1. What is regional development policy
for and how does it work?
4th International Conference on Overcoming Regional
Disparities “Implementing Regional Development
Policies: What are the key factors for success?”
Chişinǎu, 22 May 2014
William Tompson
Head of the Urban Development Programme
Public Governance and Territorial Development Directorate
OECD

2. What is the problem?
Wide variation in growth performance before the crisis
Convergence vs Agglomeration
2

3. What is the problem?
Tends to concentrate at all scales
3
y = 0.6509x-1.311
0%
1%
2%
3%
4%
5%
ContributiontoOECDgrowth
TL2 regions
Source: Calculations based on the OECD Regional Database..

4. What is the problem?
Concentration is increasing over time
4
0%
1%
2%
3%
4%
5%
6%
ContributiontoOECDgrowth
TL2 regions
95_98 98_01 01_04 04_07
Source: Calculations based on the OECD Regional Database..

5. What is the problem?
In most economies, a few big hubs account for a large share of
aggregate growth. This implies:
• Policy makers are right to be concerned about the
performance of the big regional hubs that are their main
drivers of growth.
• Most growth still occurs outside the hubs. An exclusive focus
on the hubs neglects the potential of policies that can help the
great mass of regions.
• The notion of an “average region” is effectively meaningless,
statistically and in policy terms.
What this means for policy
5

6. What is the problem?
Overall, the crisis contributed to rising disparities across the OECD
Differential impact of the crisis
6
obs 2007-2010 2007-2008 2008-2009 2009-2010
urban (PU) 307 -0.67% -0.21% -3.91% 2.41%
intermediate 386 -0.86% 0.11% -3.75% 1.53%
PRC 301 -0.44% 0.84% -3.88% 2.09%
PRR 199 -1.22% -0.57% -4.30% 1.69%
GDP growth (2007-2010)

7. What is the problem?
Labour mobility – constrained in many places – did not alter the
picture much in the short term.
Differential impact of the crisis
7
2007-2010 2007-2008 2008-2009 2009-2010
urban (PU) 307 -1.10% -0.67% -4.38% 2.01%
intermediate 386 -1.18% -0.38% -4.18% 1.38%
PRC 301 -0.56% 0.66% -4.06% 2.06%
PRR 199 -1.27% -0.75% -4.38% 1.77%
GDP per capita growth (2007-2010)

8. What is the problem?
0.61
0.46
0.410.40
0.370.360.35
0.31
0.29
0.28
0.250.24
0.22
0.200.190.190.18
0.160.150.150.150.140.130.130.130.130.120.120.120.11
0.090.090.080.08
0.060.06
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
China
Russia
Kazakhst…
India
Slovak…
Chile
Mexico
Colombia
Brazil
Indonesia
Ukraine
Turkey
Hungary
OECDav
Canada
South…
Czech…
Germany
Greece
Italy
United…
Finland
Norway
Poland
Portugal
United…
Australia
Denmark
Austria
Spain
Switzerland
Sweden
France
Korea
Netherla…
Japan
Gini idex of GDP per capita (TL2), 2011
Large inter-regional disparities
8

9. What is the problem?
• Little evidence of convergence over time
No evidence of convergence over time
9
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
Change in the inter-regional Gini coefficient, 1995-2011

10. Why is this a problem?
Market forces and economy-wide policies do not guarantee first-
best outcomes from the perspective of:
1. Efficiency:
 Spatially blind policies are not spatially neutral.
 Chronically under-performing regions are a drag on aggregate
growth.
2. Equity
 Citizens’ access to services and life chances should not depend
on where they are born. Not everyone can/will/should move!
3. Political reality:
 Failure to act can lead to costly remediation in the long run.
Agglomeration is beneficial, but other factors
call for a differentiated approach…
10

11. The solution: unlocking regions’
potential
• Regions compete on absolute advantage. (Forget your
Ricardo!)
• This  a need to focus on immobile assets.
• Regional development strategy  relatively immobile assets +
policy co-ordination + multi-level governance.
• This is where much stakeholder engagement occurs:
information revelation and balancing top-down leadership and
bottom-up initiative.
Designing regional development strategies
11

12. The solution
It’s not all about cohesion investments and shiny new
infrastructure projects. Good regional development policy is
nothing more nor less than good economic policy, without
recourse to macroeconomic policy instruments. So think about:
• Entrepreneurship, entry, regulation and competition.
• Education, training and skills.
• Innovation.
• Active labour-market policies.
Don’t neglect the boring bits
12

13. The pitfalls
• Too many goals  dispersion of effort.
• Focus on current service delivery rather than development.
• Too much localism (often linked to the above!).
• Compensatory logic (often contributes to dispersion).
• Too little variety: often the result of following the (actual or
perceived) priorities of the national government or donor.
• Too little risk.
• Failure to think seriously about spillovers.
Regional policy for national performance
13

14. Why policy co-ordination?
Isolated sectoral
actions have
unintended outcomes.
14
Persistence of inequality
Infrastructure
provision
Leaking by linking
Policy
responses

15. Why policy co-ordination?
Isolated sectoral
actions have
unintended
outcomes.
15
with labour mobility
Persistence of inequality
Policy
responses
Human capital
formation
Brain drain

16. Towards an integrated approach
16
Infrastructure
provision
Human capital
formation
Business
environment
Innovation
Regional growth
and convergence
at the regional scale
Many countries are reforming in this direction, but
implementation is still difficult.
Policy
responses

17. Paradigm shift in regional policy
The “old new” OECD Paradigm: still a challenge
17
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
Redistribution from leading to lagging
regions
Building competitive regions by bringing
together actors and targeting key local assets

18. A word about structural funds
• Don’t focus on absorption capacity to the exclusion
of all else.
• Money matters but sometimes less is more – harder
choices can make for better decisions.
• Impact is greatest when investments take place in
the context of a well-developed, cross-sectoral
strategy.
• Provision of local amenities is nice – but it’s not a
motor for development.
An instrument, not a substitute for policy
18

19. A word about structural funds
Good practice doesn’t look like this…
19

20. A word about structural funds
…Or this
20

21. To sum up
• Provide infrastructure as part of an integrated regional
approach.
• Invest in human capital.
• Emphasise innovation and R&D.
• Work at a scale and with a vision that makes sense for growth.
• Focus on integrated regional policies.
• Treat structural funds as a policy tool within an overall
strategy – not as a policy in and of themselves.
OECD analysis points to a few broad lessons for policy:
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22. Thank you for attention!
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