Presentation on Urban trends and challenges in OECD countries- the potential of small and medium sized areas by Ioannis Kaplanis, Economist (Urban Programme) Regional Development Policy Division at the Open Days, Brussels, Belgium 6-9 October 2014. Find out more about OECD Regional Developmnet Policy at: www.oecd.org/gov/regional-policy/

1. 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

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

3. 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)

4. 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

5. Regional growth rates of GDP per capita, labour productivity, population and employment by size of their cities
0.05.1.15 < 250K250k-500k500k-1.5M>1.5MGrowth rates of GDP per capita (2000-10) (mean) Growth rates of labour productivity (2000-10) (mean) 0.05.1.15 <250k250k-500k500k-1.5M>1.5MGrowth 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

6. In search for a more distributed growth model
6

7. 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…

8. Similar distribution also for metro areas
Contribution to aggregate OECD metropolitan areas growth (in %)
Source: OECD Database on Functional Urban Areas

9. 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 country
Country (# cities)
Source: OECD, Regions@ Glance, 2013

10. 10
Agglomeration benefits are real
Productivity increases with city size.
Source: OECD Metropolitan Database.

11. 1. Some key findings from recent OECD work:
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Agglomeration benefits increase with city size.
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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.
11
Is agglomeration the enemy of territorial cohesion?

12. 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
0.60.81.01.21.41.61.82.0within 45 min. by car45 to 90 min. by car90 to 180 min. by car180 to 300 min. by carmore 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

13. 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
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positive spillovers emerge from growth in close urban regions
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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.

14. Higher productivity comes with higher prices 14
–
Overall, gains from agglomeration, but local purchasing power does (on average) not increase with city size
Agglomeration benefits and local price levels in Germany

15. The traditional paradigm:
•
Efficiency and growth come first.
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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:
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Giving greater weight to complementarities (not just tensions) between efficiency, equity and environmental objectives.
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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
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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

16. 16
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.
EfficiencyEquityEnvironmentalsustainabilityEconomic policiesSustained growthEconomic reforms may increase equityGreengrowth policies can improve sustainabilitySocial policiesSocial cohesioncan increase efficiency (e.g., trust, security, knowledge) Social cohesionInequality can be reduced without environmental harm (e.g., replace fuel subsidies with transfers) Environmental policiesGreen growth policiescan boost innovation and efficient resource useEnvironmentaldegradation tends to hit disadvantaged groups moreEnvironmentalsustainabilitySustainable development requires a search for policy complementarities

17. Urban/Regional policy should focus more on coordination failures
& Governance
17

18. •
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.
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Agglomeration is not a synonym for density.
18
Agglomeration and governance

19. Promoting factors in Regions ‘Growing Above Average’
19
Factors for growth in regions growing above averageFrequency% Policies (shift mentality, silos, fragmentation, adjusting policies to assets, linkages, cross border, urban spatial)815% Infrastucture connectivity815% Institutions (governance, leadership capacity, continuity, mobilisation)612% Human capital612% Innovation, includes entrepreneurial510% Business environment, public sector activity and industry 510% Geography48% Internationalisation: international competition and brandname attractiveness 36% Presence of natural assets and amenities24% FDI24% Economy (diversified, differentiated and market aware)12% Other12% Tourism12% Density (cohesion, internal fragmentation, labour market mismatch)00% Demographic factors00% Agriculture00% Environmental constraints00% Availabity of financing00% Total52100%
Source: OECD, Promoting Growth in all Regions, 2012

20. 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
20

21. 21
Why? Less fragmented urban governance promotes growth

22. •
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 Governance
Body
Without Governance
Body
Change in Urban Sprawl
Based on OECD Metro Governance Survey

23. Governance bodies increase well-being
55%
60%
65%
70%
75%
80%
With Transport
Authorities
Without Transport
Authorities
Share of Citizens Satisfied with Public Transport
•
Public Transport projects usually cut through many jurisdictions
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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.

24. Municipal merger reforms have reduced the number of local governments 24
0100020003000400050006000 Austria (1950) Sweden (1952, 1963) Japan (1953, 1999) Denmark (1970, 2007) Finland (1976, 2010) Belgium (1975) New Zealand (1989) Lithuania (1994) Greece (1997, 2011) Israel (2002) Turkey (2008-2012) Latvia (2009) Number of municipalities before the reformNumber of municipalities after the reformNumber of municipalities in 2012

25. •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
25
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. 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. 27
http://www.oecd.org/gov/regional-policy/how-is-life-in-your-region.htm

28. Regional characteristics in terms of urban structure
Underlying mechanism
Potential role for small- and medium-sized cities
Urban size / share of urban population
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Agglomeration economies (sharing, matching and learning mechanisms)
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Urban diversity foster innovation (“nursery cities”)
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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)
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Borrowed size mechanism
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City network externalities (at regional level)
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Regional city networks may compensate relative lack of size
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Synergies and complementarities
Proximity to large urban agglomeration (or to capital cities)
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Spread/backwash effects
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Proximity to growing large urban centers can produce positive spillover effects (might become negative when distance is high)
Cities of different sizes and growth

29. •
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
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Local purchasing power does not increase with city size due to increase in prices
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Small and urban areas can benefit from proximity to larger urban areas- connectivity and polycentricity matters
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Governance arrangements do matter- importance of complementarities
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In search of a balanced urban growth model; what next?
29
Preliminary conclusions

30. Thank you! ioannis.kaplanis@oecd.org