-system and knowledge infrastructure; spatial policy; Impact of state spending-compensatory inter-regional redistributive mechanisms associated with tax and benefit systems and location of public sector including infrastructure investment 26

27 Conclusions Four cycles of recession and subsequent recoveries across the UK regions examined; Geographial impact of each recession and subsequent recovery has varied by cycle; Overall, the southern and eastern regions of the UK have been the more resilient-able to bounce back strongly even in severe recessions; Significant differences across and within regions in both their resistance, and recoverability from, successive recessionary shocks; Until the most recent cycle, regional differences in resistance and recoverability were tending to narrow with some evidence of convergence to a similar pattern of cyclical behaviour; Is the reappearance of regional differences in current cyclical temporary or a step change? 27

28 Key questions Impact of industrial structure has had some influence but not consistently across the regions or through time; Influence appears to be declining over time especially in recessions; May not be structure that is important but interactions between industries and between regions; Role of regionally specific factors-conditions in region that affect how all industries perform and this compare relative to other regions 28

29 Key questions (continued) Number possible regionally specific influences; Presence of small nimble enterprises; Degree of foreign ownership and thus control; Nature and geography of the supply chain; Legacy of inherited local labour market conditions and institutions; Size of home market effect; Export orientation and dependence; Regional policy Long-run trends and shifts in regional economies in their industrial structure and local conditions appear to be influences on the changing geography of resistance and recovery from recessions; Recessions and recoveries are influences on economic growth and thus it is impact to study them further 29

30 Future research 30

31 Applying the approach to local areas; recoverability and long run growth (two recoveries and average growth ): Employment R=

32 Applying the approach to local areas; recovery and long run growth (two recovery periods and average growth ): Output 32

33 Competitiveness Component of Cumulative North-South GVA Growth Gaps,

34 References Artis, M. Dreger, C. and Kholodilin, K. (2009) Common and spatial drivers in regional business cycles, Discussion Paper 859, Deutsches Institut fur Wirtschaftsforschung, Berlin. Barrios, S. and de Lucio J. J. (2003) Economic integration and regional business cycles: Evidence from the Iberian regions, Oxford Bulletin of Economics and Statistics, 65, pp Bayoumi, T. and Eichengreen, B. (1993) Shocking aspects of European monetary integration, in Torres, F. and Giavazzi, F. (Eds) Adjustment and Growth in the European Union, Cambridge: Cambridge University Press, pp Bierbaumer-Polly, J. (2012) Regional and Sectoral Business Cycles: Key Features for the Austrian Economy, Austrian Institute of Economic Research (WIFO), Vienna, Austria. Cambridge Journal of Regions, Economy and Society (2010) Special Issue on: The Resilient Region, 3, 1. Frankel, J.A. and Rose, A.K. (1998) The endogeneity of the optimum currency area criteria, European Economic Review, 108, pp Gardiner, B., Martin, R.L., Sunley, P. and Tyler, P. (2013) Spatially unbalanced growth in the British economy, Journal of Economic Geography, 13, 6, pp Gertler, M. (2010) Rules of the game: The place ofinstitutions in regional economic change, Regional Studies 44, pp Hausmann, R. Hidalgo, C.A., Bustos, S., Coscia, M., Simeos, A. and Yildirim, M.A. (2013) The Atlas of Economic Complexity: Mapping Paths to Prosperity, Cambridge, Mass: MIT Press. Martin, R.L. (2012) Regional economic resilience, hysteresis and recessionary shocks, Journal of Economic Geography, 12, pp Martin, R.L., and Sunley, P. J. (2015) On the notion of regional economic resilience: conceptualization and explanation, Forthcoming in Journal of Economic Geography. Martin, R, Sunley, P, Gardiner, B and Tyler, P (2015). How Regions React to Recessions: Resilience and the Role of Economic Structure. Forthcoming in Regional Studies. Gardiner, B, Martin, R.L., Sunley, P. and Tyler, P. Local long-run growth evolutions across Britain: some exploratory empirics. In preparation for submission to Environment and Planning A Gardiner, B, Martin, R.L. Lagravinese, R. and Tyler. Tale of Two Divides: Regional Growth and Resilience in Italy and the UK, in preparation for submission to European Urban and Regional Studies. Panteladis, I. and Tsiapa, M. (2011) Business cycle synchronisation in the Greek regions, Journal of Urban and Regional Analysis, 3, pp Partridge, M.D., Rickman, D.S. (2005) Regional cyclical asymmetries in an optimal currency area: An analysis using US State data, Oxford Economic Papers, 57, pp Storper, M. (2013) Keys to the City, Princeton: Princeton University Press. Zarnowitz, V. and Ozyildirim, A. (2006) Time series decomposition and measurement of cycles, trends and growth cycles, Journal of Monetary Economics, 53, pp