Improving the quality of regional economic indicators

Regional economic performance and the devolution of powers in the UK are the subject of increasing interest and attention. Shifts to more localised policy making and Britain’s exit from the EU demand better understanding of the operation of the UK’s internal market, as well as the linkages between different parts of the UK. However, an absence of interregional trade data has proved a significant barrier to detailed analysis. This project addresses this problem by developing frameworks for constructing interregional trade data on a consistent basis for the UK.

Improved interregional trade flow data is vital to understanding regional economic policy and regional fiscal policy, and to monitoring the principle of ‘no- detriment’ which is central to UK devolution settlements. However, measuring and understanding interregional trade is not a challenge unique to the UK. Research has been undertaken in many countries for the same purpose. Much of this work has focused on ‘top down’ disaggregations of national level data combined with estimation or attribution of interregional trade flows based on survey data. However, this raises a number of issues, particularly around the coverage of surveys and the consistency with which data are collected and reported.

We have examined the range of existing approaches, alongside the particular data landscape of the UK, to better understand how a consistent set of interregional trade estimates covering the whole economy can be produced for the UK. We have produced initial estimates of trade between Scotland, England, Northern Ireland and Wales, using some of the existing approaches and data sources, including freight data, UK Tourism Surveys and interconnector data. These estimates suggest a high degree of trade linkage between the countries of the UK.

In the next stage of our work, we are developing a strategic approach to the collection of trade information and estimation of trade within the UK, with different approaches for goods and services, and supporting the development of a consistent ‘supply and use’ framework for Scotland, England, Northern Ireland and Wales.

This project is also developing regional consumer price indices, building on significant research undertaken by the University of Southampton.

In addition to reviewing current trade estimates, we developed experimental inter-regional trade estimates. The first step in producing these inter-regional estimates was to gather information on industrial exports and imports between the devolved nations and the rest of the UK (rUK) using published Input-Output (IO) tables. Subsequently, we utilised various tourism data sources to separate sales to non-residents in each of the four nations. Then, to regionalise rUK totals for export, import and non-resident spend for each of the four nations a combination of freight, energy use and industrial consumption data was used.

In producing the regional CPIH estimates, the national CPIH methodology was adapted using a previously outlined method in Dawber and Smith (2017). The focus of our project was to investigate whether the use of the primary Living Cost and Food Survey (LCFS) and Household Final Consumption Expenditure (HFCE) data could enhance the stability of regional CPIH estimates.

We also developed new indicators and investigated opportunities for the construction of high- quality databases required to operationalise these for the case of UK regions. These were also used to analyse the consequences of the changing nature of international trade for the UK and its regions.

The main finding of the trade estimates was a series of recommendations on possibilities for future data collection. These include:

1. Introducing an English trade survey, a survey of all GB reporting units, or additional questions to the ABS to capture trade flows between England and the remaining three nations.
2. Conducting streamlined trade surveys across the four nations annually with an in-depth trade collection exercise taking place every five years bringing the UK in line with best international practise.
3. Having consistent treatment of oil and gas extracted from the UK Continental Shelf.
4. Focusing on gaining information on industry flows and firms’ sales rather than commodity flows and firms’ purchases.
5. The four nations adopting a consistent approach to sample size and stratification.

One key finding of the prices project was that, despite utilising the primary HCFS estimates, the regional CPIH results did not show significant improvements and remained unstable. However, when using HFCE data, more promising results emerged, with much of the volatility removed. Consequently, we recommend proceeding with this method, along with benchmarking weights to published levels.

We also computed the numbers of jobs per region employed, directly or indirectly, in producing goods and services exported to EU regions. We calculated the percentages of jobs ‘at risk’ in each of the regions under two different assumptions about future trade patterns with the EU. We found that the risks vary considerably across UK regions and are disproportionately concentrated in Northern regions in the case of a total stop of exports to the EU, and in London and southern areas of the UK in the simulated case where the UK cannot export services to the EU.

Our work in this project supports better regional policy making in the context of ever-increasing interest in regional consumption, activity and trade. The process of producing the estimates and our work with the devolved administrations and Whitehall departments highlight the need for a coordinated effort to improve the coverage and coherence of inter-regional trade information within the UK. This is leading to new proposals, which have the support of all these organisations, and which have the potential to lead to a transformation in the collection and estimation of inter-regional trade within the UK.

This research has directly contributed to the work by the Office for National Statistics on creating an experimental methodology for estimating the value of UK inter-regional trade in goods and services at International Territorial Level 1, see ‘Experimental methodology for producing UK interregional trade estimates‘.

Our research also provides new insights into the role of Global Value Chains in different sub-national parts of the UK, and a measure of the international competitiveness of these areas. Our research has highlighted the importance of developing high-quality inter-regional Supply and Use Tables, which can provide detailed information on the economic dependencies of industries within, but also between, regions.

Catalano, A., Davidson, S.N., Connolly, K., Crummey, C. ‘Supporting Comparative Regional Analysis Across the UK: Evaluating the Availability, Comparability and Dissemination of Northern Ireland’s Socioeconomic Data’ Poster Exhibition, ESCoE Conference on Economic Measurement, Alliance Business School, University of Manchester 15-17 May 2024

Catalano, A., Davidson, S.N., Connolly, K., Crummey, C. ‘Supporting Comparative Regional Analysis Across the UK: Evaluating the Availability, Comparability and Dissemination of Northern Ireland’s Socioeconomic Data’, University of Strathclyde, Glasgow, March 2024

Black. J., Fox, C.,  Gasiorek, M.,  Spowage, M. and Tamberi, N. ‘The economic and socio-economic impacts of trade on the UK labour market’ ESCoE Conference on Economic Measurement 2023, Special Session B: Novel data approaches to improving the quality and granularity of Input-Output modelling and subnational economic indicators, King’s College London, 17 -19 May 2023

Davidson, S.N.  ‘Addressing the Challenges of Subnational Statistics’ Panel Session I, ESCoE Conference on Economic Measurement 2022, University of Strathclyde, 25-27 May 2022

Davidson, S.N., Connolly, K.,  Crummey,C.,  Brazzelli, N. and Spowage, M. ‘Building a Suite of Subnational Socioeconomic Indicators for the United Kingdom: Opportunities, Challenges and Recommendations’ ESCoE Conference on Economic Measurement 2021, Poster Exhibition, University of Strathclyde 25-27 May 2022

Davidson, S.N., Black, J., Connolly, K. and Spowage, M. ‘Improving the Quality of Regional Economic Indicators in the UK: A Framework for the Production of Supply and Use and Input Output Tables for the Four Nations’ ESCoE Discussion Paper Series, ESCoE DP 2022-14

Davidson, S.N., Connolly, K., Crummey, C., Brazzelli, N. and Spowage, M. (2022) ‘Building a Suite of Subnational Socioeconomic Indicators for the United Kingdom: Opportunities, Challenges and Recommendations‘ ESCoE Discussion Paper Series, ESCoE DP 2022-13

Davidson, S.N. ‘Building a Suite of Subnational Socioeconomic Indicators for the UK: Opportunities, Challenges and Recommendations’ ESCoE Research Seminar Series, 24 February 2022

Spowage, M. and Davidson, S.N. (2021) ‘Improving the Quality of Regional Economic Indicators in the UK: A Framework for Interregional Trade Data Collection and Estimation’ ESCoE Technical Report Series ESCoE TR-13, 9 Dec 2021

Connolly, K. and Spowage, M. (2021) ‘Improving the quality of regional economic indicators: Regional consumer prices’ ESCoE Discussion Paper Series ESCoE DP 2021-13, 28 Oct 2021

Connolly, K. and Spowage, M. ‘Improving the Quality of Regional Economic Indicators: Regional Consumer Prices’ ESCoE Blogs, 28 Oct 2021

‘Ever-increasing demand for regional statistics: COVID-19 era and beyond’ ESCoE workshop 24 Jun 2021

‘Multi-sectoral regional modelling workshop’ 27 May 2021 Fraser of Allander Institute, University of Strathclyde and ESCoE

Davidson, S.N., Black, J., Connolly, K. and Spowage, M. ‘Improving Regional Economic Indicators: Interregional trade & Regional Supply & Use’ ESCoE Conference on Economic Measurement 2021, Poster Exhibition, 11-13 May 2021

Brocek, F. and Spowage, M. ‘The effect of COVID-19 on the West Midlands economy’ ESCoE Blogs, 20^th Nov 2020

Spowage, M. and Davidson, S.N. ‘UK Interregional Trade Estimation: Estimates of Trade between Northern Ireland, Scotland, Wales and England’ ESCoE Blogs, 30 Jun 2020

Greig, A., Spowage, M. and Roy, G. (2020) ‘UK Interregional Trade Estimation: Estimates of trade between Northern Ireland, Scotland, Wales and England’ ESCoE Discussion Paper Series ESCoE DP 2020-09, 26 Jun 2020

Spowage, M. ‘Interregional trade within the UK – Improving approach and consistency of measurement’ ESCoE Seminar Series, ONS Drummond Gate, 10^th Dec 2019

Greig, A., Lisenkova, K. and Roy, G. (2018) ‘A Data Map of Existing UK Data Sources Related to Regional Trade’ ESCoE Discussion Paper Series ESCoE DP 2018-03, 28 Mar 2018

Ijtsma, P., Levell, P., Los, B. and Timmer, T. (2018) “The UK’s Participation in Global Value Chains and Its Implications for Post-Brexit Trade Policy“, Fiscal Studies, 39(4), 651-683, Wiley https://doi.org/10.1111/1475-5890.12176

IJtsma, P., Los, B., UK Regions in Global Value Chains (ESCoE DP 2020-08)

Los, B., Global Value Chain Competitiveness of UK Regions, ESCoE blogs, June 2020.

UK regions in global value chains, ESCoE event, June 2019.

Los, B., Timmer, M., Measuring Bilateral Exports of Value Added: A Unified Framework (ESCoE DP 2019-03)

Riley, R., Economic Statistics in the Time of Brexit, ESCoE blogs, March 2018.