Productivity and Business Dynamism Across Regions

Published: July 2022

EXECUTIVE SUMMARY

This report examines some of the potential drivers of variation in productivity across regions in  Northern Ireland and Ireland at the most granular level at which data is available.

At an aggregate level, there is a difference in productivity (gross value added per person  employed) of close to 25 per cent between Ireland and Northern Ireland.

At a regional level, there considerably greater variance in levels of productivity across regions in Ireland whereas productivity is reasonably consistent across the regions within Northern Ireland.

We examine the extent to which a range of factors contribute to regional productivity: education, infrastructure, sector and size distribution of activity, FDI presence and firm entry rates.

The report uses the most detailed geographic level of data available but this limits the number of inputs that can be considered. A range of potentially important drivers of productivity, such as spending on innovation activity, clustering, managerial capacity and detailed sectoral specialisation cannot be incorporated but this should not be taken to suggest that they do not play an important role.

Comparing predictions from the model to actual regional productivity shows a close relationship for most regions in Northern Ireland but leaves more performance unexplained in several Irish regions, with Dublin productivity levels in particular being higher than the model inputs can account for.

Educational attainment is an important factor behind cross-regional productivity differentials. In a scenario experiment where educational attainment of all regions is set equal to the level of the highest performing region, productivity increases of up to 20 per cent are simulated across regions in Northern Ireland. The effects of the education scenario are also substantial for the Border and Midlands regions in Ireland.

Productivity is found to be positively linked to road network infrastructure, higher shares of services, more medium and large firms, and greater FDI presence. A scenario of FDI increases across regions also had strong simulated effects on productivity, again particularly across regions in Northern Ireland and in the Border region where the initial levels are generally lower.

Broadband infrastructure has a strong positive direct effect. However, as broadband coverage increases, the productivity return coming from each further addition to the infrastructure coverage begins to decline.

Firm entry is positively correlated with overall regional productivity although the effect of a simulation increasing entry rates across regions predicted a relatively modest productivity improvement.