Patterns and Trends in Services Related Activities in OECD Regions

Abstract

This paper examines the spatial patterns in service sector activities and links them to the overall trends in the service sector among OECD countries. We find that services have a strong spatial dimension linked to non-tradable activities which depend on local conditions. In particular we observe a decrease in the geographic concentration of service sector activities among all OECD regions but an increase in concentration among regions within countries making service sector activities more heterogeneous in space over time. Financial and business services are particularly concentrated amongst service subsectors. Specialisation in financial and business services appears to be higher in capital regions or regions with large cities, and have particularly increased among OECD regions. Within countries, regions have specialised more in public administration and in social services. This latter trend is important given that productivity in public administration and social services and in wholesale and retail trade has a strong growth potential due to forces of convergence.

Regional productivity is highly dependent on service sector productivity. Rather than just focusing on improving the service sector productivity of few regions it is critical to enhance productivity in all regions given that overall services are more dependent on the many local labour markets rather than few large service markets.

Service sector productivity is highly dependent on human capital, density and innovation intensity at the regional level. Low human capital is a necessary but not a sufficient condition for productivity growth in services. The links are stronger in high skilled human capital. Density appears to be positively related and to a lesser degree innovation intensity.

Appendices

Appendix 1

1.1 Geographic Index of Concentration

The index of Geographic Concentration measuring concentration of GVA is defined as:

$$ \left( {{{\sum\limits_{i=1}^N {\left| {GVA{{}_{j,i }}-{a_i}} \right|} }} \bigg / {2} } \right)*100 $$

where $GV{A_{j,i }}$ is the GVA share of industry j and region i, ${a_i}$ is the area of region i as a percentage of the country or OECD area, N stands for the number of regions and ‖ indicates the absolute value.

The index lies between 0 (no concentration) and 1 (maximum concentration) in all countries and is suitable for international comparisons of geographic concentration.

1.2 Specialisation Index

Specialisation in an industry measures the ratio between the weight of an industry in a region and the weight of the same industry in the country (Balassa–Hoover index). Formally it is defined by:

$$ B{H_i}=\frac{{{{{GVA{{}_{ij }}}} \left/ {{GVA{{}_j}}} \right.}}}{{{{{GV{A_i}}} \left/ {GVA } \right.}}} $$

where $GVA{{}_{ij }}$ is the total GVA of industry i in region j, $GV{A_j}$ is total GVA in region j of all industries, ${Y_i}$ is the national GVA in industry i, and Y is the total national GVA of all industries. A value of the index above 1 shows specialisation in an industry and a value below 1 shows despecialisation.

Appendix 2

Table 4.10 Number of regions increasing and decreasing in specialisation within countries, 1995–2008

Fig. 4.32

Percent of regions increasing in specialisation index in wholesale and retail trade, TL2 1995–2008. Source: OECD Regional Database (2012)

Appendix 3

Fig. 4.33

Initial level and annual average growth rates of productivity in public administration and social services OECD TL2 regions, 1995–2008. Source: OECD Regional Database (2012)

Fig. 4.34

Initial level and annual average growth rates of productivity in financial and business services OECD TL2 regions, 1995–2008. Source: OECD Regional Database (2012)

Fig. 4.35

Initial level and annual average growth rates of productivity in wholesale and retail trade OECD TL2 regions, 1995–2008. Source: OECD Regional Database (2012)