Bachelor thesis: Improving the Shear Tester at MTM, KULeuven
1 Regional Policy Lotte Ovaere, KULeuven Louvain Institute for Ireland in Europe Fall 2011.
-
Upload
rudolf-jordan -
Category
Documents
-
view
212 -
download
0
Transcript of 1 Regional Policy Lotte Ovaere, KULeuven Louvain Institute for Ireland in Europe Fall 2011.
1
Regional Policy
Lotte Ovaere, KULeuvenLouvain Institute for Ireland in Europe
Fall 2011
Course outline
• Facts on Europe’s economic geography• Theory
– Comparative advantage– New economic geography
• EU Regional Policy
2
3
Preliminary questions
• Why is it important to reduce income disparities among EU member states?
• How can trade modify the location of industries across Europe?
• What’s the role of the education level of the citizens of a country in determining the effects of trade on economic activity concentration?
Europe at night
4
5
Periphery
Centrality of EU25 Regions
Intermediate
Core
Periphery
Centrality of EU25 Regions
Intermediate
Core
EU economic geography
6
EU economic geographyRegions Land share
%
Population share
%
GDP share
%
Relative Unemployment rate (EU27=100)
Relative Youth unemployment (EU27=100)
Share of population with income above EU27 average
Core 14.0 33.2 47.2 74.0 60.5 88.8
Intermediate
21.1 25.5 31.7 101.0 95.3 70.3
Peripheral 64.9 41.3 21.1 120.8 134.2 18.1
Source: EU Commission 2001
7
Geographic income inequality 2002
• Luxembourg is 110% richer than average
• Bulgaria only 26% of average
0 50 100 150 200 250
BulgariaRomaniaLithuania
LatviaEstoniaPoland
SlovakiaHungry
CzechiaGreece
SloveniaPortugalCyprus
SpainFrance
ItalyFinland
UKSwedenGermanBelgiumAustria
NLIreland
DKLux.
EU26=100
8Ark, Mon, West V, Miss
Luxemburg
Ireland
Denmark
NLAustria
Belgium
EU
9
Change in income standard deviation 1983-93 1990-94 1995-00 1983-93 1990-94 1995-00
EU -4.4 -2.7 -1.1 Italy 1.2 0.7 -1.3
Belgium 2.6 0.8 -1.4 Netherlands
-15.9 0.2 2.0
Germany 9.5 0.6 Austria 0.6 -1.5Greece 1.0 1.5 -0.8 Portugal 5.2 0.3 1.4
Spain 2.6 1.0 1.3 Finland -0.8 5.5
France 0.9 1.9 0.1 Sweden 0.2 8.9
Ireland 0.0 5.1 UK 0.6 -1.9 2.7
Source: EU commission 1996 and 2003
10
Geographic income inequality, within nations
•income distribution even more unequal at regional level.•Within nation economic activity is very unequally distributed•Income distribution has become:
–More equal in EU15–Less equal within EU15 nations (by region)
•Richest: Inner London (67000euros GDP pc)•Poorest: Lubelskie in Poland (6700euros)
Guyane (F)
Guadeloupe
(F)
Martinique
(F)
RÈunion
(F)
Canarias (E)
AÁores (P)
Madeira
(P)
Kypros
Index, EUR-26 = 100
< 30
30 - 50
50 - 75
75 - 100
100 - 125
>= 125
no data
Source: Eurostat
0 km100 500
REGIO.A1- GIS/HP/(statmap) - m98001_uk_C_A4P - 09 Jan 01
SIG16SIG16
© MEGRIN for the administrative boundaries
GDP per head by region (PPS), 1998
< 30
30 - 50
50 - 75
75 - 100
100 - 125
>= 125
Index, EU-25 = 100
< 30
30 - 50
50 - 75
75 - 100
100 - 125
>= 125
Index, EU-25 = 100
< 30
30 - 50
50 - 75
75 - 100
100 - 125
>= 125
Index, EU-25 = 100
11
Geographic income inequality• French example
– Ile de France (Paris) has almost 1/3 of all economic activity
– Per capita incomes (not shown) are 158% of EU15 average
– Mediterranee has 10% of GDP, 12% of population• GDP/pop only 86% of
EU15 average
• Outre-Mer are former French colonies (poor islands in Caribbean, etc.)
0.00 0.05 0.10 0.15 0.20 0.25 0.30
Ile de France
Bassin Parisien
Nord - Pas-de-Calais
Est
Ouest
Sud-Ouest
Centre-Est
Mediterranee
Outre-Mer
GDP share
Pop share
12
13
By looking only at the GDP, we may conclude that EEI had modest impact on the location of economic activity as a whole… changes occurring within nations rather than across nations.
BUT
EEI may have encouraged clustering of manufacturing by sector rather than by region.
14
Krugman Index: Geographic Specialisation
• KI tells us what fraction of manufacturing activity would have to change to make the country’s sector-shares line-up with the sector-shares of all other EU15 nations.
• Most EU nations have became more specialised– EU economies seem to
be specialising more in their comparative advantages
Specialisation of European Industrial Structure, 1970-73 & change 1970-97
-0.2 0 0.2 0.4 0.6 0.8
IrelandFinland
DenmarkPortugalGreece
NLSpain
SwedenBelgium
ItalyAustria
GermanyUK
France
Average1970-73
Change, 1970-73 to 1994-97
15
Summary of facts
1. Europe’s economic activity is highly concentrated geographically at the national level and within nations
2. Geographic Distribution of economic activity has become more concentrated within countries (proxy: income per capita)
3. Only modest reallocation of industry across nations
4. Specialization on a sector-by-sector basis5. Sub-national level: industry more concentrated
spatially.
16
Theory• 2 major approaches linking economic integration to
change in the geographic location of economic activity
• Comparative advantage suggests nations specialise in sectors in which they have a comparative advantage
• New Economic Geography suggests that integration tends to concentrate economic activity spatially
• General idea:– Use c.a. approach to explain cross-nation facts– Use NEG to explain within nation facts
17
We will focus on these two aspects - specialization at the international level and agglomeration within the countries.
The first is the standard economic logic that connects European integration and the location of economic activity. The uneven distribution of activity is explained through given “natural differences” among European nations or what economists call comparative advantage.
The second focuses on how closer integration encourages the geographic clustering of economic activity.
18
Comparative Advantage and Specialisation
-52%
-50%
-42%
-35%
-30%
-16%
-9%
-4%
13%
15%
25%
44%
58%
83%
-80% -60% -40% -20% 0% 20% 40% 60% 80% 100%
Germany
DenmarkSwedenAustria
FinlandNetherlands
France
BelgiumUK
Ireland
GreeceItaly
Spain
Portugal
Low-education labour Medium-education labour High-education labour
Relative labour endowments in Europe83% above EU average
19
Question
• Portugal and Germany:
What do you expect according to their relative labour endowments? Think of ‘comparative advantage and specialization’
• Think of 2 sectors, e.g. clothing and pharmaceuticals
Hecksher-Ohlin Theorem
• Countries export the good that uses its relatively abundant factor intensively
• Beneficial for both nations• But different skill groups are affected
differently• Integration makes it easier to trade• Portugal shifts resources to production of
clothing
20
21
Trade liberalization allows nations to specialize in sectors where they have a comparative advantage.
This effect of liberalization can have important effects on the location of industry: it encourages specialization nation–by–nation, even without firms moving internationally.
22
Agglomeration & NEG• When productive factors can cross borders
(international or inter-regional) integration may have very different effects
• Scale economies and trade costs generate forces that encourage geographic clustering of economic activity.
23
Question
• Give examples of sectors on which there exist scale economies.
• What about cheese production and car engine production?
24
There are two types of clustering:– "Overall clustering“ = some areas with lots of
economic activity, others empty “core-periphery”– "Sectoral clustering" = each sector clusters in one
region, but most regions get a cluster
25
Agglomeration & Dispersion Forces• Basic idea is that lowering trade costs affects both
– Agglomeration forces• Tend to lead industry to cluster geographically
– Dispersion forces• Tent to encourage industry to disperse geographically
26
Agglomeration Forces
• Many agglomeration forces– Technological spillovers (e.g. silicon valley)– Labour market pooling (e.g. City of London)– Demand linkages (a.k.a backward linkages)– Supply (cost) linkages (a.k.a forward linkages)
• Demand & supply links are clearly affected by economic integration (lower trade costs)
27
1. Some firm moves to big region
To have access to a bigger market and reduce trade cost
2. Expenditure Shifting,Firm and its workers spend
incomes in big regioninstead of in small region
3. Market Size Effects:big market gets bigger, small market gets smaller
4. Production Shifting,
Due to trade costs firms prefer to locate close to big market. More industry moves to big region
Circular Causality & Demand LinkagesMarket size
28
1. Some firm moves to big region
2. Production ShiftingMigrated firms’ output now
cheaper in big region & dearer in small region (trade costs)
3. Cost Shifting,
Availability of wider range of locally available intermediate goods makes big region cheaper place to
produce
4. Production Shifting
Some more firms move from small market to big market, attracted by
lower costs
Circular Causality & Supply LinkagesCost of production
29
Question.
• Given the benefits of agglomeration for the firm, why don’t we observe all economic activity to be located in a single place?
30
Dispersion Forces
• Many forces lead to a tendency of firms to avoid agglomerations of economic activity– Rents and land prices– High cost of other non-traded services (e.g. unskilled
labour)– Congestion costs and Local Competition with other firms
• The NEG focuses on “local competition” since it is clearly related to trade costs– As trade costs fall, distance provides less protection from
distant competitors
31
EQUILIBRIUM
How European integration affects the equilibrium location of industry?
Spatial density of economic activity in equilibrium depends upon the balance of the pro-concentration (agglomeration) forces and anti-concentration (dispersion) forces.
Simple framework
• One agglomeration force: demand linkage– Big market– Trade costs– Increasing returns to scale– Ignore feedback effect (flat aggl. force curve)
• One dispersion force: local competition
32
33
Agglomeration vs. dispersion forces
% firms in big region
Agglomeration and dispersion forces
Dispersion force
Agglomeration forcesEA
B
Economic integration
• Reduces trade costs• Big market effect does not change• Impact on competition effect
– Trade barriers protect firms from competition– Local competition becomes global– Dispersion no longer succeeds in avoiding
competition– Dispersion force drops
34
35
Effects of integration
% firms in big region
Agglomeration and dispersion forces
Dispersion force
Agglomeration forces
E
Dispersion force with freer trade
E’
100%
Complicating factors
• Circular causality in agglomeration forceUpward sloping agglomeration force curve
• Shift in dispersion force curve: additional dispersion forces at work
• …
36
Bringing two theories together
• Essential role for factor mobility• With factors perfectly mobile within
countries (NEG) and perfectly immobile between countries (CA), theory predictions come close to reality
37
38
Question
• Is there a trade-off between national and regional convergence?
39
EU Regional Policy• EU always had poor regions (Mezzogiorno, etc.)
– much spending on poor EU regions, but very little by EU (pre 1986)
• 1973, Ireland (poor at the time joined); 1981, Greece joined but no major reorientation of EU spending priorities.
• In 1986, Iberian enlargement shifted power in Council and spending priorities changed
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Structural Funds
Poor Vote-Share
CAP
Enl
arge
men
t
40
41
EU Regional Policy• For historical reasons, EU has 5 “Funds”,
– 4 Structural Funds: spent in any qualified region
* European Regional Development Fund: infrastructure, job-creating investment, local development, small firms
* European Social Fund: unemployment
* Fisheries Guidance: modernizing fishing industry
* Agricultural Guidance and Guarantee Fund: rural development and aid for farmers mainly in less developed regions
– 1 Cohesion Fund: spent only in poor-4 (Spain, Portugal, Greece and Ireland)
42
EU Regional Policy
• Funds work together under overall strategy
• Many programs, initiatives, and objectives, BUT over 90% is spent on three priority “objectives”
43
3 Objectives
• Objective 1 (about 70% of structural spending):– spending on basic infrastructure and
production subsidies in less developed regions– generally defined: regions with incomes less
than 75% of the EU average – about 60 “objective 1 regions”; they have
about 20% of the EU population.
Objective 1 regions 2000-2006
44
45
3 Objectives
• Objective 2 (about 10% of structural spending):– projects in regions whose economies are specialized in
declining sectors• coal mining, fishing, steel production, etc.
– spending should support economic and social “conversion”
– about 18% of the Union's population lives in ‘Objective 2” regions.
46
3 Objectives
• Objective 3 (about 10% of the funding): – measure to modernize national systems of
training and employment promotion. – all EU regions excluding objective 1 regions.
Objectives, Structural Funds and Instruments 2007-2013
ERDF ESFCohesion
FundConvergence
Regional Competitiveness and Employment
European territorial Cooperation
ERDF
ERDF
ESF
Objectives Structural Funds and instruments
infrastructure,
innovation,
investments
etc.
vocational
training,
employment
aids etc.
MemberStates with a
GNI/head below 90%
environmental and
transport infra-
structure,
renewable energy
all Member States and regions
Objective and Budget allocation
Objective %Cohesion budget %of EU27 population covered
Convergence 82 Standard Convergence regions (34)Phase-out convergence regions(3)Cohesion Fund nation(34)
Regional competitiveness and employment
16 All non-convergence regions(66)
Territorial cooperation 2 100
48
Structural funds allocation by type of region 2007-13
Convergence: €199.3 bn.
Phasing out: €13.9 bn.
Phasing in: €11.4 bn.
Competitiveness: €4.5 bn.
Cooperation: €7.8 bn.
Cohesion Fund: €69.6 bn.
Total: €347.4 billion
• in current prices
European Territorial Cooperation 2007-2013
Allocation: €7.75 bn. for cross-border,
transnational and interregional cooperation
Cross-border areas
51
Spending priorities and Guiding principles• A good deal goes to physical infrastructure such as roads,
bridges, regional airports, etc.• Lisbon Agenda emphasizes other spending: research and
innovation, infrastructure of European importance, industrial competitiveness, renewable energies, energy efficiency, eco-innovations and human resources.
• The Structural Funds are not spent on projects chosen at the European level.• Choice of project and their management are solely the
responsibility of the national and regional authorities.• As a matter of principle – the so-called additionally principle,
Community funding should not be used to economize on national funds (difficult to verify).
52
Political allocationIndicative Financial Allocations: 2007-2013
Country National Convergence Objective Total EU Regional Funds GDP per head, €, 2005 Million € € per head in
recipient regions
Million € € per head in recipient country
Share of GDP %
Share of total regional funds %
Bulgaria 7,913 5,888 753 6,047 768 3.15 2Romania 7,933 16,912 778 17,316 795 3 5.6Latvia 11,180 4,010 1,725 4,090 1,749 3.52 1.3Poland 11,482 59,048 1,546 59,698 1,562 3.43 19.4Lithuania 11,914 5,999 1,737 6,096 1,757 3.42 2Slovak Republic 13,563 9,663 1,796 10,264 1,904 3.3 3.3Estonia 14,093 3,011 2,221 3,058 2,247 3.31 1Hungary 14,393 20,243 1,998 22,451 2,210 3.22 7.3Portugal 16,891 18,316 1,750 19,147 1,847 1.82 6.2Czech Republic 17,156 22,979 2,252 23,698 2,323 3.25 7.7Malta 17,330 747 1,878 761 1,922 2.35 0.2Slovenia 19,462 3,646 1,827 3,739 1,874 1.7 1.2Cyprus 20,753 193 265 580 812 0.56 0.2Greece 21,589 17,447 1,585 18,217 1,658 1.34 5.9Spain 23,069 23,411 1,566 31,536 778 0.49 10.2Italy 23,474 19,255 1,112 25,647 449 0.25 8.3Germany 25,797 14,323 933 23,449 284 0.14 7.6France 25,077 2,838 1,623 12,736 208 0.1 4.1Finland 25,774 0 0 1,533 295 0.13 0.5United Kingdom 26,715 2,594 949 9,468 160 0.07 3.1Belgium 27,135 579 452 2,020 195 0.09 0.7Sweden 27,721 0 0 1,682 188 0.08 0.5Denmark 28,375 0 0 545 101 0.04 0.2Austria 28,852 159 568 1,301 161 0.07 0.4Netherlands 29,374 0 0 1,697 105 0.05 0.6Ireland 32,197 0 0 815 207 0.06 0.3Luxembourg 59,202 0 0 58 130 0.02 0
53
Structural Funds: Eligible areas in EU25 for Objective 1 and 2 between 2000 and 2006
Phasing-out (till 31/12/2005)
Objective 1
Phasing-out (till 31/12/2006)
Special program
Objective 2
Objective 2 partly
Phasing-out (till 31/12/2005)
Phasing-out partly (till 31/12/2005)
54
Impact of 2004 and 2007 enlargement• New members are much poorer than EU15• Difficulties:
– Cost of structural spending could rise substantially– 10 new poor nations make some poor regions in
EU15 look relatively rich• Pushes them above 75% of EU25 average
• Political power in Council likely to shift spending priorities
55
Impact of 2004 Enlargement• Some regions that will be
pushed above 75% of average will lose Objective 1 status
• Some, like northern Finland and Sweden are unaffected– Low pop density criteria
• All of 2004 entrants have less than 75% of EU25 average– Except Cyprus
Regions below 75% in EU25
Regions “statistically” above 75%
Regions above 75% in EU15
Others
Regions below 75% in EU25
Regions “statistically” above 75%
Regions above 75% in EU15
Others
56
New cohesion policy programs
• JASPERS: Joint assistance in supporting projects in European regions.
• JEREMIE: Joint European resources for micro to medium enterprises
• JESSICA: Joint European support for sustainable investment in city areas
• Modernisation of public services
57
Question• Educational level in all EU nations is rising. How
would this affect the spatial allocation of production?
• Considering that low-skill intensive sectors generate lower added-value, why is it important to transfer funds to poorer countries, i.e. to intervene in the natural forces of agglomeration and dispersion forces?
• Assuming ethical arguments are not enough, which rational and selfish arguments may justify the reduction of inequality among EU members?