JACQUEMIN SEMINAR, 15 July 2009 Reshaping Economic Geography I. Gill World Bank Discussion: Martin Larch Bureau of European Policy Advisers

JACQUEMIN SEMINAR, 15 July 2009 Outline (i)Main points/messages of presentation (facts and policy) - (Stylised) facts; - Policy concerns; - Implications for policy (policy framework). (ii) EU specific considerations - Objectives and instruments of regional policy; - Organisation/co-ordination of regional/economic policies; - Role of migration.

JACQUEMIN SEMINAR, 15 July 2009 Main points/messages of presentation (facts) Global trend towards geographic concentration of economic activity: (i) Development of agglomerations ( + migration + specialisation) are a necessary condition for high per capita income (No country has grown to high income without urbanizing); (ii) Access to economic agglomerations is good for economic development; (iii) Barriers are bad for economic development.

JACQUEMIN SEMINAR, 15 July 2009 Main points/messages of presentation (policy) Policy concerns associated with progressing geographic concentration of economic activity: (i) Urban agglomerations may go out of hand; (ii) Growing spatial disparities in living standards within countries; (iii) Poor countries could remain isolated (bottom billion).

JACQUEMIN SEMINAR, 15 July 2009 Main points/messages of presentation (policy) Policy conclusions in the light of empirical evidence: Do not resist forces of agglomeration: growth will always be unbalanced. Geographic concentration of economic activity can be inclusive. The policy approach that reconciles growth and inclusion is economic integration.

JACQUEMIN SEMINAR, 15 July 2009 Main points/messages of presentation (policy) Policy framework for economic integration Hierarchy of policy instruments: (i) Spatially blind (institutions); (ii) Spatially connective (infrastructure) ; (iii) Spatially targeted (interventions). Is (EU) regional policy skewed towards spatially targeted interventions?

JACQUEMIN SEMINAR, 15 July 2009 What are the objectives of regional policy in the EU? Two stylised, possibly conflicting, objectives are at hand: (i) Economic integration (equalise economic chances of individuals across regions, reduce barriers between regions, encourage mobility). (ii) Reduce per-capita income differences across regions to acceptable levels (encourage and support economic activity in lagging regions so as to reduce income gaps).

JACQUEMIN SEMINAR, 15 July 2009 What are the objectives of regional policy in the EU? Around 80% of EU regional policy spending allocated to convergence objective: promote growth-enhancing conditions and factors leading to real convergence for the least-developed Member States and regions (Source: DG REGIO website) Art. 158 TEC (consolidated text) […] the Community shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions or islands, including rural areas

JACQUEMIN SEMINAR, 15 July 2009 What are the objectives of regional policy in the EU? Does EU favour equity over growth? - EU regional policy is only one EU policy instrument with an impact on economic integration or regional economic development (Common Market, Single Currency, TREN etc.) - On top of EU regional policy there are many national policies that support regional integration (education, health policies, national infrastructure, progressive taxation etc.) Is EU regional policy skewed towards spatially targeted measures? Narrowly defined probably yes. Broadly defined probably no.

JACQUEMIN SEMINAR, 15 July 2009 How to organize regional (economic) policies in the EU One possible interpretation of the status quo: The sum of existing EU and national policies do support economic integration. EU and its Member States deploy all the instruments that are part of the World Banks policy framework (i.e. spatially-blind, -connective, -targeted instruments). Key question economic integration or not? = how to coordinate various policies? How to allocate responsibilities across different levels of government to achieve economic integration and inclusion?

JACQUEMIN SEMINAR, 15 July 2009 What should be the focus of EU policies as opposed to national/regional policies? Should the EU address regional differences within countries? Should EU focus on differences between countries and let Member States deal with internal economic differences? Should EU address regional differences within rich countries? How to ensure consistency between different policy instruments and across levels of government? Within broader context, does current set-up of EU regional policy make sense? How to organize regional/economic policies in the EU?

JACQUEMIN SEMINAR, 15 July 2009 The role of migration Migration is presented as an element that (together with aglom. and special.) promotes economic growth and social convergence. How confident can we be about the proposition that migration tends to reduce income differences? Empirical evidence for the EU mixed (Ottaviano 2009) Finnish regions: Migration following external shock of early 1990s stopped regional convergence; diverging patterns emerged NUTS 3 regions of 12 EU15 countries: Migrants carry attributes that complement native workforce producing positive external effects on the local economy. These effects boost local productivity but imply regional divergence.