ASSESSING OECD’S REGIONS CONTRIBUTIONS TO

NATIONAL COMPETITIVENESS AND WELL-BEING AND WELL-BEING

SCORUS CONFERENCE, LISBON, 29 JUNE 2016

Joaquim Oliveira MartinsRegional Development Policy Division, OECD

How can regional policy re-ignite catching-up among lesser developed OECD

regions?

• Where has catching up been taking place, and

The core question

• Where has catching up been taking place, and where has it not?

• What have policies been doing to promote catching up?

Recent aggregate trends of Labour productivity growth, 2001-2014

2

2.5

3

%

Japan United States Euro area (19 countries)

Financial crisis

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

-1

-0.5

0

0.5

1

1.5

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

In 2007, several US sectors were displaying poor productivity

performance, eg. Construction -12%

The “great divergence” across regions, metropolitan areas and people

GDP per capita dispersion across

regions withincountries is now

greater than acrosscountries

GDP per capita dispersion across

metropolitan areas within countries isgreater than across

countries

Productivity growth of frontier regions outpaces that of most regions

Averages of top 10%

(frontier), bottom

90 000

100 000

USD PPP per employee

Frontier regions Lagging regions 75% of regions

1.6% per year

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.

bottom 75%, and bottom

10% (lagging) regional GDP per worker,

TL2 regions

50 000

60 000

70 000

80 000

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

1.3% per year

1.3% per year

Where are the frontier and the catching-up regions? TL2s, 2000-2013

60

70

80%

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

0

10

20

30

40

50

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

75% of diverging mostly urban regions contain very large cities

Decomposition of labour productivity growth on

frontier shift and catching-up effect for the

top-50 productivity regions

High labour

Regions ranked by GDP per worker growth rate, 2000-2013

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

Kuyavian-Pomerania (POL)

Greater Poland (POL)

North Dakota (USA)

Lesser Poland (POL)

Bratislava Region (SVK)

Newfoundland and Labrador (CAN)

Western Australia (AUS)

East Slovakia (SVK)

West Pomerania (POL)

Lower Silesia (POL)

Saskatchewan (CAN)

Chungcheong Region (KOR)

Central Slovakia (SVK)

Lublin Province (POL)

Groningen (NLD)

Lubusz (POL)

Wyoming (USA)

West Slovakia (SVK)

Podlasie (POL)

Opole region (POL)

Podkarpacia (POL)

Jeju (KOR)

Lodzkie (POL)

Rank

Catch-up Frontier Shift

High labour productivity

growth can happen in different types of regions and often

results both from a dynamic frontier and catching-up

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

-2 0 2 4 6

Lodzkie (POL)

Gangwon Region (KOR)

Southeast (CZE)

Jeolla Region (KOR)

Gyeongnam Region (KOR)

Gyeongbuk Region (KOR)

Moravia-Silesia (CZE)

Alaska (USA)

Mazovia (POL)

Nebraska (USA)

Silesia (POL)

Australian Capital Territory (AUS)

Madeira (PRT)

Central Hungary (HUN)

Central Moravia (CZE)

Warmian-Masuria (POL)

Capital Region (KOR)

Northern Great Plain (HUN)

Montana (USA)

Pomerania (POL)

South Dakota (USA)

Prague (CZE)

Oklahoma (USA)

Eastern Slovenia (SVN)

Northeast (CZE)

Southwest (CZE)

Louisiana (USA)

Iowa (USA)

%

WHAT IS DRIVING CATCHING-UP? WHAT IS DRIVING CATCHING-UP?

The tradable sector appears to make the difference: due to “unconditional” convergence?

All tradable sectors, TL2 regions

40

45

50

2013 2000

%

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

Frontier Catching-up Diverging Frontier Catching-up Diverging

Tradable GVA share Tradable employment share

Different segments of the tradable sectors, TL3 regions, 2013

Manufacturing Tradable services Resource extraction & utilities

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).

Other usual factors seem much less discriminant for regional catching-up

Educational attainment in the labour force

R&D expenses as a share of GDP by sector

Perhaps the complementarity between these factors and the exposure to tradable sectors is also important

How regional catching-up compounds into national labour productivity growth?

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

� Regional catching-up plays an

important role for national growth

Region’s contributions to national growth vs. labour productivity growth: Austria

Percentage contribution to national GDP growth, 2000-13 Contribution to labour productivity growth, 2000-13

Notes: Percentage contribution shows the share of total GDP growth that was due to growth in the indicated region. Total contribution sums to 100%.

Notes: The contribution of a region is defined as the difference between the national annual average labour productivity growth rate and the same rate excluding the indicated region.

Region’s contributions to national growth vs. labour productivity growth: Portugal

Contribution to labour productivity growth, 2000-13 Percentage contribution to national GDP growth, 2000-13

Notes: The contribution of a region is defined as the difference between the national annual average labour productivity growth rate and the same rate excluding the indicated region.

Notes: Percentage contribution shows the share of total GDP growth that was due to growth in the indicated region. Total contribution sums to 100%.

Regional disparities in multi-dimensional living standards higher than for income alone

But catching-up does not seem to be incompatible with improvement in well-being dimensions

Unemployment rate Air pollutionLife expectancy

MAIN POLICY LINES TO PROMOTE REGIONAL CATCHING-UP & WELL-

BEINGBEING

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

– Product Market Restrictions (PMR): state control

Policy responses I

– Product Market Restrictions (PMR): barriers to entrepreneurship

– Product Market Restrictions (PMR): barriers to trade & investment

– Employment Protection Legislation (EPL): regular contracts

– Employment Protection Legislation (EPL): temporary contracts

– Active Labour Market Policies (ALMP): public expenditure in ALMP, in % GDP

– Complementarity among these macro-structural policies

• Other macro factors (openness, inflation, budget deficit, debt)

• Well-designed and well-implemented public investments may support regional catching-up: use of OECD Public Investment Toolkit

Policy responses II

Figure 1. Trends of weakened public and private investment may undermine productivity goals

% change private investment (GFCF) % change public investment (GFCF)

Notes: OECD total excludes the following countries due to lack of data over the period: Chile, Mexico and Turkey.

Source: Calculations based on OECD National Accounts.

-15%

-10%

-5%

0%

5%

10%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

• Multi-level governance and territorial reforms can unlock productivity potential and support inclusion

– Regional development policy most focused on

Policy responses III

– Regional development policy most focused on growth and productivity

– Address urban policy split between transport, spatial planning, housing and social inclusion

– Rural policies often remain sectoral (e.g. agriculture), but efforts to broaden the scope

Governance of regional/urban/rural policy

Reported lead ministries or entities across three policy fields

OBRIGADO! OBRIGADO! THANK YOU!