1. Competitiveness in low income and low growth regions
Błażej Gorgol, DG REGIO
Coffee with an expert
29 June 2017

2. Initiative focuses on two groups of 'lagging' regions:
Definition
Initiative focuses on two groups of 'lagging' regions:
'Low growth regions’ (blue): did not converge over the last decade or more
'Low income regions' (red): GDP on the rise, but remain poor

3. Areas of analysis
How to improve the economic performance of lagging regions?
Experience from analytical and applied strands
Macroeconomic framework
What is the impact of macroeconomic imbalances on lagging regions?
Do lagging regions tend to be more affected by macroeconomic imbalances?
Structural reforms
What is the impact of structural reforms (or lack thereof) on lagging regions?
What are regional differences in implementing nation-wide reforms?
Growth determinants
What are the most important drivers for growth in lagging regions?
Have lagging regions chosen a good investment mix ?
What should cohesion policy invest in?

4. Economic growth

5. Economic growth -decomposed

6. Basic indicators

7. Macroeconomic framework

8. Macroeconomic environment: a case of Portugal
Portugal was the only country with lagging regions, where investment were on the decline from 2000
External shocks: globalisation, and EU enlargements 2004 and 2007, but underlying productivity and competitiveness issues
Euro – delayed policy transformation from nominal to real adjustment and growing macroeconomic imbalances
Investment driven by non-tradable sector

9. Structural reforms provide
More benefits for lagging regions because
Lagging regions have
higher unemployment rates
lower employment rates
lower shares of tertiary educated
fewer firms per capita
smaller firms
lower start-up rates and
start-ups have fewer employees

10. Example of labour market rigidities
Structural reforms
Example of labour market rigidities
Multiple labour market rigidities in the low-growth group:
central wage setting
employment protection
segmentation
In general, lagging regions have:
higher unemployment rates,
lower employment rates
lower shares of tertiary educated
than non-lagging regions
Italy and Spain: consistent underperformance of low growth regions

11. Business environemnt in lagging regions
Structural reforms
Business environemnt in lagging regions
Lagging regions have:
fewer firms per capita
smaller firms
lower start-up rates and
start-ups have fewer employees
in tradable sectors compared to non-lagging regions in their countries
Unfavorable business structure may affect capacity of firms to adapt to economic changes and to innovate

12. Regional diffrences in ease of doing business
Structural reforms
Regional diffrences in ease of doing business
Significant variation under the same regulatory and legal framework
Different time, cost and number of procedures to start a business, register property, contract enforcement and construction permit
Potential local efficiency gains
Scope for peer-to-peer learning
Differences in quality of institutions and administrative capacity important for business environment

13. Growth determinants
Low-growth
Low-income
Growing population
Metros do better
No benefit from TEN-T
Moderate innovators, but some decline
Low to moderate quality of government
EU and national policies consider lagging regions
Shrinking population
Metros do better
Benefit from TEN-T
Modest innovators, but some growth
Low to moderate quality of government
EU and national policies consider lagging regions in some Member States

14. Metro-regions do better
Growth determinants
Metro-regions do better
Some significant cities exist in lagging regions (not all lagging regions are rural)
Huge contribution of cities in low income regions to growth and jobs
Smaller contribution in Portugal and Greece
Portugal – issues of urbanisation structure dominated by Lisbon and Porto as well as insufficient over the years spatial planning in cities

15. Infrastructure and accessibility
Growth determinants
Infrastructure and accessibility
Traditional factors of growth (eg infrastructure investment) still contribute significantly to economic development in low income regions
In Spain and Portugal completion of TEN-T network does not really improve the accessibility
Targeted infrastructure investment can still work in some low growth regions – but good management needed

16. Quality of governance matters
Growth determinants
Quality of governance matters
Low to moderate quality of government in both groups
Quality of government – a crucial factor of growth for the low growth regions
Low income can still exploit reserves, but with diminishing returns on investment over-time, growth will fade without improvement in governance

17. Cohesion policy investment
Diminishing infrastructure investment and rising productive and human capital in low growth regions
Infrastructure still dominant in low income regions

18. Main findings
Low-growth regions suffer most from a poor macroeconomic framework
Lagging regions need more structural reforms in the labour market and business environment
Lagging regions need to improve governance
Low-growth regions need a better educated workforce and more export-oriented firms
Low-income regions should avoid over-investing in infrastructure and under-investing in innovation
Metro areas can strengthen growth in lagging regions