OECD REGIONAL OUTLOOK 2016

AND RELATED RESEARCH

Joaquim Oliveira Martins Regional Development Policy Division, OECD Seminar: "Inovácie a výzvy v manažmente regionálneho rozvoja“ 22 February 2017 Bratislava, Slovak Republic

OECD regional development policy

paradigm

Compensating lagging regions does not work:

• Creates dependency, not development

• Richer regions may become reluctant to support lagging regions

OECD promotes ‘place-based’ policies focusing on:

• Use of regional specific assets (or create absolute advantages to stimulate competition & experimentation across regions)

• Create complementarities among sectoral policies at the regional (or local) level

• Use of multi-level governance mechanisms for aligning objectives & implementation

The ultimate goal: ensuring well-being across regions in the Slovak Republic

Source: OECD Regional Well-Being Database: www.oecdregionalwellbeing.org

Note: Relative ranking of the regions with the best and worst outcomes in the

11 well-being dimensions, with respect to all 395 OECD regions. The eleven

dimensions are ordered by decreasing regional disparities in the country. Each

well-being dimension is measured by the indicators in the table below.

National productivity

performance needs the contribution of

all regions

Labour productivity growth has trended

downwards – even before the crisis

OECD Productivity database; moving averages (t, t-1, t-2) Source: OECD (2016) OECD Regional Outlook 2016: Productive regions for inclusive societies, http://dx.doi.org/10.1787/9789264260245-en

-1

-0.5

0

0.5

1

1.5

2

2.5

3

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

%

Japan United States Euro area (19 countries)

Financial crisis

In 2007, several US sectors were displaying poor productivity

performance, eg. Construction -12%

5

Convergence of countries vs.

divergence of regions in the OECD

GDP per capita dispersion

is now greater within

countries than between

countries

7

Persistent territorial inequalities

Gini index of inequality of GDP per capita

across TL3 regions, 2000 and 2013

OECD Regions at a Glance 2016

http://dx.doi.org/10.1787/888933363221

Regional variation in GDP per capita (as a % of national average), 2013 (TL2)

OECD Regions at a Glance 2016

http://dx.doi.org/10.1787/888933363233

A growing productivity gap between

the frontier and other regions

Notes: Average of top 10% and bottom 10% TL2 regions, selected for each year. Top and bottom regions are the aggregation of regions with the highest and lowest GDP per worker and representing 10% of national employment. 19 countries with data included.

Averages of top 10%

(frontier), bottom

75%, and bottom

10% (lagging) regional GDP per worker,

TL2 regions

50 000

60 000

70 000

80 000

90 000

100 000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

USD PPP per employee

Frontier regions Lagging regions 75% of regions

1.6% per year

1.3% per year

1.3% per year

What are the frontier, catching-up and

diverging regions?

0

10

20

30

40

50

60

70

80

Mostly Urban (127) Intermediate (62) Mostly Rural (100)

%

Frontier (41) Catching-up (65) Keeping pace (107) Diverging (76)

70% of mostly urban frontier regions contain very large cities

75% of diverging mostly urban regions contain very large cities

TL2 regions, 2000-2013

Contribution of the different regional

productivity patterns to OECD growth

Type of regions

Employment

share in 2000

GDP share in

2000

Annual avg. GDP growth,

2000-13

GDP growth contribution

Frontier 16.1% 20.1% 1.7% 21.9%

Catching up 20.3% 18.2% 2.2% 25.3%

Keeping pace 38.9% 39.1% 1.3% 30.4%

Diverging 24.6% 22.6% 1.6% 22.4%

OECD average 1.6% Note: Frontier regions are fixed for the 2000-13 period. In four countries the values for 2000 or 2013 were extrapolated from growth rates over a shorter time period as data for 2000 or 2013 were not available. The countries are FIN (2000-12), HUN (2000-12), NLD (2001-13) and KOR (2004-13).

How does national labour productivity growth

depend on the performance of regions?

Annual average growth in real per worker GDP between 2000-2013 (or closest year available).

Overall national growth,

driven by frontier but other regions not catching up

Contribution to national labour productivity growth, 2000-12

12

Productivity and “catching up” dynamics:

Slovak Republic

Percentage contribution to national GDP growth, 2000-2012

Note: Difference between national labour productivity growth as calculated with and without the indicated region.

Note: The contribution is the product of a region’s GDP growth rate by its initial share of GDP.

What are the main drivers of regional

productivity catching-up?

Proximity to cities benefits surrounding

rural & intermediate regions

14

Productivity trends by type of region

15

Rural remote regions present a higher variation in productivity growth rates than other types of regions

Annual average labour productivity

growth, 2000-12 Standard deviation

Coefficient of variation

Predominantly urban

1.01% 1.02% 1.019

Intermediate 1.07% 1.09% 1.024

Predominantly rural close to

cities 1.36% 1.32%

0.972

Predominantly rural remote

0.70% 1.15% 1.641

Note: Labour productivity is defined as real GDP per employee. GDP is measured at PPP constant 2010 US Dollars, using SNA2008 classification; employment is measured at place of work. The coefficient of variation represents the ratio of the standard deviation over the mean.

Source: OECD Regional Outlook 2016

Labour productivity of remote rural

areas has recently declined

88%

89%

90%

91%

92%

93%

94%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total RURAL

RURAL CLOSE TO CITIES

RURAL REMOTE

Productivity levels of Predominantly Urban regions = 100

Catching-up regions are characterised by a

stronger intensity of the tradable sectors

All tradable sectors, TL2 regions

Notes: Tradable sectors are defined by a selection of the 10 industries defined in the SNA 2008. They include: agriculture (A), industry (BCDE), information and communication (J), financial and insurance activities (K), and other services (R to U). Non tradable sectors are composed of construction, distributive trade, repairs, transport, accommodation, food services activities (GHI), real estate activities (L), business services (MN), and public administration (OPQ).

20

25

30

35

40

45

50

Frontier Catching-up Diverging Frontier Catching-up Diverging

Tradable GVA share Tradable employment share

2013 2000

%

-0.5

0

0.5

1

1.5

2

2.5

Low-income andlow-growth regions

Other regions Frontier Catching up Keeping pace Diverging

%

Sectoral and regional contributions to productivity growth 2000-13

Employment shifts to faster growing sectors Employment shifts to initially more productive sectors Sectoral productivity growth Productivity growth

18

Productivity growth mainly by increased productivity within

sectors; sectoral changes noted in catching-up regions

1. Employment shifts towards sectors with high productivity levels

3. Sector becomes more productive

2. Employment shifts from faster growing to slower growing sectors

Structural change can create productivity

growth, but the transition can be costly

Productivity and employment growth in Norte (Portugal), 2000-13 Bubble size indicates percentage contribution to total GVA

-177 000 jobs

+20 000 jobs

Regional Policies and Governance

How can we reap greater benefits for

regions given the Outlook findings?

• Focus on productivity drivers and growth in all

regions through strategic investments

– And avoid stifling the performance of the leading region

• Consider how cites are linked together in a “system of cities” within a country

– And how cities are linked with their hinterland

• For rural areas, upgrade the approach to a “Rural Policy 3.0”

– Consider non-farm rural development, local capacity

What are countries stating as objectives?

Source: OECD (2016), OECD Regional Outlook 2016: Productive Regions for Inclusive Societies.

• Critical role of subnational governance capacity perhaps under-represented relative to its importance for regional development

What tools are reported to meet

regional development policy objectives?

Frameworks for regional development

Source: OECD (2016), OECD Regional Outlook 2016: Productive Regions for Inclusive Societies.

National urban policies: most changes in this

area (as compared to rural and regional)

• From social challenges to improving economic spillovers?

• Metropolitan governance appears to be under-estimated relative to its importance for economic, social and environmental impact

Source: OECD (2016), OECD Regional Outlook 2016: Productive Regions for Inclusive Societies.

EU countries typically base their rural strategies

on the EU Rural Development Programme

Source: OECD (2016), OECD Regional Outlook 2016: Productive Regions for Inclusive Societies.

Within OECD, EU countries more clearly tracking

spending and ensuring monitoring/evaluation

Source: OECD (2016), OECD Regional Outlook 2016: Productive Regions for Inclusive Societies.

How does the organisation of these

policies at national level matter?

Source: OECD (2016), OECD Regional Outlook 2016: Productive Regions for Inclusive Societies.

• Economy-wide structural reforms help regional catching up, more so if complemented by regional development policies

– Product market regulations

– Labour market regulations

• Multi-level governance and territorial reforms: the “how” matters for place-based policies

– Administrative fragmentation of local jurisdictions associated with

• productivity penalty • greater segregation by income in metro areas

Other strategies to achieve a double

dividend of productivity and inclusion

• Regional productivity catching-up contributes significantly to national productivity growth

• It requires mobilisation of specific regional assets and an appropriate governance model across levels of government

• Thus, the decentralisation and regional governance agenda is a productivity & growth agenda for the whole country

Bottom-line

THANK YOU!