Measuring regional resilience: introducing the Australian Regional Capacity Index

Brendan Rynne, Chief Economist, KPMG

By any measure, Australia would be considered a resilient country, having weathered many economic and environmental challenges in recent times. Interest in this concept has recently gathered pace with resilience and related concept of adaptability finding their way into academic debate and government policy thinking in the context of regional capacity.

This interest centres on the question of how well equipped are local and state economies to adapt to challenges ranging from the rise of global competition for industries, unplanned major plant closures and technological innovation revolutionising work practices. The capacity for Australian states to deal with significant economic, social and community challenges varies significantly.

The idea of regional resilience is dynamic as it focuses on a region’s ability to respond to shocks either by maintaining a pre-existing state or by rapidly returning to its previous level of employment, output or population growth.

Dr Kathryn Foster, President of the University of Maine at Farmington, introduced and defined regional resilience as ‘the ability of a region to anticipate, prepare for, respond to, and recover from a disturbance’.

Drawing on available Australian data, KPMG has applied the methodology, developed by the Institute of Government Studies at the University of California Berkeley, to calculate a regional capacity index for Australia. The result is the Australian Regional Capacity Index.

It is based on three dimensions.

Regional economic capacity income equality, economic diversification, regional affordability as well as a measure of the dynamism of the regional economy

Socio-demographic capacitypoverty, educational attainment, female labour force participation and life expectancy

Community connectivity capacity how familiar with and civically active a region’s residents are as expressed by voter participation rates, net overseas migration, incarceration rates and participation in sport.

But other factors, environment and geography, governance and ability to respond to natural disasters are also likely to affect a region’s resilience capacity. However, data for these types of indicators are rarely available or reported on a consistent basis across regions so is difficult to incorporate.

Some of the findings may appear on first glance to be counter-intuitive. While we currently read much about NSW being the driver of the national economy, for most of the decade under review in our report (2003-2012) this was far from the case. Victoria was generally the state with the highest economic capacity in that time. But remember this does not necessarily reflect economic activity levels, but rather those that have the capacity to limit the size of any downswing in activity during a recessionary event and therefore the ability to ‘bounce back’.

Interestingly, South Australia increased its economic capacity over that decade driven primarily by improvements in income equality and regional affordability. This perhaps gives it some cause for optimism despite recent economic difficulties. ACT had similar results, whereas NSW recorded below average economic capacity caused primarily by high levels of relative income inequality and lower levels of housing affordability. Three years on and there is little sign of these factors diminishing, despite NSW’s impressive recent economic performance.

It is important to recognise that resilience does not equate to success. Our report does not attempt to measure absolute economic growth, rather to quantifiably assess a region’s ability to achieve growth in a post-shock environment.

The better a region is able to collectively enhance economic, socio-demographic and community outcomes the more likely it will be to withstand adversity and bounce back quickly. Adaptability is about being able to move away from economic past and achieve a better outcome.

But state governments need to test policy approaches at a local level. There is always a danger of uniformly adopting policy across a whole state which invariably have diverse populations and geographies and getting unintended outcomes.

I believe that the implication of this analysis is that policy makers need to strive for the fundamentals of a diverse, investment-orientated economy as well as the complementary building blocks of an educated, healthy population and a safe and engaged community.

Resilient regions need not only economic strength during times of uncertainty, but a strong social fabric binding the community together to ensure it can return to good times in the shortest period possible.

 Read the whole report:  Australian Regional Capacity Index

Feature Image Copyright:  / 123RF Stock Photo

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