Discussion paper


The distribution of a region's economic activity across industries is considered a major determinant of the region's level of income, the resilience of its economy and its ability to grow. This information paper presents and analyses statistical information about the industry structure of employment in Australia's regions. Recent national and regional trends in industry structure are identified, and industry specialisation, diversity and structural change are analysed at a regional level. The relationship between industry structure and economic growth is also explored for Australia's regions. Australia, like many other developed countries, has experienced a decline in the importance of the manufacturing and agriculture sectors over recent decades, and strong growth in the services sector. In particular, Business services accounts for a large and growing share of national value added and employment. Between 1991 and 2001, the Business services industry was the single largest source of employment growth in all States and Territories. This study finds that a region's industry structure is closely tied to the size of its economy. Major cities generally have a very diverse industry structure, which resembles the national distribution of employment across industries. The relative importance of employment in technology and knowledge-intensive industries tends to increase with the size of the regional economy. A region's industry structure is also closely tied to its level of remoteness. For example, the relative importance of employment in Agriculture, Mining and Accommodation, cafes and restaurants rises with increasing remoteness. The relative importance of employment in technology and knowledge-intensive industries tends to decline with increasing remoteness, while a similar pattern is also evident for Manufacturing, Property and business services, Communication services, Wholesale trade, Finance and insurance and Cultural and recreational services. For service industries such as Retail trade, Health services and Education, employment is distributed across regions roughly in line with the distribution of total employment. This reflects the fact that these industries predominantly cater to local demand. In contrast, employment in primary industries (particularly Mining) tends to be highly localised. Agriculture was the major employing industry in 276 of the 425 labour market regions, but beyond this industry there was considerable variety in the activities in which regions specialised.

For some industries, national trends of growth/decline between 1991 and 2001 were reflected quite consistently across regions. Most regions shared in the strong national employment growth experienced by the Food retailing, Business services and Community services industries, and in the employment decline experienced by the Finance industry between 1991 and 2001. However, there were many industries for which employment growth rates differed markedly across regions. Agriculture, Metal ore mining, Government administration and Food, beverage and tobacco manufacturing are examples of industries which grew strongly in some regions, while declining in others. Overall, national trends of industry growth and decline were not reflected consistently across regions. Regions with a highly diverse industry structure were found to experience more stable economic performance than other regions. However, the analysis does not support the claim that a highly diverse industry structure is associated with greater regional growth prospects. Between 1991 and 2001, regions outside the major cities (on the whole) developed a more diverse economic base. Such increases in diversity work to insulate regional economies from the effect of both positive and negative shocks, and tend to be associated with less volatile growth paths. The information paper concludes that the industry structure of employment plays a significant, but not dominant, role in explaining regional differences in economic growth. While a high share of employment in the Property and business services or Construction industries was associated with stronger economic growth for regions between 1991 and 2001, different industries may be associated with economic growth over the next decade. Therefore, no prescriptive conclusions can be drawn about how industry structure can be changed to improve economic performance. Rather, strategies for regional development need to build upon local comparative advantage. About 20% of the variation in employment growth rates across labour market regions between 1991 and 2001 could be explained by the industry structure of regional employment in 1991, and subsequent national growth trends by industry. Therefore, the industry structure of employment can provide only a partial understanding of why regions grow. Other potentially important influences on regional economic growth include amenity, remoteness, investment, leadership and the region's resource and skill base. In conjunction with this information paper, BTRE is releasing an Industry Structure Database (http:\\www.btre.gov.au). The database contains a wealth of regional data on the distribution of employment across industries, and will provide a valuable resource for understanding regional economies and informing regional development.

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