Building back greener, levelling-up or both? An assessment of the economic and environmental efficiency transition of UK regions

Abstract

This paper assesses the transition of UK regions towards the policy ambitions of “building back greener” and “levelling-up” the UK economy. We use data envelopment analysis (DEA) methods to calculate regional economic and environmental efficiency for 41 UK ITL2 regions between 2005 and 2020, and then assess their “unconditional” and “spatial” transition probabilities of improving one of the two efficiencies or both. We find evidence of a trade-off between the two for more than half of the regions and that the costs of transition are unequally distributed. We also find that regions are more likely to become efficient in both directions if they are already environmentally efficient; less economically efficient regions are more likely to become economically efficient than environmentally efficient. Economic efficiency improvements are easier to achieve than environmental efficiency improvements, requiring stronger policy support for the latter. The high inertia of regions requires central and local authorities’ intervention to reduce regional inequalities and improve both types of efficiency. Whilst we do not find evidence of spatial spillovers for environmental transitions, space (negatively) matters for regional economic efficiency. Without a combination of place-based and national policies, there is no natural regional convergence nor levelling up, whilst the transition to net zero will remain too slow.