Background to the Index of Local Innovation and Economic Dynamism

Philip McCann and Raquel Ortega-Argiles 

The Productivity Institute, Alliance Manchester Business School, The University of Manchester

The research team at the Data Lab of The Productivity Institute (TPI) at the University of Manchester have constructed an Index of Local Innovation and Economic Dynamism for all UK regions. In particular, the index is constructed at the level of 361 Local Authorities, thereby allowing a fine-grained index anchored in local socio-economic conditions.   

In recent years, it has become increasingly apparent from the work of the UK Social Mobility Commission (SMC) that social mobility cannot be properly understood without consideration of the wider contextual factors shaping social mobility, and in the UK, the local or regional socio-economic conditions are likely to play a major role in this regard. These conditions also include the dynamism of the local economy in terms of its innovation, entrepreneurship and job-creation characteristics. As such, it is necessary to look beyond purely the education system in order to understand local labour market and social mobility outcomes. Fostering local economic dynamism driven by an innovation, entrepreneurship and a skills-demand agenda, and doing so in a manner which also enhances local social mobility, includes considerations of the local provision of both the ‘hard’ and ‘soft’ factors that may shape such outcomes. In this vein, Schumpeterian lines of thinking posit that “… a dynamic economy is characterised by creative destruction – the continuous churn of business creation and closure, the rapid reallocation of labour to more productive uses, and the physical and demographic capacity to absorb new ideas and talent.” As such, the SMC notion of ‘economic dynamism’ is defined as “… the rate of structural change, fluidity, and renewal within an economy …” and there has already been an index of economic dynamism based on this thinking which has been constructed at the US state-level (Lettieri and Fikri 2023). This implies that while building on the spirit of the US state-level index is essential for constructing a UK local innovation and economic dynamism index, it is also essential to ensure the UK index is constructed in a manner which is appropriate and relevant for examining the underlying drivers of social mobility in the UK context. 

In order to do this, we build on the recently published Local Authority Capitals datasets built and produced by the University of Manchester TPI Data Lab research team. The datasets provide very detailed, harmonised and standardised socio-economic information on many aspects of the six capitals underpinning local economic development, namely: human capital, physical capital, intangible capital, financial capital, social capital, and natural capital. In this project, we augment these newly published local capitals datasets with other UK data closely related to the data used in the construction of the US state-level indices of dynamism. The main geographical unit is the UK local authority, harmonised to the 1 April 2023 local authority definition; the datasets cover 361 local authorities and can also be scaled up and aggregated to the Mayoral Combined Authority/Mayoral Strategic Authority levels, as well as to ITL3 and ITL1 regions. 

In terms of the specific evidence and data we have built into our datasets, the local capitals datasets are based on 57 dimensions of local economic activity and capital assets. Indicators are selected as practical proxies for each capital, drawing primarily on ONS and NOMIS data, with additional inputs from DESNZ, Ofcom, DWP, HMRC, the Charity Commission, Beauhurst and The Data City. Selection follows two principles across the documents: conceptual relevance to local productive capacity, and sufficient data availability across the full set of 361 local authorities. The construction process combines directly observed measures with derived indicators. In practical terms, the dataset allows users to assess how each local authority compares with other regions, identify relative strengths and weaknesses across different forms of capital, and explore how combinations of assets may support or constrain socio-economic outcomes. The dataset has evolved into a practical analytical resource for local-authority benchmarking, policy diagnosis and empirical modelling. It combines a dashboard-ready diagnostic view with an underlying harmonised structure that can support broader quantitative analysis of place-based productivity. The dataset is well suited to place-based diagnostics and comparative policy analysis. First, it supports benchmarking across UK local authorities relative to both their own region and the wider national distribution. Second, it enables users to identify capital imbalances, showing where places may be relatively strong in one form of capital but constrained in another. Third, it provides a structured evidence base for local economic development discussions by linking economic performance to skills, infrastructure, innovation, environmental conditions and social factors. Taken together, these provide users with the opportunity to consider the relative importance of the local levels of socio-economic characteristics versus change in these characteristics in shaping local social mobility. 

BIBLIOGRAPHY

Lettieri, J., and Fikri, K., 2023, The Case for Economic Dynamism and Why it Matters for the American Worker, Economic Innovation Group, 17 May, See: https://eig.org/wp-content/uploads/2022/10/Case-for-Dynamism-FINAL-Web.pdf