Spatial externalities, relatedness and sector employment growth in Great Britain

Abstract

This paper examines the impact of externalities on employment growth in sub-regions of Great Britain by estimating OLS and maximum likelihood spatial models at the 2-digit level for 23 sectors. Issues arising from relatedness, sector differences, competition, cross-boundary spillovers and spatial autocorrelation are explicitly addressed. Results indicate that specialisation has a generally negative impact on growth whilst the impact of diversity is heterogeneous across sectors and strong local competition has a typically positive impact. The results question the merits of policies primarily aimed at promoting regional specialisation and suggest that diversity, local competition and sector heterogeneity are important policy issues.