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Regional Growth and Convergence in Victoria

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Regional Growth and Convergence in Victoria REGIONAL GROWTH AND CONVERGENCE IN VICTORIA Rowan Jane O’Hagan Submitted in total fulfilment of the requirements of the degree of Doctor of Philosophy December 2001 Institute of Land and Food Resources The University of Melbourne ABSTRACT Widespread variation in per capita income levels and the persistence of long standing income disparities are evident across Victoria. Persistent regional disparities are economically inefficient and socially inequitable. Economic change in Victoria between 1980 and 1998 is analysed to ascertain whether it has led to increased regional inequality. The regions are defined as the Australian Bureau of Statistics Statistical Divisions. Regional inequalities in income and employment are examined as important indicators of economic welfare. The factors influencing aggregate growth in the Victorian economy are identified, and incorporated into a model of regional income growth. Standard statistical measures of dispersion show that taxable per capita income in the non-metropolitan regions is diverging from the Victorian state mean, whilst the per capita taxable income of Melbourne is increasing. The distribution of income within regions, as measured by the Gini coefficient, is becoming more equal. Vector autoregression modelling of the aggregate Victorian economy indicates that the terms of trade and supply are the major sources of shocks to the economy. These variables are incorporated into a model of regional income growth, based on neoclassical growth theory. The average speed of convergence of the regions to their individual steady state was rapid at 22 per cent. The terms of trade, the unemployment rate, the gross value of agriculture per capita and average rainfall were found to be significant in the model. Within the neoclassical framework of regional economic growth, persistent regional disparities can be attributed to barriers to factor mobility and/or economic shocks. The above findings are interpreted within this framework, in relation to the process of regional adjustment, population change, regional labour markets and the possible impediments to economic growth. ii DECLARATION This is to certify that (i) the thesis comprises only my original work towards the Doctor of Philosophy degree except where indicated in the Preface, (ii) due acknowledgement has been made in the text to all other material used, (iii) the thesis is less than 100, 000 words in length, exclusive of tables, maps bibliographies and appendices ……………………… Rowan Jane O’Hagan iii ACKNOWLEDGMENTS I am indebted to Associate Professor Bill Malcolm, for agreeing to supervise my doctoral research and organising for me to undertake this research at home in Corowa, and for arranging for Dr Paul Cashin and Dr Brian Davidson to co-supervise the research. I have appreciated the expert and efficient advice and support I have received from Paul, both in Melbourne and during my visits to the International Monetary Fund in Washington, and thank him for agreeing to continue supervising me after he left Melbourne University. I am grateful to Brian Davidson, for his expertise, enthusiasm and sense of humour, and for introducing me to the Regional Science Association. I thank the Institute of Land and Food Resources for financial and administrative support and Dr Michael Phillips and colleagues in the Statistical Consulting Centre at the University of Melbourne for advice and teaching. My thanks to Matthew Deacon, formerly from the Department of Infrastructure, for his assistance with data collection, to Nanette Esparon for her assistance and to Linda Pink and colleagues in the Australia and New Zealand Regional Science Association for their support and encouragement. Thanks also to the School of Graduate Studies at the University of Melbourne for their excellent postgraduate programs and administrative support and the Bar. I am grateful for the friendship from my Learning Support Group from the Advanced Leadership and Professional Skills (ALPS) and other postgraduate programs I have been fortunate to be involved with. I am grateful to the library staff in the Giblin Economics and Commerce Library and the Institute of Land and Food Resources Library for their invaluable assistance to someone who lived interstate, and to Jeff Topp, who does a very good impersonation of a librarian. I appreciate the expert assistance from Anne Morley and Nicole Rendle-Smith with word processing and presentation of the thesis. iv For financial assistance, I thank Australian Women in Agriculture and the National Bank CommunityLink Program for a Leadership Scholarship in 1999 and the University of Melbourne Scholarships Office for a Melbourne Abroad Travelling Scholarship in 2000 to present part of this work at the North American Meetings of the Regional Science Association International in Chicago. I thank the Victorian Department of Natural Resources and Environment for funding to acquire data from the Australian Bureau of Statistics. Thanks to all my friends around Corowa and North-East Victoria who tolerated me, and gave so much moral and practical support to us over the last five years and beyond. Thanks also to my friends in other locations, who variously fed and supported me too. My sincere appreciation goes to Betty Luxford, who was a great stalwart throughout the whole campaign, as she was during my Masters degree. Betty’s was my home, and also a wonderful place for the children, when in Melbourne. I am also grateful to Betty for her assistance when I was away travelling. All the O’Hagan family were very supportive of my efforts. In particular my parents, Ruth and Kevin, were a great help to me, and my sister Ruth, although more often than not in an exotic location, was always there in spirit. My children, Jack, Claire and Ruth are too young to remember the start of my doctorate and I trust they can forget the finish and now enjoy the benefits. Along with my Brian, who encouraged me from the beginning and, despite being busy with work and farm, was supportive throughout, I look forward to a new era. v TABLE OF CONTENTS Abstract ............................................................................................................................... ii Declaration ......................................................................................................................... iii Acknowledgments .............................................................................................................. iv Table of Contents ............................................................................................................... vi List of Tables ....................................................................................................................... x List of Figures .................................................................................................................... xi List of Appendices ........................................................................................................... xiv Abbreviations ..................................................................................................................... xv Preface .............................................................................................................................. xvi Chapter 1. Introduction 1.1 Introduction ........................................................................................................ 1 1.2 Background ........................................................................................................ 1 1.3 Aim ..................................................................................................................... 4 1.4 Research Approach ............................................................................................ 5 1.5 Thesis Structure .................................................................................................. 6 Chapter 2. The State of Victoria 2.1 Introduction ........................................................................................................ 7 2.2 The Victorian Economy ..................................................................................... 7 2.2.1 Relationship to the Victorian economy ........................................................ 7 2.2.2 Changes in the Victorian economy ............................................................... 9 2.3 The Statistical Geography of Victoria .............................................................. 11 vi 2.4 Demography ..................................................................................................... 14 2.4.1 Age structure ........................................................................................ 14 2.4.2 Population changes .............................................................................. 16 2.5 Employment and Labour Force ........................................................................ 20 2.6 Agricultural Geography ................................................................................... 23 2.7 Regional Economic Change ............................................................................. 25 2.8 Conclusion........................................................................................................ 40 Chapter 3. Economic Growth- Current Theory and Empirics 3.1 Introduction ...................................................................................................... 42 3.2 Definition of a Region .....................................................................................
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