Is there a rural-urban divide? Location and productivity of UK manufacturing

We compute the productivity gaps in manufacturing industries by urban, rural less sparse and
rural sparse locations in the UK. This is done by using firm-specific total factor productivities,
which are estimated by a semi-parametric algorithm within 4-digit manufacturing industries
using FAME data over the period 1994-2001, by each location. We analyse the productivity
differentials across locations by decomposing them into firm differences within the same
industry and by differences that are explained by industry composition effects. Our analysis
indicates that at the end of twentieth century a rural-urban divide in manufacturing
productivity still remains but there is a tendency of convergence between rural and urban
location categories. Even though industry productivity is different by location, industry
composition effects are positively correlated with industry productivity by location
suggesting that locations with high productivity are also characterised by industrial structures
with higher productivity.