Regional Gross Domestic Product in Europe
A Lancashire Perspective

This article focuses on how the local Lancashire economy (in terms of GDP) compares with the European average and other areas across the 27-member European Union. The information has been downloaded from the Eurostat website ('General and Regional Statistics' theme). As an alternative, our Data Download Centre contains the detailed GDP figures for all the EU regions.

It is important to note that the GDP figures measure wealth by where it is generated and not by place of residence. This can lead to very high figures for some major European cities. Analysing wealth by place of residence presents a somewhat different picture and this is emphasised in a complementary research monitor that studies household Income levels in Europe down to the NUTS-2 level.

What is Gross Domestic Product?

Gross Domestic Product is a measure of the sum of economic activity within an area and is derived by adding the total value of an area's annual output of goods and services. The Lancashireprofile.com contains a complementary article that measures Lancashire's economic position within a UK context in terms of Gross Value Added (GVA). This other research monitor provides useful additional material on the wealth of the Lancashire economy. In essence, the link between GVA and GDP can be defined as GVA plus taxes on products, less subsidies on products equals GDP.

Methodology

The GDP results used in this report are calculated by Eurostat, and based on data from the European System of Accounts ESA 1995, using a harmonized methodology.

The figures are per inhabitant and the values generated are expressed in the form of PPS (purchasing power standard). This is an artificial currency that reflects differences in national price levels that are not taken into account by exchange rates, and it makes it easier to compare data across countries. The figures are also expressed in the form of a rate that measures the results for each area relative to the EU average of 100.

The GDP figures are available for each year from 1995 onwards, with currently the most recent data sets being for 2005.

Geographic Areas and Time Periods

For statistical purposes, the 27-member European Union is geographically divided into 5 different levels of statistical units – the so-called "Nomenclature of Units for Territorial Statistics" (NUTS). NUTS level-1 areas are regions such as the North West of England, whilst the lowest level, number 5, relates to local authority ward boundaries. The broader Lancashire area, which includes the unitary authorities of Blackburn with Darwen and Blackpool, along with the 12 district councils, is classified as a NUTS level-2 region. Table 1 details selected figures down to the NUTS-2 area level. In total, the 27-member EU contains 271 NUTS level-2 areas.

GDP results are also released down to the NUTS-3 level (see Table 2). At this smaller level, the Lancashire County Council area forms a NUTS-3 area and the two independent unitary authorities of Blackburn with Darwen and Blackpool each constitute their own NUTS-3 level areas.

Comparisons with Previous Research Monitors

The European Union has grown over the years and this is the second edition of this article that encompasses the present EU area of 27 countries. The GDP per capita results therefore contained in earlier editions (see the Research Monitors Archive) are not directly compatible with the figures listed in this edition.

The European Perspective

According to the most recent estimates for 2005, the EU average per capita GDP measured in terms of purchasing power standards (PPS) was 22,400 PPS. This figure is noticeably lower than the overall UK average of 26,715 (Table 1).

Table 1 reveals the wide disparities in per capita GDP between a small selection of European areas. Inner London, with its large international financial and commercial base was by a noticeable margin ranked as the wealthiest region of Europe, with a GDP per capita figure equivalent to 302.7 of the EU average. The size of the Inner London economy emphasises the economic muscle of the area and how it underpins the wealth of the South East in England in general. The small but strategically located country of Luxembourg was in second place with a figure of 264.3, whilst the capital of Belgium (Brussels) was third with 240.5.

It is important to note that in some regions, the GDP per capita figures can be significantly influenced by commuter flows. Net commuter arrivals in these regions push up production to a level that could not be achieved by the resident active population on its own.

The UK NUTS-2 area with the second highest ranking encompassed Berkshire, Buckinghamshire and Oxfordshire (168.0). In comparison, the lowest UK NUTS-2 level rate was recorded in Cornwall and Isles of Scilly (77.4).

Table 1 details the three NUTS-2 regions in Romania, and Bulgaria that have the lowest rates within the EU.

The complete set of results reveals that areas in some parts of the wealthiest countries of Europe, that have good transportation links and are located close to millions of affluent Europeans, have GDP figures that are less than may be expected. Factors such as location help but cannot guarantee a vibrant economy. Areas may still be in the long-term process of recovering from a legacy of the decline of major heavy industries or other previously important economic sectors. For instance, the rate for the Hainaut area of Belgium, (79.5) is very low for an area that has many geographic advantages. The Picardie area of Northern France (89.6) is also at the heart of northern Europe but lags behind many areas with a less favourable geographic position. To some extent, both are probably adversely affected by high commuting patterns to nearby cities e.g., Brussels.

Peripheral geographic locations are often seen to be at an economic disadvantage, but even areas with excellent geographic locations and modern transportation links can still struggle to achieve even reasonable levels of GDP if they are unable to develop significant clusters of activity in high value added sectors.

The Lancashire Perspective

Lancashire recorded a GDP per capita figure in 2005 equal to 97.2 of the EU average. The 2004 edition of this article reported that Lancashire had a rate slightly above the EU average, but the 2005 result reveals that it has slipped below the EU average.

When the Lancashire rate is compared with the UK average of 119.3, it emphasises how the county continues to lag behind the national figure. The UK average is however greatly affected by the enormous economic strength of the inner London Region.

Lancashire was on a par with areas in the UK such as East Riding and North Lincolnshire (97.6) and Essex (99.3). Areas outside the UK that recorded very similar rates as Lancashire were Limburg in northern Belgium (97.4), Trier in the German Rheinland (97.5), Castilla y León in central Spain (97.0) and Franche-Comté in eastern France (97.0).

In addition to the problems of commuter flows already mentioned, there are a number of other difficulties that arise when trying to derive accurate local GDP figures based on place of work. These stem partly from the growth in outsourcing and contract labour. For example, people working in high-tech sectors, or in the most basic contract cleaning jobs are often employed by agencies and can have pay points (which represent their official place of work) that have little relevance to their actual place of work or residence. Employees working abroad for British firms can be allocated to pay points in areas of Britain to which they have no real connections. It is difficult to say how these factors even themselves out across the country but the circumstantial evidence implies that the figure for Lancashire is somewhat artificially inflated by the allocation of jobs to the county that are of little practical economic significance to the area. On the other hand, Lancashire has a reasonably significant net commuter outflow of residents primarily to Manchester and Liverpool that dilutes the county's workforce-based GDP figure.

NUTS Level-3 Figures

As mentioned earlier, GDP figures are also released for the European Union NUTS-3 level and the Lancashire County Council, Blackburn with Darwen and Blackpool figures are listed in Table 2. Of particular note is the rather low figure for Blackpool. The tourism industry in general can be a low value added sector and Blackpool's result is affected by the area's heavy reliance on this sector.

This page was compiled by Bryan Moulding.

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