The pattern of economic flows can be different depending on which local markets are being considered.There is an argument for analysing Census commuting or migration data, as the most reliable flow data, and supplementing this with data from other key markets: such as housing markets; supply chains in industry and commerce; and service markets for consumers.
What is FEMA?
Economic flows often overlap local authority boundaries. This means that the functional area over which the local economy and its key markets operate will not necessarily adhere to administrative boundaries. Instead, key economic markets broadly correspond to sub-regions or city regions - known as functional economic market areas (FEMAs).
There is no universal approach to defining FEMAs. A city’s labour market area and hospital catchment area, for example, are unlikely to have similar boundaries. Ideally, FEMAs would be defined on the basis of several markets or catchment areas which best reflect the drivers of the local economy.
Why are FEMAs Useful?
Whereas the national or regional level is often seen as too large to tackle many of the issues facing individual urban economies, local authority areas can be too small if they cover a smaller geographical area than their economic markets. Policies designed at a local authority level, for example, may not fully consider the costs and benefits of implementing a policy if this spreads beyond their administrative boundaries. This can make it harder to tackle economic challenges effectively. If economic policy is formulated at the FEMA level, as a closer fit to the area’s real economic market, most of the impacts of the policy area will be contained. There will be less risk of local policies which are against the wider sub-regional or national interest, and local partners will be able to make more strategic decisions on economic development.
Academics have long argued that FEMAs are the most appropriate unit for economic policy analysis. This is supported by evidence to show that governance arrangements spanning FEMAs can perform better than areas where arrangements are constrained by administrative boundaries.
Several local authorities working across FEMAs can build a common evidence base, which can lead to better integration of different policy areas. A good example is the Manchester Independent Economic Review (MIER). This was the first independent study undertaken by a city region in Europe that analysed the economy as a cohesive whole. Importantly, joint working across FEMAs can enable otherwise separate interventions to be aggregated, overcoming potential co-ordination failure between individual local authorities.
What Information is Relevant to Defining the Boundaries of FEMAs?
There is no universally agreed approach to defining FEMAs, but there is a wide range of alternative ways to measure functional boundaries. As the boundaries vary depending on the method used there is a challenge for policymakers in judging which features of the economy should be considered. These include: Labour Market, Housing Market, Supply Chains for Industry and Commerce, Service Markets for Consumers, Administrative Areas and Transport Networks.
Want to know more about FEMAs?
See the Economic Note on Defining FEMAs from DCLG.
