Have City Deals delivered higher productivity in England? An empirical assessment of a broad-spectrum local growth policy

In 2011, the United Kingdom embarked on a new bottom-up approach to drive productivity growth. The newly created City Deals were broad-spectrum policy solutions explicitly aimed at empowering cities through decentralisation and bespoke funding agreements The aim was to foster (economic) spatial rebalancing across the country and not just in London and the South East. For all intents and purposes, the creation of City Deals in the UK was a modern experiment in city-led bottom-up economic development – but ultimately was more limited in funding, scope and the scale of EU cohesion policy.

While there are several case-studies almost ten years since their inception, little work has been done in (quantitatively) assessing the impact of England’s City Deals on growth and productivity. In our recent Urban Studies article we fill this gap by conducting one of the first comprehensive quantitative studies that assesses the impact of City Deals on productivity at a local level. The article adds to the limited literature on broad-spectrum local growth policy by using several statistical techniques to analyse the productivity impacts of a large-scale industrial policy. Above all, the article reflects on the scarcity of research on board-spectrum-policy. The scope and potential of such policies are significant, and the article reflects our view that they deserve to be studied in much more depth than has previously been achieved.

We provide more methodological detail for interested readers towards the end of this blog. It is useful to point out that the results of the analysis are mixed and vary between models. One model points to a statistically significant effect of City Deals on local productivity. Moreover, the impacts are disproportionately generated in those local authority districts that were the most productive before the Deals came into effect. Other models are less conclusive on the impact of City Deals on local productivity. Our findings call into question what balancing effects the deals have had in terms of addressing economic inequalities across England’s economic geography, while potentially highlighting the importance of local institutions in better designing and delivering local growth strategies, as well as the importance of regions’ absorptive capacity in driving innovation and productivity. The findings broadly echo the conclusions found on EU cohesion policy mainly in highlighting the heterogenous effects of place-based policy, but also in highlighting the potential importance of local institutions in delivering positive outcomes from local funding.

The modelling approach in the paper assesses the link between the 26 City Deals agreed between 2013 and 2014 in England and productivity (GVA per job, and GVA per hour) in local authority districts. We employ first, a difference-in-differences model with time and region fixed-effects, and a rich set of controls. Second, we conduct an event study to check that our difference-in-differences model appropriately captures productivity changes prior to the treatment, while also assessing the statistical significance of City Deals intervention throughout the treatment period. Third, we employ a synthetic control method (SCM) to help circumvent some of the deficiencies present in the difference-in-differences model.

We recognise that the identification problems are legion but construct several different reference categories while attempting to control for a wide set of observable and unobservable factors.

Read the full article on Urban Studies OnlineFirst here.