Regional Development Policy Division, OECD REGIONAL DEVELOPMENT POLICY edinburgh, scotland, united kingdom 23 january 2018 Chris McDonald Regional Development Policy Division, OECD

OECD regional development policy paradigm Compensating lagging regions does not work: Creates dependency, not development Wealthier regions may become reluctant to support lagging regions OECD promotes ‘place-based’ policies focusing on: Use of regional specific assets (or create absolute advantages to stimulate competition & experimentation across regions) Create complementarities among sector policies at the regional (or local) level Use of multi-level governance mechanisms for aligning objectives & implementation Sweden’s overall regional development objective is to simultaneously ensure equity and territorial growth, and it has rigorously adhered to this commitment. It is currently facing territorial challenges such as demographic change (ageing, internal migration, asylum seekers); the question of “rural” and a sense that rural areas are being “left behind”; regional and municipal governance and the adequacy of current structures.

18/11/2018 National productivity performance needs the contribution of all regions

Convergence of countries vs. divergence of regions in the OECD GDP per capita dispersion is now greater within countries than between countries

The productivity gap between frontier and lagging regions has increased Averages of top 10% (frontier), bottom 75%, and bottom 10% (lagging) regional GDP per worker, TL2 regions 60% increase 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.

Productivity and catch up trends amongst UK regions Labour productivity growth, by region, United Kingdom* Source: OECD (2016) OECD Regional Outlook *Average annual labour productivity (GDP per worker) growth rate [diamonds] and deviation from the growth rate of the country’s productivity frontier [bars], 2000-2013

UK region’s contributions to labour productivity growth vs UK region’s contributions to labour productivity growth vs. national growth Contribution to labour productivity growth, 2000-13 Percentage contribution to national GDP growth, 2000-13 Source: OECD (2016) OECD Regional Outlook Source: OECD (2016) OECD Regional Outlook Note: 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. Note: Percentage contribution shows the share of total GDP growth that was due to growth in the indicated region. Total contribution sums to 100%.

Local productivity trends: Scotland, UK Labour productivity, sub-regional (TL3), Scotland, UK (2004-2013) Scotland GVA per worker 2004 - 2013 Average annual growth GVA per worker (2004) Source: OECD Regional Database

What are the main drivers of regional productivity catching-up? 18/11/2018 What are the main drivers of regional productivity catching-up?

Growth factors vary according to level of development Growth drivers/bottlenecks Lagging (>75% of national average per capita GDP) Intermediate (75-100% of national average per capita GDP) Leading (>100% of national average per capita GDP) Human capital/skills: presence of very low skilled √√ √ Human capital/skills: presence of highly skilled Labour-force mobilisation: participation/employment rates   Innovation activity: patents, R&D spending, employment in knowledge-intensive sectors √√√ Agglomeration effects: density of population, density of GDP Quality of government Source: OECD (2012) Promoting Growth in All Regions

All tradable sectors, TL2 regions Catching-up regions are characterised by a stronger intensity of the tradable sectors 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).

Administrative fragmentation is correlated with lower city productivity

What are the key drivers of rural productivity growth? Tradable activities are key for rural close to cities and remote rural Proximity to cities - a minimum level of density is key for economies of scale/scope and delivery of goods and services.

Policy implications for rural areas Identifying drivers in rural areas Tradables (manufacturing), renewable energy, natural resources, services, fisheries, forestry, agriculture, tourism, natural amenities Finding the niche (smart specialisation) How to add value in these domains Policy focus on enabling factors: skills, accessibility, market intelligence, institutions, innovation Urban – rural linkages Infrastructure and connectivity Shared governance and policies Demographic trends and forward looking policies Address long term cost enhancing efficiency in service provision (planning, ICT) Mitigation and adaptation to climate change

18/11/2018 Conclusion

Bottom-line Regional and rural development policies are important for national productivity growth Policies should enable the use of specific regional assets, create complementarities across sectoral policies, and make use of multi-level governance mechanisms They have to be properly integrated in the structural policy package for inclusive growth

Thank you! http://www.oecd.org/cfe/regional-policy/ Introduction 3 main points could be discussed: (1) Rationale for the Principles; (2) The Principles: consultation procedure and TDPC Ministerial meeting; (3) Next steps: implementing and monitoring the Recommendation