The contribution of regions to the productivity of nations - Oliveira Martins, OECD
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1st informal meeting of the Trento Centre Spatial Productivity Lab - 21 Feb 2018 - 14.00 | Trento, Italy For more info: www.trento.oecd.org
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The contribution of regions to the productivity of nations - Oliveira Martins, OECD
- 1. THE CONTRIBUTION OF REGIONS TO THE PRODUCTIVITY OF NATIONS OECD TRENTO CENTRE – SPATIAL PRODUCTIVITY SEMINARS, 21 FEB 2018 Joaquim Oliveira Martins, OECD/CFE
- 2. The OECD (and EU) Productivity Problem
- 3. Trends of Labour productivity growth before and after the crisis Source: OECD Productivity database; moving averages (t, t-1, t-2) -0.5 0 0.5 1 1.5 2 2.5 3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Japan US Euro Area Financial crisis
- 4. Decomposition of Potential output growth in Europe
- 5. The contribution of regions to aggregate labour productivity
- 6. Regional productivity has diverged in the OECD, slowing since the crisis 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. Source: OECD Regional Outlook 2016 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 60% increase
- 7. A majority of regions have flat or declining labour productivity catching-up 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). 62% of OECD GDP is generated in regions were productivity is Keeping pace or Diverging. They contributed to 53% of GDP growth
- 8. The contribution of regions to national productivity growth: two main types of EU countries 8 Source: Bachtler, Oliveira Martins, Wostner and Zuber(2017), “TOWARDS COHESION POLICY 4.0”, Regional Studies Association. Type-I (distributed): Austria, Germany, Czech Republic, Spain, Italy, Poland, Portugal and Romania. Most of the productivity performance of these countries is the result of the catching-up of the lagging regions. The frontier regions sustain high productivity levels, but productivity growth dynamics occur elsewhere in the country. Type-II (concentrated): Bulgaria, Denmark, France, United Kingdom, Finland, Greece, Hungary, Netherlands, Slovak Republic and Sweden. In these countries, most of the productivity dynamics is concentrated at the frontier with limited effects from the catching-up process.
- 9. Illustrations of the two regional productivity models, 2000-2014 NB: 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, cf. OECD Regional Outlook (2016). GERMANY (TYPE I) FRANCE (TYPE II)
- 10. Illustrations of the two regional productivity models, 2000-2014 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, cf. OECD Regional Outlook (2016). UK (TYPE II)SPAIN (TYPE I)
- 11. Distributed model (Type I), 2000-2014 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, cf. OECD Regional Outlook (2016). SPAIN ITALY
- 12. Distributed model (Type I), 2000-2014 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, cf. OECD Regional Outlook (2016). POLAND PORTUGAL
- 13. Concentrated model (Type II), 2000-2014 SWEDEN 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, cf. OECD Regional Outlook (2016). DENMARK
- 14. Concentrated model (Type II), 2000-2014 GREECE 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, cf. OECD Regional Outlook (2016). HUNGARY
- 15. Geography of productivity convergence relative to national frontiers in European regions, 2000-14
- 16. Productivity trends for Type I and Type II countries Type I (Distributed) countries Type II (concentrated) countries There was productivity convergence for Type I countries Type II countries displayed productivity divergence 55 000 65 000 75 000 85 000 95 000 105 000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Frontier Top 10% Lagging Bottom 90% in USD 1% per year 1.1% per year 55 000 65 000 75 000 85 000 95 000 105 000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Frontier Top 10% Lagging Bottom 90% in USD 1.6% per year 0.9% per year
- 17. Comparison of (unweighted) productivity growth for Type I and Type II countries -4 -3 -2 -1 0 1 2 3 4 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Unweighted TYPE I Unweighted TYPE II Average productivity growth Type I: 1.25% Average productivity growth Type II: 1.34%
- 18. Comparison of (weighted) productivity growth for Type I and Type II countries -4 -3 -2 -1 0 1 2 3 4 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Weighted TYPE I Weighted TYPE II Average productivity growth Type I: 1.07% Average productivity growth Type II: 1.12%
- 19. Comparison of Regional inequalities for Type I and Type II countries (OECD TL2 regions) Gini of GDP per capita - weighted averages TL2 regions 0.1 0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19 0.2 Type I Type II Gini of GDP per capita – simple averages TL2 regions 0.13 0.14 0.15 0.16 0.17 0.18 Type I Type II Type II countries displayed an increase of regional inequality, especially before the crisis
- 20. Comparison of Regional inequalities for Type I and Type II countries (OECD TL3 regions) Gini of GDP per capita - weighted averages TL3 regions Gini of GDP per capita – simple averages TL3 regions 0.14 0.15 0.16 0.17 0.18 0.19 0.2 0.21 0.22 0.23 Type I Type II 0.13 0.14 0.15 0.16 0.17 0.18 Type I Type II Type II countries displayed an increase of regional inequality, especially before the crisis
- 21. How can regional and urban policies better contribute to inclusive growth?
- 22. Regional Policies should promote rural-urban linkages 22 Source: OECD Regional Outlook 2016 Average annual labor productivity growth rate 2000-12 (%)
- 23. Proximity to cities promote productivity of rural areas 88% 89% 90% 91% 92% 93% 94% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total RURAL RURAL CLOSE TO CITIES RURAL REMOTE Productivity levels of Predominantly Urban regions = 100
- 24. Tradable sectors are important for regional productivity catching-up 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 Catchin Tradable GVA share Tradable emplo 2013 2000 % er Catching-up Diverging Frontier Catching-up Diverging Tradable GVA share Tradable employment share 2013 2000
- 25. Globalisation shocks and regional inequalities are related Source: OECD Economic Outlook, 2016
- 26. 26 An example of a large structural adjustment in the tradable sector: Region Norte (Portugal) 2000-07 2008-13 +64 000 jobs -98 000 jobs -9 000 jobs -67 000 jobs -101 000 jobs Non-tradable sectors contributed to GVA growth through employment growth, tradable sectors by productivity growth +12 000 jobs
- 27. Better metro governance improve productivity and reduce inequalities 27 -.05 0 .05 .1 .15 0 .2 .4 .6 .8 1 Administrative fragmentation Higher administrative fragmentation reduces city productivity premia Higher administrative fragmentation increases municipal inequality and segregation
- 28. The contribution of regions needs to be organised through a proper Multi-level governance system
- 29. The role of decentralisation Designing place-based policies is too complex task to be centralised. A central government cannot have as many policies as different types of cities and regions But decentralisation needs to be organised as a partnership and not only as a process of autonomy and devolution of competencies Decentralisation works better when it is done in a process allowing for the asymmetry of capacities at the local level and experimentation (learning-by-doing)
- 30. TCDGIN COGKHM MLTGRM DOMJAM AZEBENMWIBFA CRI CYPTUNSEN MUSMLI JORARMPRYSLVZWE MYSCHLHNDUGAPSEKEN GRCMARTZA THA IRLTURALB CPV ECU NZL NGAKGZ GEO ISRMNE SVKPRTIDN HUNGHA SRB BGR LTUPER ROU KAZMNGMDA SVNEST CZELVA GBRFRAPHL HRVMEXCOL POL ISLKOR NLDIND ITAUKR NOR JPN AUS AUT USA VNM CHEDEUCHN ESPZAF BRA BEL FIN RUS SWE CAN DNK ARG R² = 0.3555 0% 5% 10% 15% 20% 25% 30% 35% 40% 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 SNGexpenditureasa%ofGDP GDP per capita (USD PPP) Decentralisation seems to be a feature of development (like urbanisation)
- 31. Central Government Ministerial Departments Sub-national Governments Inter Governmental Council (ex. COAG, Australia) Regional Agencies (ex. Canada, Brazil) Contracts (ex. France) Special Commission (Delta, Netherlands) Whatever the type of system – federal, regionalised, unitary – policies need to be aligned across levels of government There are different models for cooperation across levels of government Conditionalities ( ex. EU programming)
- 32. 32 Supra-municipal cooperation help to overcome governance fragmentation Elaborated from http://www.municipal-cooperation.org France Italy Spain Portugal Norway, Sweden Netherlands CHILE England New Zealand Australia Ireland France Netherlands Slovakia Belgium Different sources of revenues depending on the status
- 33. Make planning more flexible and policy coordination may improve Housing sectors How land is used Public policies aimed at steering land use • Spatial planning • Transport planning • Land use planning • Environmental regulations • Building code regulations Public policies not targeted at land use • Tax policies • Transport taxes and subsidies • Fiscal systems and inter-governmental transfers • Agricultural policies • Energy policies How land is permitted to be used How individuals and businesses want to use land
- 34. • 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 Effective Public Investment across Levels of Government
- 35. The administrative burden in many programmes remains high We often under-estimate the importance of building relationships (and trust) across levels of government We continue to expect results when organisational and individual incentives are aligned to the contrary We create systems to promote performance but in the end we promote compliance Governance lessons for the redesign of regional policies Source: Proceedings of EC/OECD Governance seminars (forthcoming)
- 36. Thank you!
Notas do Editor
- Given the structural factors dragging down EU potential, a labour productivity revival is the only hope for sustaining growth But unfortunately the slowdown appears to be structural, not cyclical Both capital per worker and, especially, MFP have been lingering since the beginning of the century
- The last Regional Outlook highlighted the growing divide between the top regions (frontier) and the rest in terms of productivity levels. This divide had grown by 60% OVER XX. % over the last almost two decades. However, since the crisis (as noted by the red line) it seems that wider gap has stabilised. What does it mean This is taken on an OECD level, let’s zoom in on EU countries.
- There are two general types of countries in this picture: those where the top is pulling ahead, and those where the others are catching up. France, UK, and Sweden are among those countries where national productivity growth was mainly generated in the frontier region (countries where the high productivity region, typically the capital city is black, and where the other region are light blue, and falling behind). In Germany, Austria or Poland, for example, national productivity growth is mainly generated by regional productivity catching up, where the dark blue is found. ************************ We have identified two types of countries in the EU. Catching up dynamics: Austria, Germany, Czech Republic, Spain, Italy, Poland, Portugal and Romania. Most of the productivity performance of these countries is the result of the catching-up of the lagging regions. The frontier regions sustain high productivity levels, but productivity growth dynamics occur elsewhere in the country. Frontier dynamics: Bulgaria, Denmark, France, United Kingdom, Finland, Greece, Hungary, Netherlands, Slovak Republic and Sweden. In these countries, most of the productivity dynamics is concentrated at the frontier with limited effects from the catching-up process.
- The countries where the productivity growth is coming from regions other than the frontier, they saw that had frontier regions were not as dynamic in terms of productivity growth (black graph). For those countries where growth was concentrated in the frontier, (blue graph), their top regions experienced higher productivity growth but at the cost of greater regional inequalities. Policies need to do more to ensure that these productivity improvements are shared so that this tradeoff between higher growth in the frontier and regional inequality is not inevitable.
- Inclusive growth requires acting at the relevant scale and looking beyond national averages. Regional policies are thus one of the important answers.
- Proximity to cities is key for the growth of those rural areas. They experienced higher average productivity growth rates than any other region type.
- While citizens are concerned about globalisation, they also need to see that actually what underpins the rise in wages is greater productivity, and this is found in sectors that are exposed to international competition. It does not mean the products are necessarily exported, but simply that those are areas where firms produce products that need to be competitive even beyond the local market. The data show that those regions that are catching up, as opposed to falling behind, were those that had a larger and growing share of their economy in these tradable sectors. The challenge is to ensure the accompanying skills changes to shift from one type of tradable sector to another. Policy needs to support regions as they anticipate and adjust to different shocks. One of the common errors is to think that promoting inclusive growth means boosting less tradable activities such as construction. But as we have seen with the boom and bust experiences of some regions with the crisis, those jobs are quickly gained and quickly lost, and at a perhaps longer term price of insufficiently developing those tradable sectors more durable over the long term.
- Regions and cities experience globalisation differently depending on their industrial structure. This is particularly striking with manufacturing. In countries that lost more employment in manufacturing, regional income gaps widened. This message was a core element of the OECD’s annual Ministerial Council Meeting. It highlights that policies to support regions need to be seen as policies to help countries build resilience and adapt to industrial change so that they not only boost productivity, but also access to jobs. ADD COUNTY NAMES
- In the last graph we saw that Portugal experienced lots of manufacturing job losses and a widening dispersion of regional income inequality. The example of Norte highlights the dynamics whereby productivity may go up in sectors like manufacturing, but the other side of the story is the job losses and the resulting regional inequalities when other sectors are not able to employ those left behind. While some sectors that are not tradable (i.e. not exposed to international competition) may be a source of jobs, as we see with the crisis, that kind of model is not always sustainable. Regional policies need to therefore ensure that they ensure the right conditions for sectors that are indeed tradable are able to thrive, as over the long term they will underpin the health of the region.
- Inclusive growth requires acting at the relevant scale and looking beyond national averages. Regional policies are thus one of the important answers.
- 30
- Private law vs. public law In general, two IMC models can be distinguished: the public law model and the private law model. Under the public law model the contractual and the institutionalized forms of IMC are regulated in some detail by public law. Public law regulates agreements for the joint management of functions or the delegation of functions by one municipality to another. Public law also regulates the institutionalized forms of IMC and generally envisages mandatory functions in certain areas and strong state supervision in both financial and legal matters. Under the public law model, the responsibilities exercised by municipalities are clearly exclusive. The transfer of a responsibility to another municipality or to an IMC body automatically removes this responsibility from the transferring municipality. The private law model is based on the freedom of local authorities to pragmatically opt for the areas and forms of IMC based on the modalities and entities envisaged by this law, such as contracts, associations and commercial enterprises. In practice, both models co-exist in Western Europe. The public law model is favoured for its greater democratic legitimacy and is more common in countries such as France, Spain and Portugal where community-based forms of local government prevail. The private law model dominates in Norway or Sweden where there is greater focus on efficient public service delivery than direct accountability to the municipal council. In countries where there is no specific legislative framework for IMC, municipalities have no choice but to establish it under private law. For instance, in Albania, the law allows IMC but does not regulate it. IMC for the production of public utility services therefore tends to take place through commercial companies. In Romania, many IMC activities formerly took place under the private law association legal form. The IMC legislation introduced in 2006 created public law Inter-Community Development Associations. As a result, many IMCprivate law associations changed their status to public law associations. In many Western European countries, the traditional form of IMC is that of public law associations specifically focused on – but not only, depending on the country – the delivery of technical public utility services (water treatment and distribution or waste management) with the aim of reaping economies of scale. However, with the growth of urbanization and the appearance of city-regions, the need gradually emerged for different, more integrated and strategic forms of IMC concerned also with a wide variety of urban development issues such as economic development planning, spatial planning, housing policy, public transport and urban infrastructure development. The French communautés are typical federative forms of IMC that closely resemble a new tier of local self-government. They have mandatory functions and the power to raise taxes, and decisions are taken by the majority of the IMC council rather than unanimity, as in the more traditional IMC associative forms. The equivalent institutions in the Netherlands, at least as far as the communautés urbaines are concerned, are the metropolitan regional corporations, which have a mix of mandatory and voluntary functions, and receive central government grants in a series of policy sectors.
- Dedicated land use policies primarily work by restricting how land can be used. They pay little attention to the incentives that businesses and individuals have to use land. By paying greater attention to the incentives that public policy provides for land use, planning can become less restrictive and more effective Taxes and fiscal systems matter most Regulatory and economic instruments need to be combined Effective governance mechanisms are a prerequisite for a successful implementation
- As regional development actors, subnational governments face a series of common challenges – coordination, capacity and framework conditions. So to support national and subnational governments make the most of public investment and strengthen regional development, the OECD Recommendation was developed specifically to help governments work through these common challenges…. 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
- We are working with the EC on exploring frontier academic research and its implications for the design of economic development policies for regions and cities in general. THis is work in progress to be launched in early 2018, but a few emerging lessons are important to highlight. Indeed, beyond the “what” of policies is the ”how”. But we continue to make some common mistakes in the how. Many of the innovations in academic theory are related to behavioural insights that consider how people and organisations respond to the different tools often used when higher levels of government give money to lower levels to promote regional development.