The changing place of britain in the world economy a long term perspective
Download
1 / 36

The Changing Place of Britain in the World Economy: a Long-Term Perspective - PowerPoint PPT Presentation


  • 158 Views
  • Uploaded on
  • Presentation posted in: General

The Changing Place of Britain in the World Economy: a Long-Term Perspective. Nick Crafts Leverhulme Globalisation Lecture, University of Nottingham, November 19, 2008. Themes. Relative Economic Decline De-Industrialisation Regional Disparities Adjusting to Changing Comparative Advantage

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha

Download Presentation

The Changing Place of Britain in the World Economy: a Long-Term Perspective

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


The changing place of britain in the world economy a long term perspective
The Changing Place of Britain in the World Economy: a Long-Term Perspective

Nick Crafts

Leverhulme Globalisation Lecture,

University of Nottingham, November 19, 2008


Themes
Themes Long-Term Perspective

  • Relative Economic Decline

  • De-Industrialisation

  • Regional Disparities

  • Adjusting to Changing Comparative Advantage

  • Policy Implications


Real gdp person
Real GDP/Person Long-Term Perspective


Relative economic decline
Relative Economic Decline Long-Term Perspective

  • Was most apparent from the 1950s through the 1970s

  • Was associated with a period of protectionism and weak competition

  • Has possibly been reversed in the recent past

  • Britain’s time as the ‘workshop of the world’ has gone; de-industrialisation is a fact of life and there is a new international division of labour




De industrialisation
De-Industrialisation Long-Term Perspective

  • Common experience of advanced economies and has been continuous in Britain since the late 1960s

  • Reflects income elasticities of demand, productivity growth, comparative advantage and trade policy

  • Accelerated with move away from high tariffs and then Thatcherism

  • Structure of employment has changed greatly over the long run


Employment shares
Employment Shares (%) Long-Term Perspective


Detailed employment shares 1 percent
Detailed Employment Shares (1) Long-Term PerspectivePercent


Detailed employment shares 2 percent
Detailed Employment Shares (2) Long-Term PerspectivePercent


Reversing relative economic decline
Reversing Relative Economic Decline Long-Term Perspective

  • Required improved incentive structures to improve TFP and reduce NAIRU

  • TFP gaps have been much reduced and Beveridge Curve shifts in


The beveridge curve
The Beveridge Curve Long-Term Perspective

Vacancy rate

UV2

UV1

Unemployment rate


Reversing relative economic decline1
Reversing Relative Economic Decline Long-Term Perspective

  • Required improved incentive structures to improve TFP and reduce NAIRU

  • TFP gaps have been much reduced and Beveridge Curve shifts in

  • Key ingredient was increasing competition in product markets

  • Openness in both capital and trade flows matters

  • Realising gains from trade is important


Trade exposure x m gdp
Trade Exposure [(X+M)/GDP] (%) Long-Term Perspective


The payoff from globalisation gdp
The Payoff from Globalisation (% GDP) Long-Term Perspective

Based on similar assumptions to HMT (2003) and Bradford et al. (2006)


Uk comparative advantage
UK Comparative Advantage Long-Term Perspective

  • Has changed markedly over time

  • Victorian staples were neither high-tech nor human-capital intensive but today’s manufactured exports are often both

  • World market share in services in now twice that in manufactures

  • Responding to these changes requires both sectoral and spatial adjustment

  • Agglomeration plays a key role



Lancashire textiles and globalization leunig 2005
Lancashire Textiles and Globalization sectors(Leunig, 2005)

  • Lancashire a highwage industry: 6 x India and Japan in 1910

  • But continued to dominate world trade (60% world market share in cottons in 1910)

  • Unit costs lower than India or Japan even before adjusting for output quality

  • Lancashire flourished because of agglomeration benefits ..... its productivity exceeded other British locations by 33%



Regional implications of globalization
Regional Implications of Globalization sectors

  • Contraction of tradables that lose comparative advantage hurts East Anglia (then), West Midlands (now)

  • Growth of invisibles boosts London (then and now) and South East and East Anglia (now)

  • Globalization undermines North West which has been in long term relative economic decline since mid-19th century


Regional gdp person deviation from british average
Regional GDP/Person sectors(% deviation from British average)

Source: Crafts (2005)


Regional gdp person deviation from british average1
Regional GDP/Person sectors(% deviation from British average)

Source: ONS


Correlations when one city has higher productivity
Correlations When One City has Higher Productivity sectors

Source: Rice & Venables (2003)


Equilibrium regional disparities
Equilibrium Regional Disparities sectors

  • These regional differences are consistent with an equilibrium …. no market failure

  • Real earnings for each skill level converge quickly across regions (Duranton & Monastiriotis, 2002)

  • Can only be eliminated if productivity gap is closed

  • If that is impossible, best to let favoured city get bigger


Sub optimal size of british cities
Sub-Optimal Size of British Cities sectors

  • Optimal locations for big cities today different from mid-19th century

  • Successful 19th century cities expanded dramatically but not allowed today; (Blackburn and Preston vs. Oxford and Cambridge)

  • Both expansion and contraction distorted by policy interventions

  • Key symptom of city that is too small; high urban land values


Death of distance
Death of Distance? sectors

  • Transport and communications costs melt away: all locations equally good, so go where labour is cheap

  • Greatly exaggerated; ICT is rearranging geography not abolishing it

  • Agglomeration benefits still matter a lot

  • Offshoringoffers gains from trade in services not decimation of British economy


Wage levels 2008 new york 100
Wage Levels, 2008 sectors(New York = 100)

Source: UBS (2008)


Top 10 offshoring locations

1)India sectors

2) China

3) Malaysia

4) Thailand

5) Brazil

6)Indonesia

7)Chile

8)Philippines

9)Bulgaria

10)Mexico

Top 10 Offshoring Locations

Note: based on financial attractiveness (40%), people and skills (30%), and business environment (30%)

Source: A. T.Kearney (2007)


Offshoring evidence
Offshoring: Evidence sectors

  • 14 million US service sector jobs ‘vulnerable’ (96 million not)

  • Offshoring of business servicesgrew 20-foldin 5 years to 2007; typical cost saving 20%-40%

  • Offshoring works for routine activities where performance is easy to verify and face to face interaction is not needed

  • Payroll services, IT services, transaction processing, telemarketing etc

  • It is win-winwhen markets work well


London as a financial centre
London as a Financial Centre sectors

  • Agglomeration where size matters

  • Benefits from thick labour markets and importance of proximity for deal-making

  • Clerical jobs will increasingly be offshored

  • This will strengthen the core business




Agglomeration economies
Agglomeration Economies sectors

  • External economies of scale from localisation and urbanisation economies

  • Increase with city size (though not without limit)

  • Much bigger in services: financial services = 0.25, manufacturing = 0.04 (Graham, 2007)

  • Central to British competitive advantage under globalisation

  • Are foregone if transport inadequate or city size restricted


Welfare loss
Welfare Loss sectors

NW

New Net Wage

Curve

NW3

B

Welfare Loss

NW2

A1

NW1

A

Old Net Wage

Curve

NB

NA

N

Source: Leunig & Overman (2008)


Planning laws need a major re think
Planning Laws Need a Major Re-Think sectors

  • UK is failing to take full advantage of the opportunities presented by globalisation

  • Spatial adjustment is severely constrained

  • Planning restrictions imply massive distortionsin land use: housing/agricultural land values 400/1 (Cheshire & Sheppard, 2005); office space more expensive in Manchester than in New York (Cheshire & Hilber, 2008)

  • Local Communities, especially in the South East, can and should be incentivised to want development


Conclusions
Conclusions sectors

  • Positive response to globalisation has been important in reversing relative economic decline

  • Regional disparities are an inherent part of this and per se do not signal need for policy intervention

  • Flexible adjustment to globalisation was the hallmark of 19th-century Britain and needs to be facilitated in 21st-century Britain


ad
  • Login