Sector Structure and Cluster Economies: A Decomposition of Regional Labour Productivity

Abstract

It is shown that regional differences in labour productivity can be decomposed into a sector structure, a cluster economies and a residual regional component. The decomposition is applied to Dutch regional productivity levels and growth rates for 1990-2001. Sector structure accounts for about a quarter of the differences in both the level and growth of productivity. Cluster economies account for a quarter of the differences in levels and a third of the differences in growth rates. Static cluster economies are predominantly positive, whereas positive and negative dynamic cluster economies balance. Econometric analysis shows both components to be statistically highly significant.