Towards an Evolutionary and Endogenous Growth Theory Explanation of Why Regional and Urban Economies in England are Diverging

Abstract

Across Europe, especially with the entry of states from the East, there is much interest in the topic of whether national and regional economies are or can be induced to converge over time. The large differences in Gross Domestic Product (GDP) per capita and growth rates across the Union stimulate this concern. Of particular interest is how the Structural Funds may be used to reduce these discrepancies. Although there are some signs of convergence across Europe at the cross-country and cross-regional level, within some of the more prosperous national economies, regional differences remain stubbornly resistant to real and measurable convergence. In the United Kingdom, for example, the issue of the comparatively poor economic performance of some English regions and many of the cities located in them has risen up the policy agenda since the 2002 Spending Review. There, for the first time in two decades, the Government committed itself to reducing the disparities in growth between the English regions through a Public Service Agreement (PSA). PSAs are 3-year agreements negotiated between each of the 19 main UK Government Departments and the Treasury to improve the performance in key areas of policy. Three ministries have set themselves the jointly held target of making ‘sustainable improvements in the economic performance of all English regions and over the long term reduce the persistent gap in growth rates between the regions, defining measures to improve performance and reporting progress against these measures by 2006’. The Ministries involved are the Office of the Deputy Prime Minister (ODPM) through their PSA 2 (at the time, the Ministry responsible for planning, housing and regional policy), the Treasury (PSA 6), and the Department for Trade and Industry (PSA 7).