Frontier Economics was commissioned to undertake an evidence review and detailed econometric study for the Department for Environment, Food and Rural Affairs (Defra), with the objective of obtaining a better understanding of the drivers of firm productivity growth in rural areas.
In the wake of Brexit and the repatriation of local development policies to the UK, Defra sought a better understanding of the economic dynamics of rural areas in order to influence the formulation of domestic SME and local economic development policies. The econometric analysis, focused on productivity growth in tradeable businesses (those that primarily serve markets outside the local area) and included local factors that were previously under-investigated or inconclusive in the available literature such as the presence of natural beauty, the accessibility by public transport to local towns and cities and whether or not the area was coastal or sparse.
Productivity growth differs substantially around the country and the levelling up agenda aims to reduce these economic inequalities. Our study shows that rural areas can offer unique comparative advantages for some businesses. For manufacturing businesses this might be through the availability of land and lower land prices; for services businesses, the natural beauty of the area can attract skilled workers.
A key recommendation for future government policy is for a joined-up strategy that recognises the economic contribution of rural areas and supports these areas to take advantage of their natural competitive advantages and recognises and accounts for the interrelationships between rural growth drivers and the links between rural and urban areas.
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