Abstract

Aggregate productivity of manufacturing industries by urban, rural less sparse, and rural sparse locations in the UK is computed from firm-specific total factor productivities, which are estimated by a semi-parametric algorithm, within four-digit manufacturing industries, using the FAME data set over the period 1994–2001. The productivity differentials across location categories are analysed by decomposing them into industry productivity effect and industry composition effect. The analysis indicates that at the end of twentieth century, a rural–urban divide in manufacturing productivity still remains, but there is a tendency for convergence between rural and urban location categories, possibly due to increased competitive pressure. The industry composition effect is positively correlated with the industry productivity effect, suggesting that locations with high productivity are also characterized by industrial structure enhancing productivity.