OECD Regional Outlook 2016 - Presentation, Brussels, Belgium 11 October 2016

OECD REGIONAL OUTLOOK 2016

PRODUCTIVE REGIONS FOR INCLUSIVE

SOCIETIES

EUROPEAN WEEK OF REGIONS AND CITIES

BRUSSELS, 10-13 OCT 2016

Joaquim Oliveira Martins Regional Development Policy Division, OECD

The OECD productivity puzzle is to some extent a

regional issue

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

Convergence of countries vs. divergence of regions in the OECD

GDP per capita dispersion is now greater within

countries than between countries

Where are located 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 national labour productivity growth depends on the performance of regions?

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

Regional catching-up can play an important role for national

productivity growth

Proximity to cities benefits surrounding rural & intermediate regions

8

Productivity trends by type of region

9

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

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 DivergingTradable GVA share Tradable employment share

2013 2000%

How Policies can promote regional

catching-up?

• Economy-wide structural reforms help regional catching-up

• Well-designed and well-implemented public investments (OECD Governance of Public Investment Toolkit)

• Multi-level governance and territorial reforms

Broad policy responses

• Regional policy should focus on growth, productivity and well-being, not compensation

• Governance of metropolitan areas enhance the effect of labour market, product market and innovation policies

• Increase integration between transport, spatial planning, and housing policies

• Rural policies still remain sectoral (e.g. agriculture); the focus should be on the economics of low-density areas and rural-urban linkages

The design of regional & urban policies

An opportunity: a growing focus on metropolitan governance across the OECD

14

Average number of metropolitan governance bodies created or reformed in OECD countries per decade

0

5

10

15

20

25

30

35

40

45

50

1951-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2010

Presenter

Presentation Notes

Metropolitan governance reforms highlight the role of large cities for national performance Metropolitan governance has become a hot topic in many countries as a tool for improving national performance. There is increasing recognition that our larger cities and their sphere of influence (metropolitan areas) are in need of greater co-operation on a metropolitan-wide basis. Their importance for national economic performance is one rationale. The increasing attention to environmental and well-being considerations is a further motivation. Financing systems at the local level often provide disincentives for metropolitan-wide engagement, therefore national reforms are often used to provide better incentives. Metropolitan governance takes different forms of inter-municipal co-operation that are more or less institutionalised, along with special designations such as that of metropolitan cities. For example, the number of metropolitan governance authorities of all types created has increased considerably in recent years. Among the 275 metropolitan defined in the OECD area with 500 000 or more inhabitants, there were at least 49 entities created in the 2000s and already at least 15 in the first three years of this decade (Figure 2.5). Currently around two-thirds of the metropolitan areas in the OECD now have a metropolitan governance body (see Chapter 5).

Administrative fragmentation lowers city productivity

15 15 Source: Ahrend et al. OECD RDWP, 2014

Administrative fragmentation is also associated with higher segregation of people

16

Hypothesis: Fragmented metropolitan governance can facilitate segregation at the level of local units.

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0 .2 .4 .6 .8 1Administrative fragmentation

Controlling for country fixed effects and other city characteristics (i.e. income , population, spatial structure), higher administrative fragmentation is associated to higher spatial segregation by income in different municipalities (cf. Brezzi, Boulant & Veneri, 2016)

Presenter

Presentation Notes

As a result of urbanisation patterns, cities are often particularly fragmented policy spaces, where a multiplicity of public authorities conducts their own projects and programmes, with highly varying degrees of co‑ordination. Mechanisms: Tiebout argument individual location choices are driven by the provision of services (of different quality) by different local authorities. However, the different municipalities might not be able to deliver public services of comparable quality, generating disadvantages to people living in the least wealthy ones. Danielson argument a high adminstrative fragmentation might induce more competition among municipalities for attracting people and activities generating high revenues. This may lead to an underprovision of services for low-income residents

Four main models to govern Rural-Urban partnerships

Explicit rurban partnerships

• Rennes (France) • Geelong (Australia) • Nuremberg (Germany) • Central Zone of West Pomeranian

Voivodeship (Poland • BrabantStad (Netherlands)

Implicit rurban partnerships

• Forlì-Cesena (Italy) • Extremadura (Spain) • Castelo Branco (Portugal) • Central Finland (Jyväskylä and

Saarijärvi-Viitasaari) (Finland) • Lexington (United States) • Prague/Central Bohemia

(Czech Republic)

Model 1 Model 2 Model 3 Model 4

Delegated functions No delegated functions Delegated functions No delegated functions

• Rennes (France) • Geelong (Australia) • Nuremberg

(Germany) • Central Zone of West

Pomerania Voivodeship (Poland)

• BrabantStad (Netherlands)

• Extremadura (Spain)

• Forlì-Cesena (Italy)

• Lexington (United States)

• Prague (Czech Republic)

• Central Finland (Jyväskylä and Saarijärvi-Viitasaari) (Finland)

• Castelo Branco (Portugal)

17 OECD (2013), Rural-Urban Partnerships: An Integrated Approach to Economic Development, OECD Publishing.

The role of subnational governments needs to be more widely recognised

18

Towards a better governance of regional, rural and urban policies

Reported lead ministries or entities across three policy fields

19

THANK YOU!

Presenter

Presentation Notes

Introduction 3 main points could be discussed: (1) Rationale for the Principles; (2) The Principles: consultation procedure and TDPC Ministerial meeting; (3) Next steps: implementing and monitoring the Recommendation

Annexes

The OECD productivity puzzle (Aggregate GDP per worker growth in %, 1997-2014)

Source: OECD Productivity database; moving averages (t, t-1, t-2)

-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

• Invest using an integrated strategy tailored to different places • Adopt effective co-ordination instruments across levels of

government • Co-ordinate across SNGs to invest at the relevant scale

Pillar 1 Co-ordinate across governments and

policy areas

• Assess upfront long term impacts and risks • Encourage stakeholder involvement throughout investment cycle • Mobilise private actors and financing institutions • Reinforce the expertise of public officials & institutions • Focus on results and promote learning

Pillar 2 Strengthen capacities

and promote policy learning across levels of

government

• Develop a fiscal framework adapted to the objectives pursued • Require sound, transparent financial management • Promote transparency and strategic use of procurement • Strive for quality and consistency in regulatory systems across

levels of government

Pillar 3 Ensure sound framework conditions at all levels of

government

The OECD Recommendation on the Governance of Public Investment across levels of government

23

Presenter

Presentation Notes

Why this Recommendation Elements of rationale: Public investment -- Key tool for regional development (new paradigm Regional Development Policy – investment rather than subsidies) PI largely done at the sub-national level Raises critical coordination and capacity challenges to make better use of the funding and leverage private investment – IN ALL CONTEXTS -- We observed these coordination and capacity challenges in a quite systematic manner in all OECD countries – whatever the institutional context /type of decentralisation. (what matters is mutual dependency rather than the level of decentralisation) The Principles group 12 recommendations into 3 pillars: recommendations to i) improve coordination across jurisdictions, levels of government and sectors; (ii) strengthen sub-national capacities from the design to ex-post evaluation and iii) improve framework conditions. You can see on the slide the 12 principles, I wont enter into details. These are broad guidelines as they need to apply to 34 very different contexts. Since the adoption of the instrument, we are now providing more detailed and concrete guidance to countries. Timely Recommendation: great focus on investment and infrastructure at the international level (G20), little focus on governance & institutions… but growing interest Principles integrated in the new GOV work on the Governance of Infrastructure

The need for more flexible land use planning

• Planning is too slow to respond to changing economic, demographic and social conditions

• Planning can be an answer to market-failures, but may also prevent efficient market solutions from emerging

• Restrictive land use regulations prevent densification

• Single-use zoning makes mixed-use developments impossible

• Planning can serve as a barrier-to-entry and restrict competition

Source: The Governance of Land use, OECD (forthcoming)

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OECD Regional Outlook 2016 - Presentation, Brussels, Belgium 11 October 2016

Government & Nonprofit