Regional Economic Policy and the Movement of Manufacturing Firms to Development Areas

Abstract

This paper presents new evidence and analysis on the effectiveness of regional policy in the United Kingdom in the postwar period. The evidence relates to the movement of manufacturing firms into from other regions of the United Kingdom and abroad-and thus provides information on one of the major mechanisms at work in creating employment in these regions of high unemployment. The analysis is designed to estimate the impact of different instruments of regional policy on the number of firms moving into development areas, although a short section examines the employment implications of these moves. A move is defined as the opening in a new location of a new manufacturing establishment, the origin of which is in some other location. This concept of movement is appropriate for purposes of finding out how policy works and for evaluating its effects because a number of instruments of regional policy are specifically aimed at encouraging mobility in the sense in which it is here defined. An example of this is the system of industrial development controls whereby firms considering a factory expansion are required to obtain an Industrial Development Certificate (IDC) if that expansion exceeds a certain minimum limit (in terms of floor space required). The Department of Industry may refuse the IDC authorizing the firm to proceed with plans for expansion, thereby hoping to divert the proposed expansion to a development area. In these circumstances the firm may consider going ahead with the expansion by establishing a new plant in a new location in a development area. In this example the IDC policy would have had a direct effect in inducing a move as defined here. The concept of industrial movement used in this paper is not an all-embracing definition covering all types of diversion of economic activity to development areas. For example, the rescheduling of production from a non-development area plant to an existing development area plant is not included-although new firms from abroad establishing within the development areas are included within our definition. Discussion of data sources and construction appears in the Appendix.