Capital cities are still leading Australia’s growth

Picture: James D. Morgan/Getty Images.

A new report by the Federal department of Industry and Regional Development found that, between 2000–01 and 2015–16, the Australian economy grew on average 3 per cent per year.

However, regional growth patterns over the past 15 years have not been uniform.

Seventy per cent of Australia’s growth occurred in capital cities.

The increasing concentration of Australia’s productive activity is — at least in part — the product of agglomeration economies that result from co-location. Benefits of greater concentration can take the form of deeper labour markets, increased access to specialised suppliers (inputs and services), economies of scale and knowledge spill overs.

The report notes that Trade enables growth and job creation. Trade provides new market opportunities for domestic firms, stronger productivity and innovation through competition.

To be a gateway to the international economy, a region needs three characteristics: a sea port; an international airport; and most importantly a CBD that hosts a critical mass of advanced producer services like finance, marketing and management consulting to facilitate and contribute to the products being traded.

In Australia, there are only two cities that have such critical mass — Sydney and Melbourne.

Around 90 per cent of publicly traded firms by value are located in Sydney and Melbourne, and around three quarters of international business travel passes through their airports.

While technologies such as the National Broadband Network and video conferencing enable people to work remotely — away from cities — the more fundamental force of technological change is shifting the Australian economy into knowledge-intensive industries that thrive in the centres of large cities.

Danielle Wood from the Grattan Institute suggests that governments should not fight the “gravitational” pull of the cities and major regional centres.

She suggests governments would be better off focusing on building and maintaining transport infrastructure links. She also points out the problem caused by the disconnect in Australia’s major cities between where the people are and where the jobs are.

Wood suggests governments reform planning and zoning regulations to increase density in the middle-ring suburbs of our cities and act to limit growing road congestion in our major cities.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.