1 Recent Developments in Regional Industrial Policy: Smart Specialization Strategy and Insights for Korea Philip McCann

2 Structure of talk 1. European Economic Context 2. European Regional and Urban Context 3. Place Based Approach 4. Smart Specialisation

3 1. EU Cohesion Policy Elements Conditionalities Common Strategic Framework European Code of Conduct on Partnership → multi-level governance Integrated territorial place-based approach Grants to loans and financial instruments ‘Teaming of Excellence’ – Horizon 2020 and Cohesion Policy Smart specialisation Results-orientation

4 2. European Economic Context Growth and development challenges are broader and more complex than previously understood Modern Approaches to Growth and Development - OECD Growth Strategy: stronger, cleaner, fairer - Europe 2020: smart, sustainable and inclusive Trade-offs and complementarities → at the regional level (OECD 2014)

5 2. European Economic Context 1960s to 1990s convergence 1991/92 EU Single Market ‘Transatlantic productivity gap’ literature 1990s ‘Silicon Valley’ effect 2000s ‘Walmart effect’ Smart specialisation – ‘Knowledge for Growth Expert Group’ DG Research – Dominque Foray, Bart van Ark, Paul David, Bronwyn Hall, Jacques Mairesse et al Focus on coordination between skills-training and emerging technologies

6 2. EU Regional and Urban Context OECD and EU patterns of regional growth – urban/intermediate/rural - are very heterogeneous across countries Similar probabilities of above average growth – but higher dispersion higher for rural regions Benefits of urban concentration and agglomeration are neither linear nor infinite- limited in many OECD countries OECD (2009a,b, 2011, 2012, 2014a,b) evidence that endogenous factors were critical for regional growth

7 2. EU Regional and Urban Context UK, France, Netherlands, Spain – population of metro regions grows at a lower rate than national population One third of cities with productivity levels below non-urban areas GDP share of primarily urban areas in EU15 remained almost constant over the decade. Many small and medium sized cities displayed high productivity levels and growth Complex polycentric EU-wide network structure connectivity appears to be more important than urban scale, national scale, specialisation or diversity

8 2. EU Regional and Urban Context Post-2008 Crisis Primarily urban areas and remote rural areas are the weakest regions in Europe in the aftermath of the crisis Rural areas close to the cities and intermediate areas are the most robust types of European regions Large cities are vulnerable Different story to North America

9 3. Place Based Approach EU Cohesion Policy adopts a place-based approach → local context really matters Local and regional growth and development depends on the interrelationships between economic geography and institutions Interrelationships are different in different places Increasing awareness that development depends on the behaviour of all local actors: their knowledge, incentives, interrelationships

10 3. Place Based Approach Counter-argument to top-down and ‘space-blind’ policy → cannot distinguish between ‘people- based’ and ‘place-based’ dimensions in many cases Place based approach is about extracting, and building on local knowledge and mobilising it in the wider national and international context Not about localism – but about fostering bottom up development and local capabilities in the wider context

11 3. Place Based Approach Place-based shift → awareness of roles of institutions, economic actors and rules of engagement Policy choices based on capacity, capabilities and potential for innovation – across all dimensions of Europe 2020 Policy makers must decide the priority on the basis of the best public information → 2009 Report of the Commission on the Measurement of Economic Performance and Social Progress, Stiglitz-Sen-Fitoussi

12 4. Smart Specialisation Smart specialisation – ‘Knowledge for Growth Expert Group’ DG Research – Dominque Foray, Bart van Ark, Paul David, Bronwyn Hall, Jacques Mairesse etc A systems approach to innovation – ‘knowledge ecology’ Smart Specialisation elements: - Entrepreneurial search processes - Relevant domains - Connectedness

13 4. Smart Specialisation Entrepreneurial search processes → to identify the distribution of likely opportunities Relevant domains → to enhance the likely magnitude of opportunities Connectedness → to maximise the potential for learning about these opportunities Existing assets, institutions, frameworks are all relevant to technological evolution

14 4. Smart Specialisation Diversification around core specialist areas and activities which offer potential scale → not greater sectoral specialisation! Entrepreneurship and innovation as central focus of policy actions – across all development dimensions Link priority areas and themes to regional structure and capabilities Priority of enhancing knowledge diffusion and connectivity

15 4. Smart Specialisation In a regional context this translates to: - Embeddedness - Related variety - Connectivity Philip McCann and Raquel Ortega-Argilés: Smart Specialisation, Regional Growth and Applications to EU Cohesion Policy – forthcoming in Regional Studies DOI: /

16 4. Smart Specialisation Embeddedness: can be captured by regional CGE models, regional Input-Output models, location quotients, case studies, longevity, social capital etc. Relatedness: It is not about sectoral specialisation but diversification → specialised technological diversification Embeddedness + Relatedness = Relevant Size Domain

17 4. Smart Specialisation The sectoral approach interprets connectedness in terms of networking and access to learning Regional approach and economic geography - sees connectivity in terms of access to knowledge, markets and suppliers Danger of the Krugman shadow effect on non- core regions Critical development of local linkages → place based

18 4. Smart Specialisation A smart specialisation approach to regional policy should be about promoting the generation, exploitation, and dissemination of local ideas and knowledge Maximising both intra- and inter-regional knowledge spillovers in the relevant scale domains (embeddedness + relatedness)

19 4. Smart Specialisation Smart specialisation principles provide a quite different logic to much existing thinking Technological upgrading of a region’s existing and traditional sectors Focus on coordination between skills-training and emerging technologies Measuring Smart Specialisation: The Concept and the Need for Indicators, David, P., Foray, D., and Hall, B., 2009

20 References Barca Report 2009 An Agenda for a Reformed Cohesion Policy, European Commission, Brussels OECD, 2009a, How Regions Grow OECD, 2009b, Regions Matter OECD, 2011a, Regions and Innovation Policy OECD, 2011b, OECD Regional Outlook 2011 OECD, 2012, Promoting Growth in All Regions OECD, 2014a, How’s Life in Your Place? OECD, 2014, OECD Regional Outlook Regions and Cities: Where People Meet World Bank, 2010, Innovation Policy: A Guide for Developing Countries