Local development and territorial disparities in transformation countries Local development and territorial disparities in transformation countries Keynote address Prof. Bruno Dallago School on Local Development University of Trento Conference on Facilitating an area-based development approach in rural cross-border areas of the Western Balkans Belgrade, 5 May 2011

2 Local development Necessary for managing disparities and capturing opportunities, rebuilding the social fabric, integrate institutional transformation Formal institutional decentralisation Uneasy central/local relation Sectoral vs. holistic approach

Transformation and disparities Transformation has generated disparities and inequalities due to: End of socialist allocation and distribution policies Different endowments of territories, social groups and individuals Agglomeration effects of domestic and international resources New member countries as path breakers for accession countries?

4 Opposite trends in transformation countries Decreasing inequality among countries  convergence and integration Increasing inequality within countries  economic, social and territorial inequality and segmentation Need to consider population dynamics Territorial disparities as one of the reasons for income wealth, and opportunity inequalities

Regional inequality in transformation countries (Theil indices)

Regional inequalities within countries (Theil indices)

7 Divergence from “old” Europe: Dispersion of regional GDP at Nuts level 2 (%)

8 Concentration of production in capital cities Source: OECD

1. Growth of post-transformation regional disparities and stability of general territorial patterns. Flow of opportunities, human and financial resources towards capital cities and impoverishment of periphery areas 2. Polarization and territorial segmentation due to faster development of regions with big urban centers and stagnation – or even decline – of less developed regions of eastern (external) and central (internal) peripheries. 3. Rapid restructuring vs. delayed restructuring of sectors/branches. Immediate impact on regional trajectories. Regional patterns of transformation 9

10 Regional patterns of transformation 4. Metropolisation replacing traditional urban-rural divide. 5. East-West divide due to new opportunities of transborder co-operation and return of the „modernisation from the West” pattern. 6. Decentralisation, local democracy. The competencies of the regional tier still uncertain in some countries. 7. Social disparities, divided polities

11 The territorial patterns of transformation Reaction to transformation positivenegative Posi- tion in the socia- list eco- nomy good LEADERS Positive continuity Motropolitan areas and capitals Diversified economy, skilled labour, good infrastructure and rich institutions, international activities LOSERS Negative continuity Traditional industrial regions Specialised industry, neglected land, biased/low qualifications bad WINNERS Positive Discontinuity Regions with endogenous potential Diversified economy, external demand LAGGARDS Negative continuity Rural, peripheral Nonaccessible, obsolete structure, low qualifications

Degree of tax sharing vs. own financing of subnational governments, early-mid 2000s Own taxes as % of total SNG Reve- nue Own nontax revenue as % of total SNG revenue Total own revenue as % of total SNG revenue (ex grants) Total subnational tax revenue in percent of total subnational revenues Distribution of total subnational tax revenues Degree of Autonomy Tax sharing Own- finan- cing To set tax base To set tax rate Albania None Bulgaria None Croatia Very limited Macedonia, FYROM None Local govt financing is currently under discussion Romania Some d Some g SCG None

Transfers (grants) from central to subnational governments SizeType of grant Percent of GDP Percent of total revenue GeneralSpecific Albania (1998) Bulgaria (2000) Croatia (2000) 0.25SmallMost Romania (1999) 0.717Yes Sources: Government Finance Statistics (IMF), IMF country economists; Wetzel and Dunn (2001)

The case for cross-border cooperation Cross-border cooperation (CBC) as a way to: boost local development soften (territorial, industrial, social, political) segmentation, disparities, and tensions attract resources and create opportunities Institutional framework to facilitate cross- border cooperation Policies for CBC

15 Evaluating and strengthening the effects of CBC Evidence: limited economic impulses, important social and political influence Need for: –comparison of evidence against context, policies, and experiences in the field; –proper time frame; –comparison against counterfactual How can we improve and strengthen CBC implementation, outcomes, and spillovers? Is CBC in former Yugoslavia different? Is there a positive path-dependence?