Urban trends and challenges in OECD countries- the potential of small and medium sized areas

Dr Ioannis Kaplanis Regional Development Policy Division, GOV, OECD Open Days Side Event Permanent Representation of the Republic of Latvia to the EU Brussels, 8 October 2014

Programme

1| Urban and regional trends 2| In search for a more distributed growth model 3| The importance of urban governance arrangements

Distribution of population by size classes of FUAs, 2012

The distribution of population by city-size can be very heterogeneous across countries- even among countries of similar size The share of urban population in relatively small FUAs is higher in Europe than in N.America or Asia

Basics facts and trends

Regional growth in OECD countries: The role of cities of different size

Veneri & Brezzi (2014)

Population trends of Functional urban areas by size classes (2000-12)

• On average, population in medium-large and large urban agglomeration has been growing faster than in the other smaller cities.

• Most of the growth of population took place in the hinterlands of functional urban areas

Regional growth rates of GDP per capita, labour productivity, population and employment by size of

their cities

0.0

5.1

.15

< 250K 250k-500k 500k-1.5M >1.5M

Growth rates of GDP per capita (2000-10) (mean)Growth rates of labour productivity (2000-10) (mean)

0.0

5.1

.15

<250k 250k-500k 500k-1.5M >1.5M

Growth rates of population (2000-10) (mean)Growth rates of employment (2000-10) (mean)

In practically all the indicators, growth rates were on average higher in regions with medium-large cities, but difference not big between very large and small/medium

In search for a more distributed growth model

6

Source: OECD (2011), Regional Outlook 7

Contribution of regions to growth (growth*size) in the OECD, 1995-2007 Few large hubs vs. a large number of

much smaller regions (no average region)

Aggregate growth is distributed across a large number of regions…

Similar distribution also for metro areas

Contribution to aggregate OECD metropolitan areas growth (in %)

Source: OECD Database on Functional Urban Areas

Patent intensity: metropolitan cities vs rest of the country, 2008 (patent applications/million inhabitants)

0 100 200 300 400 500 600

Mexico (#26)

Portugal (#2)

Estonia (#1)

Spain (#8)

Italy (#11)

Belgium (#4)

Austria (#3)

OECD (16) (#211)

United States (#70)

France (#15)

Norway (#1)

Japan (#36)

Germany (#24)

Finland (#1)

Denmark (#1)

Netherlands (#5)

Sweden (#3)

Metropolitan areas Rest of the countryCountry (# cities)

Source: OECD, Regions @ Glance, 2013

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Agglomeration benefits are real

Productivity increases with city size.

Source: OECD Metropolitan Database.

1. Some key findings from recent OECD work: • Agglomeration benefits increase with city size. • The strength of this relationship varies across countries • The political economy of “primary city bias” can distort

public policies.

2. Partly as a result of this, we observe a disconnect between urban and regional policies in many countries.

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Is agglomeration the enemy of territorial cohesion?

12

Agglomeration in support of territorial cohesion?

Economic growth increases with proximity to large cities Yearly growth rates of GDP per capita in TL3 regions (1995-2010) and driving time to the closest large

metropolitan area of 2 million or more inhabitants

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

within 45 min.by car

45 to 90 min.by car

90 to 180 min.by car

180 to 300 min.by car

more than 300min. by car

Note: Yearly growth rates controlling for country fixed effects and initial GDP. Eighteen OECD countries included. Source: Ahrend, R and A. Schumann. “Does Regional Growth Depend on Closeness to Urban Centers? The Role of Economic and Geographic Distance”, OECD Regional Development Working Papers, forthcoming

Urban and rural areas are increasingly integrated in functional regions

Distance matters between ‘urban’ and ‘rural’ An analysis on 206 small rural TL3 regions show that: - rural regions grow more the smaller the distance to the closest urban place - positive spillovers emerge from growth in close urban regions - proximity matters also for rural-rural relationships

Source: Veneri P., Ruiz V. (2013) Urban-to-Rural Population Growth Linkages: Evidence from OECD TL3 Regions. OECD Regional Development Working Papers, 2013/03, OECD Publishing.

Higher productivity comes with higher prices

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– Overall, gains from agglomeration, but local purchasing power does (on average) not increase with city size

Agglomeration benefits and local price levels in Germany

The traditional paradigm:

• Efficiency and growth come first.

• Pursuit of equity or environmental goals should interfere as little as possible with the pursuit of growth.

• Regional policy as the ‘residual sectoral policy’.

A new approach:

• Giving greater weight to complementarities (not just tensions) between efficiency, equity and environmental objectives.

• Complementarities between these three dimensions of progress are most visible and most effectively managed in particular places.

• Not one size fits all- but place based policies

• Urban/regional policy is not simply another line of policy running in parallel to sectoral policies: it is about co-ordinating and optimising the mix of sectoral policies where they interact – in specific places. 15

Reconciling efficiency, equity and environmental sustainability

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Sustainability must be pursued in all its three dimensions

Identifying and promoting links between economic, environmental and social goals is both possible and critical to building regions/cities that work.

Efficiency Equity Environmentalsustainability

Economic policies

Sustained growth

Economic reforms may increase equity

Green growth policies can improve

sustainability

Social policiesSocial cohesion can increase efficiency

(e.g., trust, security, knowledge)

Social cohesion

Inequality can be reduced without

environmental harm (e.g., replace fuel

subsidies with transfers)

Environmental policies

Green growth policies can boost

innovation and efficient resource use

Environmentaldegradation tends to

hit disadvantaged groups more

Environmentalsustainability

Sustainable development requires a search for policy complementarities

Urban/Regional policy should focus more on coordination failures

& Governance

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• Recent OECD analyses suggest that governance fragmentation can more than offset the economic benefits of agglomeration.

• Local and regional policies can do more to reduce agglomeration costs (congestion, pollution, etc) than to enhance agglomeration benefits.

• Findings on polycentrism point to the potential benefits of systems of cities: connectivity matters.

• Agglomeration is not a synonym for density.

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Agglomeration and governance

Promoting factors in Regions ‘Growing Above Average’

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Factors for growth in regions growing above average Frequency %Policies (shift mentality, silos, fragmentation, adjusting policies to assets, linkages, cross border, urban spatial) 8 15%Infrastucture connectivity 8 15%Institutions (governance, leadership capacity, continuity, mobilisation) 6 12%Human capital 6 12%Innovation, includes entrepreneurial 5 10%Business environment, public sector activity and industry 5 10%Geography 4 8%Internationalisation: international competition and brandname attractiveness 3 6%Presence of natural assets and amenities 2 4%FDI 2 4%Economy (diversified, differentiated and market aware) 1 2%Other 1 2%Tourism 1 2%Density (cohesion, internal fragmentation, labour market mismatch) 0 0%Demographic factors 0 0%Agriculture 0 0%Environmental constraints 0 0%Availabity of financing 0 0%Total 52 100%

Source: OECD, Promoting Growth in all Regions, 2012

Administrative boundaries often do not match urban realities

A functional approach makes it possible to highlight two main discrepancies between the administrative structure and the actual organization of the territory

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Why? Less fragmented urban governance promotes growth

• Urban sprawl creates negative externalities in Metropolitan areas (MAs)

• Cooperation is a way to internalize the externalities when making policy decisions

Governance bodies reduce the cost of administrative fragmentation

Difference significant at the 99%-level after controlling for log-population levels and country specific trends.

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

With GovernanceBody

Without GovernanceBody

Change in Urban Sprawl

Based on OECD Metro Governance Survey

Governance bodies increase well-being

55%

60%

65%

70%

75%

80%

With TransportAuthorities

Without TransportAuthorities

Share of Citizens Satisfied with Public Transport • Public Transport

projects usually cut through many jurisdictions

• Cooperation is required for effective implementation and coordination of services

• Citizens are more satisfied in MAs that have sectoral authorities for public transport

Based on European Urban Audit perception survey. Difference significant at 95% level.

Municipal merger reforms have reduced the number of local governments

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0

1000

2000

3000

4000

5000

6000

Aust

ria (1

950)

Swed

en (1

952,

196

3)

Japa

n (1

953,

199

9)

Den

mar

k (1

970,

200

7)

Finl

and

(197

6, 2

010)

Belg

ium

(197

5)

New

Zea

land

(198

9)

Lith

uani

a (1

994)

Gre

ece

(199

7, 2

011)

Isra

el (2

002)

Turk

ey (2

008-

2012

)

Latv

ia (2

009)

Number of municipalities before the reform Number of municipalities after the reformNumber of municipalities in 2012

• Invest using an integrated strategy tailored to different places • Adopt effective co-ordination instruments across levels of govt • Co-ordinate across SNGs to invest at the relevant scale

Pillar 1 Co-ordinate across

levels of governments and policies

• Assess upfront long term impacts and risks • Encourage stakeholder involvement throughout investment cycle • Mobilise private actors and financing institutions to diversify sources

of funding and strengthen capacities • Reinforce the expertise of public officials & institutions • Focus on results and promote learning from experience

Pillar 2 Strengthen capacities

and promote policy learning at all levels of

government

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

levels of government

Pillar 3 Ensure proper framework

conditions for public investment at all levels of

government

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An OECD instrument: The Principles for Effective Public Investment Across Levels of Government

This is the first OECD Instrument in the area of regional policy and where sub-national governments are explicitly recognised

26

OECD Metropolitan and regional databases

Interactive maps and data

Interactive maps and data: For metro areas: http://measuringurban.oecd.org/ For regions: http://stats.oecd.org/OECDregionalstatistics/

27 http://www.oecd.org/gov/regional-policy/how-is-life-in-your-region.htm

Regional characteristics in terms of urban structure

Underlying mechanism Potential role for small- and medium-sized cities

Urban size / share of urban population

- Agglomeration economies (sharing, matching and learning mechanisms)

- Urban diversity foster innovation (“nursery cities”)

- Larger size yields higher agglomeration economies

- Larger urban size is

associated to higher diversity

Polycentricity (number of cities, type of regional urban hierarchy, linkages between cities)

- Borrowed size mechanism

- City network externalities (at regional level)

- Regional city networks may compensate relative lack of size

- Synergies and complementarities

Proximity to large urban agglomeration (or to capital cities)

- Spread/backwash effects - Proximity to growing large urban centers can produce positive spillover effects (might become negative when distance is high)

Cities of different sizes and growth

• Large shares of population live in small and medium urban areas (just below 30% for OECD)

• Small & medium urban areas have lower growth rates than larger areas- but still experience robust growth

• Local purchasing power does not increase with city size due to increase in prices

• Small and urban areas can benefit from proximity to larger urban areas- connectivity and polycentricity matters

• Governance arrangements do matter- importance of complementarities

• In search of a balanced urban growth model; what next?

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Preliminary conclusions

Thank you!

ioannis.kaplanis@oecd.org