Leading indicators of regional resilience

Resilience is a central issue to policy debates on sub-national economic inequality and ‘levelling up’. In thinking about economic resilience, measuring and analysing a wider range of metrics is essential. However, a fuller understanding of regional economic resilience requires consideration of other dimensions of resilience, and associated measures that can capture these.

In seeking to better understand regional economic resilience in the UK, two main types of issues emerge.

First is the question of how we think about the concept of regional economic resilience, along with the coverage, availability and timeliness of the regional economic data that can be used to understand this concept.

Second, is the question of how this data can be used to understand the resilience of different parts of the country to a range of economic shocks. This requires new methods development.

This project covers two key components:

1. Exploring the dimensions of regional economic resilience that are important and scoping out how these can be analysed.
2. Developing a methodology that enables us to measure dimensions of regional economic resilience in a new way and to understand the effect of economic shocks on sub-national economic resilience.

Each component of the project will need very different methodologies:

Research question 1 – What are the key components of regional economic resilience, and how can we measure them? 

We will conduct desk-based research combined with a series of workshop-based consultations with stakeholders. These activities will give us an understanding of the key elements of regional economic resilience that are important, both in terms of the existing evidence base but also to users. Having defined these dimensions, we would assess the availability and suitability of data on these outcomes. We will work with ONS colleagues to identify relevant stakeholders – and to ensure that there is coordination with existing work in this area in ONS.

Research question 2 – Can we develop methods that enable us to rigorously explore how UK-wide economic shocks differentially affect sub-national resilience? 

The project also aims to address the challenge of analysing regional economic resilience using econometric methods. We will explore how different types of econometric model be applied. These will be time series models, using mixed-frequency data (typically annual and quarterly data). We have a particular focus on combining aggregate measures such as GVA with distributional data such as on the income distribution, thus combining macroeconomic and microeconomic data into a single model. Developing this class of model will require a series of method developments.

There are two models that we are developing, each makes use of these mixed frequency micro and macro variables in a different way. The first is known as a functional VAR – which are a recent development in the academic literature. The other is known as a pseudo VAR – which is a new type of model developed by the research team. Both models reflect that we are working at a sub-national level, and also consideration of how best to exploit the UK data in the model, whilst ensuring that our regional estimates are consistent with the aggregate UK estimates and data.

More detail on these models is provided in the ESCoE conference presentations linked below.

Andrea De Polis, ESCoE Conference 2024 presentation: ‘Mixed frequency functional VARs for nowcasting and structural analysis of the income distribution in the UK’. (Contributed session C), May 2024.

Stuart McIntyre, ESCoE Conference 2024 presentation: ‘Measuring sub-regional economic activity: Missing frequencies and missing data’. (Contributed session N), May 2024.

Ping Wu, ESCoE Conference 2024 presentation: ‘Incorporating micro data into macro models using pseudo VARs’. (Contributed session I), May 2024.

The scoping exercise, methodology and ‘proof of concept’ development through this project could be used to do two things which will be of clear benefit to ONS. The first is to research the development of new measure(s) of regional resilience and the second is to develop methods capable of providing analytical evidence on the determinants of regional resilience.

This project will significantly enhance our understanding of sub-national economic resilience in the UK. This has clear relevance to wider policy agendas across government, in particular efforts to reduce regional economic inequalities (‘levelling-up’).

The evidence generated on the effect of a range of UK-wide economic shocks and policies on the income distribution within and across regions will provide a unique evidence base on regional inequalities in the UK. This in turn will provide the basis for the design of new policies to improve the resilience of different parts of the UK.