Factor model based regional indices

Abstract: This chapter introduces a novel approach to constructing multi-dimensional regional growth and development indices using dynamic factor models designed for big data contexts. Focusing on the UK’s regional variations in pay, employment, and productivity, the model integrates spatial and temporal dynamics, allowing for more precise analysis of regional inequalities. By employing structural dynamic factor models, the proposed methodology not only tracks regional progress but also links policy-driven interventions to economic outcomes. Applied to the UK’s `Levelling Up’ agenda, the indices highlight significant disparities, with regions like North Eastern Scotland showing marked improvements, while others, such as Inner London-West, face stagnation. This study offers a powerful tool for policymakers to measure and understand the drivers of regional growth, providing actionable insights for addressing persistent economic inequalities.