Core objectives

This report is the seventh State of the Regions (SOR) report. The core objectives of the SOR reports are to:

1. present the latest statistical indicators of how Australian regions are performing;
2. analyse the indicator trends in terms of growing equality and inequality between Australian regions;
3. make suggestions for the policy implications of current Australian regional performance;
4. steadily expand the indicators used to measure regional performance;
5. describe the reality of regional economics; and
6. to assist local government to understand their region and to provide useful planning tools.

Fundamental rationale for State of the Regions reports

This and previous SOR reports come together to provide a coherent framework for analysis and understanding of regional development and provide the foundations for planning and policy direction. The SORs reveal regional economic development issues and assess the effectiveness of policies in removing road blocks to regional economic development. The benchmarks used are derived from the concept of convergence and divergence.

Evidence for obstacles or barriers to desirable rates of regional economic development is said to exist when the rate of convergence in economic performance between regions of Australia is unacceptably slow, or where evidence of divergence is identified. There are a range of indicators available to assess regional economic performance, namely:

• gross regional product (GRP);
• regional productivity (or GRP divided by employment);
• real household incomes; and
• access to employment opportunities given the regional population base.

Obstacles to economic development are said to exist when:

1. significant inequality exists between the nation's regions in terms of the distribution of gross domestic product, income, employment, etc;
2. the existing inequalities are only slowly being reduced or are diverging.

The fundamental rationale of the SOR reports is based on the view that:

1. there is significant inequalities between Australian regions in terms of economic performance;
2. unfettered market forces cannot, by themselves, guarantee that the inequalities between Australian regions will be reduced at an acceptable rate, or at worst could increase the degree of inequality; and
3. policies and local strategies can be effective, at least at the margin, improving equality in economic performance between Australian regions.

The framework for SORs has been built up a growing list of stylized facts. These stylized facts are insightful assumptions about the real world and have been validated in the development of SORs series.

Stylized Fact One

The capacity for realised sustained innovation is for most high-income economies without a unique and extensive natural resource base is now the core longer term driver of economic growth.

Stylized Fact Two

The innovation/knowledge economy capacity of an economy is now largely determined at the regional level. Successful non-resource based regional development requires reaching the status of a knowledge based region. Those regions, which are now the most successful at innovation, have the characteristics of so-called 'global cities'.

Stylized Fact Three

For much of the 19th and 20th centuries nations and regions tended to converge in terms of economic performance. The rise of the knowledge based regional economy has made long term divergence in economic performance between nations and regions within a nation a reality.

Stylized Fact Four

The rise of the knowledge based regional model has reduced, though by no means eliminated, the validity of regional development policies based on the neoclassical model. As a result a higher level of government intervention in driving regional economic development is now justified to a greater extent than what was the case in the past.

Stylized Fact Five

Policies to establish a successful knowledge-based regional economy require complex policy strategies involving a whole of government approach. Important components are policies designed to strengthen the networks which link the institutions, organisations, enterprises and key personnel within regions and to strengthen regional supply chains.

Stylized Fact Six

Regions are successful because enterprises in these regions are successful. To assist enterprises to grow, policy must explicitly focus on developing and strengthening the emerging flexible entrepreneurial supply lines of industry clusters on which knowledge based economies are constructed.

Stylized Fact Seven

Liveability, as expressed by the scale and diversity of the social and cultural capital and lifestyle choice, is an important determinant in establishing and maintaining a strong knowledge-based regional economy.

The 2003 report adds to the number of stylized facts by investigating the link between migration, ageing and regional economic performance. The four new stylized facts developed in this report are as follows.

Stylized Fact Eight

Market forces are powerful drivers of regional growth outcomes. There is strong tendency for productivity levels between regions to converge. This is certainly the case for successful regions. Lagging regions have difficulty in exploiting the full potential from the productivity convergence process.

Stylized Fact Nine

Productivity gains by themselves do not necessarily lead to accelerated GRP and employment growth if the productivity gains are created by reductions in costs with no increase in real wages or skills of remaining workers, and/or the transfer of the benefits of productivity gains elsewhere in terms of dividend/income flows, or lower prices for production.

Stylized Fact Ten

By itself a too high a concentration of population 55 and over will reduce regional productivity and increase unemployment while a high share of the working age range of 25 to 54 will increase regional productivity and will reduce unemployment. Migration inflows in the younger age ranges tends to reduce unemployment. Migration inflows in the older age ranges tends to increase unemployment.

Stylized Fact Eleven

If current trends in immigration patterns and natural population change continue, then demographic change will be an obstacle to reducing the inequalities in economic performance between Australian regions.

Stylized Fact Twelve

For regional cities to successfully increase the rate of employment growth relative to population growth they must:

• maintain a population growth rate in excess of 0.3 per cent per annum;
• develop diversified lifestyle and cultural choices for residents;
• develop scale in a small number of non-mining and non-agricultural industries; and
• develop inter-regional export capacity in business and/or education services.

 

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