De-industrialization and regional growth

Regional de-industrialization

What does it mean?

Macroeconomic level  A shift from a high employment share in manufacturing activities to a

high employment share in service activities.

Regional level  Loss of competitiveness and disappearance of entire industrial sectors.

Urban level  Process of delocalization. The plants for industrial activities move towards the
outskirts of the city.

In this class, we talk about the concept at the regional level.

We need a way to measure this phenomenon. How?

Is not a simple task de industrialization is not a relative decrease in industrial employment, this is
not only a physiological process but a complex phenomenon that does not rely on a single
indicator. It is also a process of competitiveness.

If we rely upon a single indicator of employment, if we witness a large reduction in industrial

employment, it might be related to different situations:

1. Reduce international competitiveness of the local productive sectors.

2. Condition of wide restructuring of local competitiveness. It means that the region is trying
to change its economic activities portfolio to try to get higher economic growth. Is a
specific choice of trying to restructure the economic activity by the decision of the region
to shift the activities to higher values activities and forget about industrial activities.

Both these situations generate a decrease in manufacturing activities, but the reasons are very
different in each situation. Being the first reason bad for the region and the second reason is good.

When we try to measure de-industrialization, that is why we need to focus on more aspects than
only the employment shares.

Regional growth patterns methodology

Break down the conceptual confusion arising from the analysis of regional economic performance
from a single perspective.

Regional GDP growth depends on:

- Labor force –Z Increases (Gross or net population growth/ participation rates growth)
- Portfolio of economic activities tends to vary over time (productivity). Productivity is given
by the value added by the number of employees. Output per input. Different economic
 activities show different levels of productivity. The higher the productivity, the higher the
growth of GDP.

These two are the most relevant. Other aspects affect the >GDP growth.

Productivity  Output per unit of input.

Different industries = different levels of productivity.  Changing the portfolio of economic

activities in each country can cause economic growth or recession.

Increase in employment in high- Increase in employment.

value-added functions.

Increase in low-value-added Increase in productivity

functions
Decrease of employment in low Decrease in employment.
value-added functions.
The higher GDP growth rate in
a region
High increase in high-value- High increase in
added functions productivity
High increase in employment in High increase in
low-value-added functions. employment.

Decrease in employment in
high-value-added functions Decrease in productivity.

Employment growth rate  REG r= ( )( )

E1r
E0r
−
E1 c
E0 c

( )
E1 r
E0 r
= Regional employment growth rate

( )
E1 c
E0 c
= Area of reference employment growth rate

Productivity growth rate  P EG r=

( )( )
P 1r
P 0r
−
P1c
P0c

( )
p1 r
p0 r
= Regional productivity growth rate
( )
P1 c
P0 c
= Area of reference productivity growth rate

Y
GDP growth rate  Y = +E
E
Y = ( Y r−Y c ) =PEGr + R EG r

All these 3 variables can be considered in a single graph. Is important to keep in mind that all these
elements are in relative terms. We need to have a reference area to be able to compare our region
to another region.

We are dealing with data only related to the manufacturing sector. But this can also be applied to
other sectors.

Regional growth patterns methodology

1. Used to explain the deindustrialization process.

2. Using manufacturing data.
 1. Virtuous cycle  Positive GDP growth is fueled simultaneously by higher-than-average
productivity growth and higher-than-average employment growth. The region grows more
than the reference area both in employment and productivity.
2. Restructuring  Growth is mostly due to productivity increase. A higher-than-average
GDP growth is associated with higher-than-average productivity growth despite the lower-
than-average employment growth. The GDP growth rate of the region is higher in one of
the national areas, but in this case, the relative productivity grows more in the region
concerning the reference area. The employment growth of the region is lower for the
reference area.
3. Dropping out  Economic crisis is associated with massive job losses. Productivity growth
is achieved by closing inefficient production units, generating lower-than-average output
growth. Might be similar. Economic crisis because the GDP growth rate is lower compared
to the national one. Inefficient production units have low productivity levels, they close,
therefore employment goes down.
4. Deindustrialization  Vicious cycle in which employment cuts are unable to restore
competitiveness, a condition that perpetuates job losses and low output growth.
5. Industrial conservatism  Poor productivity performance is accompanied (and partly
explained) by better-than-average employment growth, thanks to public assistance and
industrial rescues.

We have symmetric cases that differ significantly. We need to be aware that there are also major
differences between situations that are close to each other like 5-6 and 2-3.

Cases 3 and 5.

Both cases reflect slow output growth, the good employment condition comes from artificial
intervention policies (5) and the good productivity condition is the result of the simple suppression
of inefficient units with no positive counterparts (3).

We need to be aware of which situation we find in our region to determine which strategies to
cope with that specific situation.

Summary

What do we mean by deindustrialization?

The relative phenomenon, concerning the average behavior of the entire economic system
encompassing the region, takes place when job losses and loss of competitiveness occur
simultaneously, driving the local economy into a vicious cycle.

Deindustrialization becomes a rather general process by which a region is unable to carry out
successfully a process of industrial transformation.

Why is it important to talk about deindustrialization?

Is both linked with physiological conditions (stages of development) and delocalization processes
(global value chains). However, in the past years, the cost of industrialization emerged because of
the loss of local industrial skills and the shift to services with low value added. READ THE SLIDES
BECAUSE WE SHOULD EXPLAIN AND CONSIDER THIS IN THE REPORT.

The report

Must be delivered as a scientific paper. There should be logic in the report, not only a list of
indexes. There should be an idea behind it and show the result as a support of the idea.

Demonstrate the ability to:

1. Apply all the methodologies seen in class to different data.

2. Link the results by reading them through the lens of the theories seen in class.

Try to analyze the results by the theories used in class.

To maximize the reading of the results, I suggest you find a storyline, or thesis, to present in the
essay (for example: are the more specialized regions growing more? Are regions specialized in
more productive sectors growing more?) Find something interesting that happens in terms of
economic activities in the region.

STRUCTURE (FLEXIBLE)

Introduction (general description of the region, aim, objective, research question)

Section related to the methodologies seen in class

1. Data (time coverage, sources)

2. Methodology
3. Main Findings –Interpretation of the results

Conclusions (linked to the Introduction)

Other indications:

Coherence in the different parts (in the logic, the considered years, the Nace activities,…)

Always indicate sources of data and references

The indicators are interpretative tools (name of the section ≠name of the methodologies)

DEADLINE  May 19th.

Practical example

Where to find the data for the project:

- Eurostat  Database  General and regional statistics  Regional statistics by NUTS

classification  Regional economic accounts  Branch and households accounts  Gross
value added at basic prices NUTS 3 regions  Select as always the filters  Select the
region and just manufacturing  Time check all  Time frequency
- Repeat the same process to find employment in manufacturing activities in the same
table: Branch and households accounts  Employment Thousands of people NUTS 3 
Select the region  Select just Manufacturing  Time check all  Download the table.

1. The reference area in this case is EU.

2. Use recent data for the project
3. Look at the unit of measure of the data to be sure about the unit of the numbers you are
dealing with.
4. We need to calculate productivity because we have input and output. Create a new sheet
called productivity. Copy and paste the first 2 columns with NUTS 2 codes and region
names. Copy and paste the headers of employment. Keep the first row selected, click on
find and select, replace, and replace “empl” with “prod”, and replace all.
5. Calculate productivity with the formula GVS/Employment. Equal GVA in the year of
interest divided by employment of the same year (different sheet of Excel). Enter. Drag to
the right and down. We have the output produced by each employee. The unit in this case
is thousands of euros per employee per year.
6. Calculate the employment rates and productivity growth rates so that we can have the
difference. First, we calculate the Empl growth rate. Create a new sheet, copy and paste
the first 2 columns. Write the employment growth rate and the years at which the
employment growth rate is taken. Write down “E growth rate 1980 1981”. In the next cell
write “E growth rate 1981 1982”, and so on. Use a formula (=E Growth
rate”&EmploymentC1!&”_”&EmploymentD1!) so you can drag it to the right. Copy and
paste as values to remove the formula, keep everything selected, and replace “empl” with
nothing.
E 1r −E 0 r
7. Calculate the growth rates of employment with the formula (= (Employment
E0r
in 1891 – Employment in 1980) / Employment in 1980). Drag to the right and down. These
are the Employment Growth rates in the regions and the EU or the area of reference.
8. Do the same for productivity. Calculate the growth rate for productivity. Create a new
sheet called “prod rates”, copy and paste the first two columns, copy and paste the
headers prepared for employment, and find and replace “E” with “P”.
9. Type =(Productivity In 1901 – Productivity in 1980)/ productivity in 1980. Drag to the right
and down.
10. You can express that in % (for both, employment and productivity).
11. These are the absolute growth rates. Now we need to calculate the relative.
12. Create a new sheet called “REG” (relative employment growth rate). Copy and paste the
first 2 columns, copy and paste the headers of employment growth rates, select all the
headers, and find and replace “E growth rate” with “REG”.
13. Take the difference between the regional growth rates and the reference area growth
rates. Type =E growth rate 1980 – E growth rate 1980 of the EU. Block the row of the EU
so it will always be the reference for each year but do not block the column. Drag right and
down. The last row (or the one where the EU is) should be 0, otherwise is wrong.
14. Do the same for relative productivity growth. Create a new sheet called “RPG”, copy and
paste the first two columns, copy and paste the headers I put for REM, find and select, and
replace “REG” with “RPG”.
15. Take the difference between the productivity growth rate at a regional level and the
productivity rate at the EU level following the same steps as step 13. Dran everything right
and down.
16. Compare Brussels (my region) to see what happens compared to another region. Create a
new sheet called data. Skip the first column and in column B type Years, C REG Brussels, D
REG comparison region, E RPG Brussels, E RPG comparison region.
17. In the column years we want the years for which we calculate the growth rate. Go back to
RPG, copy the headers, and paste the values transposed on the column under Years.
18. Copy and paste the REG data for Brussels and the reference area. Paste special: only
values and transposed to fill the columns.
19. Do the same for the rest of the columns (REG Brussels, REG ref area, RPG Brussels, RPG ref
area).
20. In the first column that was left empty, write “TIME-SPAM” and write 5 years time spam:
1980-1984. Copy and paste that 5 times. The 6th row will be 1985-1989, and copy and
paste 5 times. The 11th will be 1990-1995 and copy and paste 5 times, … Keep going until
you reach the last year. Highlight each timespan of 5 years with colors so you can identify
them easily.
21. How to calculate the 5-year average of all of the variables? Select the table, click on data
 Outline  Subtotal  At each change in: Time-Span  Use function: Average  Select
REG Brussels, REG ref area, RPG Brussels, RPG ref area Tick summary below data.
22. Create a last sheet called “Reg growth patterns”.
23. Copy and paste all the tables with just the information related to the averages of each
period of 5 years. Select the data, go to find, find and select, go to special, and click visible
cells only. Paste them on the new sheet and Excel will only paste the information related
to the averages.
24. Remove the column years.
25. Draw the graph. Select REG and RPG Brussels, and insert a scatter plot with trendline and
markers.
26. Clock on the markets, right-click, add data labels, and change the labels to the values from
the 5 years.
27. Add chart elements: axis titles. X(REG Relative employment growth), Y(RPG relative
productivity growth). On the same graph put the same info for the reference area by
clicking on the graph, right-click select data, and name the series as the name of the
region. Edit series 1 and call it Brussels.
28. Add the legend to see which graph belongs to Brussels and which one belongs to the
reference area.
29. Create the 45° line by giving random values for X and Y. And then Analyze.