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The most important graph in British economics

“Is there a relationship between city size and productivity?” the Centre for Cities asked in February 2015. The blog takes two reports and hundreds of pages from the OECD and distils it down to the biggest topic in city economics today – does being bigger make you richer?

It’s a question that I’ve been asking myself since I was 19, when I moved to London and Paris to study. I’ve been asking myself the same questions consciously since I was 25, and I couldn’t find a job in science after finishing a PhD in Leeds.

And now, thanks to some more great work by Centre for Cities, I can get a lot closer to answering the question than the OECD did.

I think that these questions are going to matter even more in the coming years because, for a number of reasons.

  • Manchester and Birmingham, the UK’s two biggest underperformers, have since elected their own mayors. Both cities are determined to make up the 30 per cent gap between them and comparable cities in the EU.
  • Richard Florida’s recent book, The New Urban Crisis, has started informing debates in the UK in the same way that Edwards Glaeser’s Triump of the City did five years ago.
  • Theresa May’s government has said it is determined to “build a country that works for everyone”. It will try to expand the UK’s successful industrial strategy beyond South-East England to more of the country. The loudest voices in opposition to this will claim that focusing on London will always deliver greater returns due to its size.

So what does the data say? Do agglomeration benefits exist? Are bigger cities richer?

French and German cities show agglomeration benefits

In France and Germany there’s a pretty clear answer: yes. The line of best fit slopes up with size. It is statistically significant. It’s the same in the USA. (GVA is a measure of how much economic value is created in a place.)

Click to expand.

Cities in Scandinavia and the Low Countries show large agglomeration benefits

There aren’t enough cities in Sweden, Denmark, Belgium, and The Netherlands to do a proper regression. But their economies are similar enough, so I just lump their cities together.

And there’s a very strong agglomeration benefit.

Click to expand.

Spanish and British cities show no agglomeration benefits at all

Spain and the UK are different. Size doesn’t matter. In fact in the UK the best fit line slopes down a bit, but not significantly so.

Click to expand.

The most important graph in British economics

And now the most important graph. The one’s that’s frustrated me all my life. The one that I don’t accept that the UK has ever tried to fix. And the one that makes taking lessons from books written in America and applying them to UK cities risky.

Remove London from the graph of UK cities, and the larger a city gets, the poorer it is. This doesn’t happen in France or even in Spain.

Click to expand.

I think that we can fix this. The Northern Powerhouse is the right strategy; metro mayors will help, moving things the way that we moved 10 per cent of the BBC to Manchester will help; and investing in transport and science in big cities where businesses want to grow will help.

But my faith in all those things is based on a belief that we can make our country more German, French, American, and Dutch in terms of agglomeration benefits. I hope that I’m right.


Want the data and graphs? They’re here in Excel. Ecept France which broke.

Tom Forth is an associate at ODILeeds. This article first appeared on his blog.
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