Economic Growth and Regional Imbalance

Author

Professor

University

City, State

Economic Growth and regional Imbalance 3

Introduction 3

Theory of Economic Growth 3

Types of Economic Growth……………………………………………………………………….4

Effects of Growth…………………………………………………………………………………………….8

Gross Value Added (GVA) 8

Regional imbalance……………………………….…………………………………………………………9

Current Government (Conservative Party) Policies to Reduce Regional Imbalance……….9

Conclusion 11

References 12

Economic Growth and Regional Imbalance

Introduction

Economists acknowledge growth as a vital aspect of every economy, and it generates economic growth (Barro and Sala-i-Martin 2004, p. 16). Economic growth is the incline in the production of goods and services over a specific era (Amadeo, 2018). It allows organizations to gain more profit thus boosting the capital to invest more thus creating a source of employment with a reasonable rate of wage. Regional disparity is the measurement of overall inequality that mainly affects both social and political solidity (Kanbur and Venables, 2005, p. 3). Various areas in Europe such as Stockholm in Sweden is considered as a fast developing area concerning urbanization. However, some districts in that region are lagging behind with less employment rate as well as low level of education thus developing regional imbalance (Andersson et al., 2014, p.8). The discussion focuses on economic growth, the extent to which school is the primary cause of regional imbalance between the north and south of England and how the current UK Government aim to solve the issue of spatial inequality.

Theory of Economic Growth

In the UK, the Office of National Statistic (ONS) is accountable for assembling the state’s economy data four times a year to measure the Gross Domestic Product (GDP) and value of services and products (Cullen, Baverstock and Cullen, 2018). ONS determines the economic development based on at least 40,000 firms, and 200,000 goods and only 40 percent of the information from the analysis; preliminary reading of the GDP will be incorporated in the full appraisal (Hyde, 2010). On the other hand, some writers argue that economic growth can be measured through the standard of living within a region, which is a very challenging criterion (Coyle, 2011).

Economists prefer to use real GDP instead of nominal GDP because it gives the most precise data of growth (Amadeo, 2018). Moreover, it eliminates the effects of inflation. On the other hand, Nominal GDP is useful in estimating how ‘big’ other ostensible figures are that is in evaluating the rate of budgets discrepancy (EconData, 2018).

Types of Economic Growth

Short Run Growth

The production cycle is the actual oscillation of the short term of economic growth that transpires over an era (Amadeo, 2017). A business cycle is a handy tool for exploring the economy because it can assist one in making better financial choices. It determines the actual real GDP. Each business cycle has four stages. They are expansion, peak, contraction, plus trough that take place at various intermissions as shown in the diagram below.

Output (GDP)

 

Actual Growth

Peak

Expansion

 

Growth Trend

Trend

 

Trough

Time

Contraction

 

Fig 1: Diagram for Business Cycle (Short run Growth) (Courses.lumenlearning, 2018).

However, they lack decipherable indicators. The expansion phase occurs between the trough and the peak stage. It is when there is a rise in the GDP, prices rise, and investors gain confidence in their assets that the inflation will continue thus making them increase the value of their properties leading to the peak period. However, after climax, the phase transits to contraction level where the economy deteriorates to the trough stage (Amadeo, 2017). The rate of unemployment inclines at the end of the contraction because of the unstable economy.

The causes of fluctuation in the actual growth rate are the shortage of human resource, an incline of total demand, and rise in need for importation (Hall, 2010). Lack of labor leads to underutilization of resources in a given area thus affecting economic development. Performing more imports than exports rather than balancing the two results to balance of payment shortfalls. Hence, it would be best to adjust these three significant causes of fluctuation to enable stability in the actual growth.

Long Run Growth

Long Run Aggregate Supply (LRAS) is whereby suppliers rely on price to determine the number of goods to supply consumers with while in the short run, they retaliate to change in demand and cost to determine the amount of products to produce (Capital, 2018). Monetarists claim that total output is independent of inflation because labor, enterprises, capital, and land are the primary catalysts for economic growth as shown in the diagram below.

Price Level

LRAS2

LRAS1

 

Real National Output

Fig 2: Classical Monetarist Diagram Indicating that Supply is Independent of Price (Arlene, 2015).

Therefore, an increase in yield and efficiency is due to the proper utilization of the four factors. For instance, when there is a total exploration of the resources, there is full employment. Hence, the diagram does not rely on demand to determine the productivity level because it is an inconsistent element. In other words, it emphasizes the use of fiscal policies to fuel demand to achieve development without a rise in price response.

An increase in production potential response influences LRAS to shift outwards leading to inclined employment (Capital, 2018). When there is maximum utilization of resources, there will be demand for labor thus leading to regional balance. For instance, developing more enterprises in Stockholm will drive to more employment in the region. Another outward shift is caused when there is more industrious potential thus leading to demand workforce. A good example is a region in Sweden where there are many innovative industries; they will seek labor thus creating employment for the inhabitants within that locality.

Effects of growth

Costs

Every state or region deems economic growth as an excellent achievement, but it comes along with its costs (Economicsonline.co.uk., 2018). A good example is deforestation to fulfill the demand for timber for construction of more houses. However, as the tree cutters cut down the trees, they forget the policy of cutting and replanting of trees thus a negative impact on the environment (Economicshelp.org, 2018). Desertification such as overgrazing or deforestation will generate more income to a particular zone, but it causes risks (Economicsonline.co.uk., 2018).

Another demerit is increased competition of raw materials on the UK economy (Pettinger, 2018). With the Chinese being second to the U.S regarding the purchasing power, prices of resources such as oil will incline thus squeezing the standard of living in the north-west (Pettinger 2018). The rise of income will influence prosperity in many due to more wealth thus attracting high crime rates thus making a particular area insecure (Economicshelp.org, 2018). Hence, economic growth does not only bring positive changes but, also negative impacts on the society.

Benefits

Economic development will lead to increased employment (Gordon, 2004). When there is more employment such as London, the living standards of people in that region will improve because they will have a reliable source of income to cater for their needs. Another benefit of economic growth is an increased capital investment (Gordon, 2004). When a firm is doing well regarding input and output in the UK, but there is more demand, it will strive to invest in more products to supply the rise of needs in the society. This benefit will lead to increased labor force thus accommodating the unemployed.

Gross Value Added (GVA)

Gross Value Added (GVA) is the rate spawned by any area involved in the manufacture of commodities as well as services (Cullen, Baverstock and Cullen, 2018). It is determined by the current indispensable values that entail the effect of price rise, exclusive of taxes on yields such as Value Added Tax (VAT). GVA is gauged via the income strategy at times symbolized by GVA(I). GVA Per head of populace is a handy method of contrasting regions of various sizes. The 2014 report in the table below depicts that both GVA and GVA per head at the current indispensable prices have inclined in both the North West and South East of England while there is a decline in the same in the North East and South West of England. (“Regional gross value added (income approach)” 2016).

NUTS1 regions

GVA per head (£)2

GVA per head growth on 2014 (%)

GVA per head index (UK=100)

Total GVA (£m)2

Total GVA growth on 2014 (%)

Share of UK total GVA (%)4

 

 

United Kingdom5

25,351

2.1

100.0

1,666,342

2.6

100.0

 

 

 

 

 

North East

18,927

2.8

74.7

49,677

3.0

3.0

 

 

North West

21,867

3.0

86.3

156,872

3.6

9.4

 

 

Yorkshire and The Humber

20,351

2.4

80.3

109,704

3.0

6.6

 

 

East Midlands

20,929

1.0

82.6

97,887

1.8

5.9

 

 

West Midlands

20,826

1.6

82.1

119,769

2.2

7.2

 

 

East of England

23,970

1.7

94.6

145,651

2.7

8.7

 

 

London

43,629

1.6

172.1

378,424

3.2

22.7

 

 

South East

27,847

2.3

109.8

249,174

3.2

14.9

 

 

South West

23,031

2.0

90.8

126,007

2.9

7.6

 

 

 

 

 

England

26,159

2.1

103.2

1,433,164

3.0

86.0

 

 

Wales

18,002

2.8

71.0

55,788

3.0

3.3

 

 

Scotland

23,685

1.8

93.4

127,260

2.3

7.6

 

 

Northern Ireland

18,584

1.4

73.3

34,410

2.0

2.1

 

 

Extra-Region

n/a

n/a

n/a

16,242

-19.3

1.0

 

 

Table 1: The regional imbalance in the North and South of England (Cullen, Baverstock and Cullen, 2018)

Therefore, indicating a regional imbalance in both the North and South part of England while the west side of the North is doing well, the East region is suffering spatial inequality and a similar case in the Southside (Ons.gov.uk, 2018).

Regional imbalance and Education

A difference in the education level can lead to social inequality especially in the Northern zone in areas such as Yorkshire, North-West, and North-East. Where there is weak or inefficient funding of schools to improve the learning resources and the environment leads to lower level of education (Northernpowerhousepartnership.co.uk, 2018, p. 4). Insufficient skills can also trigger regional imbalance when companies fail to empower the skills they need in employees in students while at the secondary level. Therefore, ineffective training leads to inadequate capabilities in a region thus discriminating people during employment

Factors such as fewer career paths have led to low employment chances. For instance, diversification of sectors such as energy, advanced manufacturing, medical, and technological innovation in the North will lead to more career paths thus enhancing employment chances (Northernpowerhousepartnership.co.uk, 2018, p. 28). As indicated in the table below, there is a less population of people qualified at the NQ level 4 and above. Therefore there is a need to increase the qualifications through diversification of career paths to accommodate many people from the Northern region

Table 2: The levels of qualifications of workers in different sectors in the North (Northernpowerhousepartnership.co.uk, 2018, p. 39)

Current Government (Conservative Party) Policies to Reduce Regional Imbalance

Current Government (Conservative Party) Policies to Reduce Regional Imbalance

One education policy that will reduce regional imbalance is improving the goals and the performance of the North’s institutions to alter the economy of North England (Burns, 2017). Those residing in the North of Tyne will gain from £600 million administration expenditures on the main local concerns such as the employment sector (Jones et al., 2017). This strategy will reduce regional imbalance through boosting the quality of education plus job creation. Three years have passed since the preliminary forecast on regional inequality with the same proposals, yet no change has been initiated hence, it may take longer to place the policy in practice (Ernst and Young, 2017, p.4). According to Mr. Osborne’s proposal to implement the education policy in the disadvantaged areas, £300 million is required to fund the project to ensure students in the North get a quality education but this was sidelined by Theresa May (Ahmed, 2018). He believes that the policy will work because education; lack of skills in training is what makes Northern part of England to lag behind thus when fulfilled, it will rebalance the regional economy (Ahmed, 2018).

Regional mayors are representatives elected within an area by the residents; they are chairs of the combined authorities of a region (Local.gov.uk, 2018). Hence, they are entitled to devolved powers. Northern Powerhouse Rail (NPR) is significant tactical rail project premeditated to alter the connectivity of economic centers of the Northern region of England thus enabling its economic growth. The budget may result in a range of £69bn from now to 2050 thus leading to £2.3bn on an annual basis meaning the project is estimated to last for thirty years (Railtechnologymagazine.com, 2018). HS2 is essential to the progress of NPR, and the plan is to include junction in other cities like Liverpool, Sheffield, and Manchester (Railtechnologymagazine.com, 2018). The rail will reduce regional imbalance through the employment of more people at the rail stations. It will work to reduce the local inequality in the long term because it will take longer than the anticipated time. Mr. Osborne claimed that he doubts whether the HS3 will take place because he does not have faith in Theresa May but Jake Berry told the BBC that the government is committed to enhancing the transportation sector in Northern England hence it will pass (BBC News, 2018)

Conclusion

The main reason for the regional imbalance between the north and south of England is the low level of education and inadequate skills. The students are denied quality education because there is no support of the institutions’ management. There are also insufficient skills due to ineffective training on what the employment sector seeks. Therefore, the government should focus on improving the education system through funding the poor schools. Enterprises should also take their desired skills to schools to ensure future employment in north and south of England. If the government policy to fund schools will take place, it will work in the long-run since it considers both the current students and the future generation. Instead of outsourcing skills from other parts of England, the north and south will by then fulfill the demand in the employment sector. Therefore, it will only rebalance the regional economy if the policy will be implemented instead of being sidelined by other projects such as the NPR.

References

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