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Growing Lagging Regions

How Lagging Regions Grow




Enrique Garcilazo
Regional Development Policy Division
Directorate for Public Governance and Territorial Development OECD

26 July 2011,Mexico D.F., Mexico
OECD/SEDESOL


1. Trends in regional growth

2. Density and performance

3. Factors of regional growth

4. Links between regional and aggregate growth

5. Lagging Growing Regions
Outline
OECD Territorial Reviews:
a series of case studies of regional policy
Among 34 member countries:

16 National Reviews (+2 ongoing)

20 Metropolitan Reviews (+1 ongoing)

1 National Urban Policy Review (+1 ongoing)

13 Rural Reviews

4 Regional Reviews (+2 ongoing)

5 Regional Innovation Reviews
Recent National Territorial Reviews (+2 ongoing) :
Paradigm shift in regional policies
Traditional Regional Policies New Paradigm
Objectives
Balancing economic
performances by temporary
compensating for disparities
Tapping under-utilised regional
potential for competitiveness
Strategies Sectoral approach
Integrated development
projects
Tools Subsidies and state aid Soft and hard infrastructures
Actors Central government Different levels of government
Unit of
analysis
Administrative regions Functional regions
Redistributing from leading to
lagging regions
Building competitive regions to
bring together actors and
targeting key local assets
OECD Regional Data-Base (RDB)

To facilitate comparability, regions are:
Classified in 2 Territorial Levels (TLs):
Large regions -- TL2 Territorial Level 2 (337 regions)
Small regions -- TL3 Territorial Level 3 (1708 regions)
New regions from China, Brazil, South-Africa, Chile etc..
Classified by regional type: (PU, I, PR) and new typology (ICC,IR,RCC,RR)
Administrative and functional definition

Database can be directly accessed from the OECD
Statistical portal: http://stats.oecd.org
OECD eXplorer: http://stats.oecd.org/OECDregionalstatistics
OECD MDB: www.oecd.org/gov/regional/statisticsindicators

Release of the OECD Regions at a Glance 2011
www.oecd.org/regional/regionsataglance
interactive edition including maps and graphs

Convergence among OECD countries and divergence within,
1995-2007
6
0.18
0.185
0.19
0.195
0.2
0.205
0.21
0.215
0.22
0.225
0.23
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
OECD countries
The Gini
coefficient of
GDP pc at the
country level has
declined
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
The Gini
coefficient of
GDP pc
within
countries has
increased
There is no single/unique path to growth
Opportunities for growth exist in all types of regions.
Rural not synonymous with decline.
Convergence forces in rural regions

Convergence forces in intermediate regions

Convergence and divergence forces in urban regions

Agglomerations and sustainable development?

-3.5%
-2.5%
-1.5%
-0.5%
0.5%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
7.5%
8.5%
9.5%
0 10 000 20 000 30 000 40 000 50 000 60 000
G
D
P

p
e
r

c
a
p
i
t
a

g
r
o
w
t
h

i
n

P
P
P

1
9
9
5
-
2
0
0
7

Initial GDP per capita in current PPP 1995
predominanty urban
OECD average
OECD average
Agglomeration
forces
Convergence
forces

.
higher GDP per capita higher productivity
-50% 0% 50% 100% 150%
DEAGU
BERLIN
LILLE
TAMPA BAY
MANCHESTER
VALENCIA
ANKARA
KRAKOW
PHOENIX
ST.LOUIS
PITTSBURGH
MELBOURNE
COPENHAGEN
BUSAN
RANDSTAD-HOLLAND
PORTLAND
TURIN
PUEBLA
ISTANBUL
DUBLIN
OECD AVERAGE
BARCELONA
SAN DIEGO
AICHI
ATLANTA
HELSINKI
GUADALAJARA
VIENNA
DALLAS
MILAN
STOCKHOLM
MINNEAPOLIS
ROME
ATHENS
HOUSTON
MEXICO CITY
PRAGUE
PARIS
BUDAPEST
WARSAW
-50% 0% 50% 100%
NAPLES
LEEDS
MONTREAL
VANCOUVER
LILLE
TAMPA BAY
FUKUOKA
ST.LOUIS
MELBOURNE
PHOENIX
MIAMI
BARCELONA
STUTTGART
MILAN
LONDON
PORTLAND
OSAKA
HANBURG
FRANKFURT
ZURICH
MADRID
CLEVELAND
BRUSSELS
OECD AVERAGE
DETROIT
SAN DIEGO
LOS ANGELES
DENVER
PRAGUE
ATHENS
PARIS
SEATTLE
BOSTON
BUDAPEST
AUCKLAND
NEWYORK
WASHINGTON
SAN FRANCISCO
BUSAN
WARSAW
-30.0% -20.0% -10.0% 0.0% 10.0% 20.0%
NAPLES
RHINE-RUHR
PUEBLA
OSAKA
MONTERREY
FUKUOKA
BIRMINGHAM
HOUSTON
VIENNA
NEW YORK
PARIS
STUTTGART
LOS ANGELES
COPENHAGEN
ANKARA
MONTREAL
ATHENS
LEEDS
OECD AVERAGE
PHILADELPHIA
DALLAS
VANCOUVER
BALTIMORE
SAN DIEGO
LONDON
AICHI
PHOENIX
TAMPA BAY
SYDNEY
ST.LOUIS
WARSAW
BRUSSELS
ZURICH
WASHINGTON
VALENCIA
TURIN
KRAKOW
BUDAPEST
BARCELONA
MINNEAPOLIS
higher employment
Agglomeration tends to be associated with and higher value
added, productivity and employment
Only 45% of metro--regions grow
faster than the national average.

0
20000
40000
60000
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
I
n
i
t
i
a
l

G
D
P

p
e
r

w
o
r
k
e
r


i
n

P
P
P

Average annual growth rates in GDP per capita 1995-2005
III
IV
Budapest
Warsaw
Naples
Izmir
Istanbul
II I
Ankara
III
IV
Dublin Prague
Busan Monterrey
II I
Puebla
Krakow
Washington
San Francisco
San Diego Detroit
Atlanta
Phoenix
Berlin
Osaka
Deagu
Metro-regions appear to have
entered in a process of convergence.
signs of inefficiencies appear in significant
number of metro-regions
but not necessarily faster growth
Top 25% performing OECD regions (1995-2007)
130
140
150
160
170
180
190
200
210
220
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
pop and GDP -- full sample pop density and GDP pop and GDPpc -- full
av rank of
-- population
-- pop density
(1=highest)
Concentration is not synonymous with growth

Concentration not sufficient nor necessary

Benefits of concentration not linear nor infinite

Diseconomies of scale and congestion costs can
hinder growth in agglomerations

Stylized facts growth
Growth Patterns are very Heterogeneous
Possibilities for growth exist in all types of regions
Convergence and agglomeration forces at play

Concentration and Growth
Concentration not sufficient nor necessary
Benefits of concentration not linear nor infinite
Diseconomies of scale and congestion costs can hinder
growth in agglomerations




What are the main factors of growth at the regional level?
Econometric models
unit of analysis: OECD TL2 Regions, 1995-2007
Cross-Sectional Model
Error Correction Model
Panel and Pooled Model

( ) ( ) ( ) ( )
( ) ( ) ( ) ( )
( ) ( )
1 2 3 4
5 6 7 8 9
10 11 12
1
ln ln ln Pr_ _ ln _ _
ln ln _ ln _ ln _
ln _ ln( _ ) ln
t T
t t t t
t
t t t t t
t t t
GPD
GDP Inf Ed att Ti Ed att
T GDP
ER Pat GDExp B GDExp G Spec Ag
Spec Man Market Dist Accesibility
o | | | |
| | | | |
| | |
+
| |
= + + + + +
|
\ .
+ + + + +
+ + +

( ) ( ) ( ) ( )
( ) ( ) ( ) ( )
( )
,
1 , 1 2 , 1 3 , 1 4 , 1
1
5 6 , 1 7 1 8 , 1 9 , 1
10 , 1 11 ,
ln ln ln Pr_ _ ln _ _
,
1 ln ln _ , ln _ ln _
ln _ ln( _
i t
i t i t i t i t
t
t i t t i t i t
i t i t
GPD
GDP Inf Ed att Ti Ed att
GDPi
ER Pat GDExp Bi GDExp G Spec Ag
Spec Man Market Dist
o | | | |
| | | | |
| |



| |
= + + + + +
|
\ .
+ + + + +
+ +
( )
1 12 , 1 ,
) ln )
i t j j t t i i t
Accesibility CD TD u e |

+ + + + +
( )
( ) . ln ) ( ) ( ln ) ( ln ) ( ln
ln ) ( ) ( ln
1
) ( ln
1
) ( ln
1
) 1 ( ln ) ( ln
3 2 1 0 t
j
j
t j K
j
j
t j K
X b d t n t g a t h a t s a a
gt X z d t n t g
a
a
t h
a
b
t s
a
a
t y t y
c

+ A + + + A + A + A + +
|
|
.
|

\
|
+ + +

= A


Broad findings:
Convergence is conditional not absolute

Human capital is the most robust factor positively influencing growth
Presence of high skilled labour
Absence of low skilled labour

Innovation (insofar we can measure it) has a positive effect on regional
growth
Long term effect
Inputs (BERD, GERD)

Infrastructure influences growth only when human capital and innovation
are present.
By itself it does not impact growth
A necessary but not sufficient condition for growth

Agglomeration influences growth

Links between regional and aggregate
Where growth actually occurs is also critical:
Contributions to growth

Contribution to growth over the a given period (n, n+t):
Initial size of a given territory GDP share (n)
Its growth rate between (n, n+t)





Contributions of small and large regions to aggregate,
1995-2007
the fat tail is equally important -- if not more -- to aggregate growth
Contributions to growth by percentage of regions and
population share, OECD TL3

Policy conclusions
Average value looses meaning
The need for a differentiated approach

Context matters one size-fits all answer will not do
Place based polices in the new regional paradigm are well
equipped

Integrated approach diagnosis is critical where are the
synergies and complementarities


A match between bottom up and top down approach

Multilevel governance is key


Taxonomy National Benchmark
Initial level
GDP per capita
1995
75% nat.av
lagging quasi-lagging leading
growth rate
GDP per capita
1995-2005
nat.av
underperforming growing
National Benchmark: two dimensions
OECD Benchmark
A. Initial level of GDP
1) Above or below the country
2) Above or below the OECD
B. Growth in GDP per capita
3) Above or below the country
4) Above or below the OECD
Lagging growing Lagging underperforming
-- group 1 vs. -- group 4
-- group 5 vs. -- group 8
Descriptive Statistics
Growth in GDP pc
Growing
(above national average)
Underperforming
(below national average)
I
n
i
t
i
a
l

G
D
P

p
c


Lagging
(below 75%)
initial GDP pc = 8820 initial GDP pc = 9186
growth=2.45% growth=1.62%
Quasi-lagging
( above 75% and
below national average)
initial GDP pc = 19,326 Initial GDP pc = 18,399
growth=2.47% growth=1.95%
Leading
(above national average)
Initial GDP pc = 25,368 Initial GDP pc = 21,572
growth=2.7% growth=1.50%
Distribution and Contribution to Nat. Growth
Growth in GDP pc
Growing
(above national average)
Underperforming
(below national average)
I
n
i
t
i
a
l

G
D
P

p
c


Lagging
(below 75%)
37 regions (11%) 15 regions (5%)
contribution to growth = 4% contribution to growth = 1%
Quasi-lagging
( above 75% and
below national average)
61 regions (19%) 103regions (32%)
contribution to growth = 21% contribution to growth = 17%
Leading
(above national average)
54 regions (17%) 55 regions (17%)
contribution to growth = 39% contribution to growth = 17%
Compare indicators relevant for regional growth b/w
growing and underperforming group in each of the
three stages of development..
The relative weight of these different factors depends,
inter alia, on the level of development of the region.
Initial GDP pc
<75% national av.
A
B
C
Parametric Analysis
TL2 regions split into three groups , period 1995-2007:
lagging (52)
quasi-lagging (164)
leading (109)
Two different model specifications
Pooled regression
Panel regression
Model specification



Test 6 models
Regressions Results for Lagging Regions
There is no conditional convergence in lagging region

Human capital has a robust positive impact on growth.

Infrastructure does not have any causal link in one model by itself
it does have an impact on the growth but effects vanishes once
other variables are introduced.

Gains in population density do not appear to positively influence
growth

Regressions Results for Quasi-lagging Regions
There is conditional convergence.

Infrastructure gains influence regional growth by itself and when
other variables are introduced in the model suggesting the benefits
of an integrated approach are present among quasi-lagging regions.

Human capital both a lower proportion the of workers with only
primary attainment rates and the presence of workers with tertiary
attainment rates has a robust impact on growth.

Mobilisation of the labour force and population density also bring
growth,

Business R&D and government R&D expenditures have a positive
effect on growth
Regressions Results for Leading Regions
Conditional convergence -- weaker in quasi-lagging regions

The effects of infrastructure are mixed:
they are positive in four models and depend on human capital and ER.
in two models (model 3 & 4 in panel specification) positive results are reversed.

Human capital has a robust positive impact on growth.

Mobilisation of the labour force suggests that regions with lower
rates of employment can generate more growth.

Innovation related activities have an impact on the growth of
leading regions.
Business R&D expenditure has a positive impact as well as government R&D
expenditures.
the effects of patent intensity are mixed in the pooled specification they are
negative and in the panel specification they are positive.
Phase 3 Case Studies
Deeper understanding of economic processes
Role of elements difficult to quantify

Representative sample -- select among:
Lagging and growing
Lagging and underperforming
Quasilagging and growing
Quasilagging and underperforming


reg_code region cat status
Poland PL31 LUBELSKI E 4 done
PL34 PODLASKI E 4 done
PL41 WI ELKOPOLSKI E 3 done
SK04 VYCHODNE SLOVENSKO 4 done
HU21 KOSEP-DUNANTUL/CENTRAL TRANSDANUBI A 3 done
UK UKC NORTH EAST 4 done
UKD NORTH WEST (i ncl udi ng Merseysi de) 4 done
UKE YORKSHI RE AND HUMBERSI DE 4 done
US23 Mi chi gan 4 confirmed
US39 Pennsyl vani a 4 confirmed
US36 Ohi o 4 confirmed
US34 North Carol i na 3 confirmed
Mexico ME07 CHI APAS 2 current
ME24 SAN LUI S POTOSI 1 current
ME10 DURANGO 3 current
ME14 JALI SCO 3 current
ME15 MEXI CO 4 current
ME32 ZACATECAS 2 current
EU NL04 ZUI D-NEDERLAND 3 maybe
DEE SACHSEN-ANHALT 1 done
DE4 BRANDENBURG 1 confirmed
FR30 NORD-PAS-DE-CALAI S 4 confirmed
FR62 MI DI -PYRENEES 3 confirmed
FR61 AQUI TAI NE 3 confirmed
ES 43 EXTRREMADURA 1 maybe
ES12 ASTURI AS 3 done
I TG1 SI CI LI A 2 done
I TE3 MARCHE 4 done
total cases 28
growi ng group 9 9
l aggi ng group 12 12
Categories
1 Lagging Growing
2 Lagging Underperforming
3 Quasi-lagging growing
4 Quasi-lagging underperforming
Phase Period Activites
Initiation Month 1. June - Letter of agreement signed
- Questionnaire send
Questionnaire and
preliminary analysis of
6 regions
Month 1. June - Local team coordinates responses for
preparing the background report.
- OECD receives questionnaires one week
before the mission trip studies.
Study missions Month 2. July - Review mission one week in Mexico by
OECD team in conjunction with local team
and other stakeholder to conduct
interviews with key actors involved in
regional development of each of the six
regions.
- During the week carry out a brief seminar
in Mexico presenting the main analytical
results from the first two phases of the
project.
Dissemination of
preliminary results and
submission to TDPC
Month 3. August - Sharing preliminary results of the 6 case
studies with the SEDESOL; feedback and
Report delivery.
- Presenting submitting case studies to the
TDPC.
Finalisation of report
and assembling policy
recommendations
Month 4 y 5.
September and
October
- Assembling manuscript of the overall
project and preparation of
recommendations.
- Sending for Spanish translation and
printing, selected parts of the manuscript.
Final Report Publication Month 6 y 7.
November and
December
- Official launching of the publication by the
OECD
Presentation of Final
Report in Mexico
Month 8 y 9.
January and
February
- Launching of an event in Mexico and
dissemination of Spanish publications

thank you


JoseEnrique.Garcilazo@oecd.org

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