Business productivity and area productivity in rural England

Abstract

Rural area productivity and rural business productivity measure different things. This paper presents a empirical analysis of labour productivity differentials across the new DEFRA definition of rural. We find labour productivity is 21% (13%) lower in sparse (less sparse) rural areas compared to urban areas. Labour productivity in less sparse and urban areas appears to depend on similar factors. Labour productivity in sparse areas strongly relates to a different industrial structure and plants in sparse areas gain less benefit from larger capital stocks. Policy needs to be aware of these differences if the urban-rural productivity divide is to be reduced.