1 Regional Development Policy: Rationale, Multi-level Governance and Evaluation By Fabrizio Barca * Moscow Round Table January 26, 2007 Ministry of Economy and Finance, Italy

2 Regional development policies … we face the somewhat paradoxical spectacle of Europe being taken more seriously from outside than from within. Roy Jenkins (as President of the Commission of EU), Jean Monnet Lecture Florence, 27 October 1977 Fabrizio Barca

3 Regional development policies REGIONAL OR PLACE-BASED DEVELOPMENT POLICY: A DEFINITION Old policy A policy aimed at compensating for regional gaps in productivity by providing sectorial public goods and / or subsidies to firms or labour New policy A policy aimed at increasing productivity by providing integrated baskets of local public goods through (mostly) local and regional projects devised and selected according to standards agreed at national and / or super-national level Fabrizio Barca

4 Exogenons push / shock national international Regions output at time t 2 Effective Potential RATIONALE OF REGIONAL DEVELOPMENT POLICIES RATIONALE OF REGIONAL DEVELOPMENT POLICIES Regional / place-baced policies awareness of externalities at local level capacity/willingness to pool local knowledge absorption/attraction of external knowledge public goods and institutions market competition for public goods Regional development policies Effective Potential: endowment of: potential location externalities: Regions output at time t 1 among individuals among firms (agglomeration externalities) of firms/individuals with nat/cult resources human, natural and cultural resources institutions (and competition, and image) public goods Fabrizio Barca

5 Local government Pros availability of knowledge to pool local knowledge incentive to produce results capacity to tackle unforeseen contingencies Cons renegotiation problem local boundary problem: underproduction of public goods overproduction of public goods falling behind problem the trap of localism Local government: pooling knowledge* developing projects* *Moved up to the other levels if required by scale/scope Regional government: promoting the establishment of appropriate local boundaries selecting and/or promoting local projects according to grant conditionalities governing coordination among locations Central / National government: allocating grants to territories and to main priorities establishing, monitoring and sanctioning grant conditionalities governing coordination among regions providing technical assistance, capacity building and links with external knowledge Federal / Supernational government: setting general strategic priorities and some grant conditionalities enhancing credibility of central government governing coordination among central governments and/or promoting forum for exchange of methods and experiences providing technical assistance and capacity building Multilevel governance GOVERNANCE: LOCAL IS NOT ENOUGH Regional development policies Fabrizio Barca

6 MULTILEVEL GOVERNANCE: MAIN INGREDIENTS I.A unique undivided Fund, with: co-financing additionality multi-year commitment II.Reshaping of responsibilities: IV.Knowledge pooling at local level via a mix of: III.A conditional granting system based on: 1.a mix of participatory and evaluation culture 2.an incomplete contract framework V.Macro-evaluation and political sustainability negotiation evaluation 1.a super-national credibility-enhancing authority 2.a unique national gate-keeper, establishing, monitoring and sanctioning conditionalities Regional development policies 3.targeting 3.a capable local government with responsibilities to allocate resources Fabrizio Barca

7 THE CASE OF EUROPEAN UNION II.1 A SUPER-NATIONAL CREDIBILITY-ENHANCING AUTHORITY: THE CASE OF EUROPEAN UNION Pros promoting a regional approach enhancing central government credibility and providing a leverage for change promoting economic and social partnership in programming providing potential cross-countries comparability promoting across-borders regional policy Cons setting top-down hyper-rationalist conditionalities establishing a compliance approach to evaluation Missed opportunity (until now) promoting true strategic thinking at high administrative and political level promoting horizontal coordination among countries Regional development policies Fabrizio Barca

8 III.2 INCOMPLETE CONTRACT FRAMEWORK The problem Committments are needed: between private and public agents at local level among levels of government (vertical) among sectoral responsibilities (horizontal) but they cannot be written in a fully verifiable way Solutions to avoid write contracts as if they were complete (hyper-rationalist) write no contracts and fully rely on participation (hyper-participatory) mix evaluation and participation culture, i.e. … a system of fiduciary duties to fill the rules ex post and a mechanism to produce information on the objectives/rules and a mix of reputation / repeated game / trust … write incomplete contracts with open-ended objectives/rules plus: Solution Regional development policies Fabrizio Barca

9 Problems III.3 TARGETING CAPACITY BUILDING WITH A REWARD / SANCTION SYSTEM: HARD USE OF INDICATORS IN THE MEZZOGIORNO CASE measurement responsibility renegotiation incomplete contract Solution set open-ended targets set an evaluation system: run by a body composed of principal and agents produce periodical Reports and using it as a Knowledge producing mechanism It allows measurement to be refined targets to be completed / interpreted actions to be taken if responsibility is shared renegotiation risk to be reduced Regional development policies Fabrizio Barca

10 III.3 TARGETING IN THE MEZZOGIORNO CASE: RESULTS Regional development policies Fabrizio Barca

11 Regional development policies V. MACRO-EVALUATION AND POLITICAL SUSTAINABILITY: THE MEZZOGIORNO CASE Macro-evaluation as a coherence framework to link micro to macro give structure to polical debate EX ANTE Mezzogiorno plan : a supply–side model with break variables INTERIM Yearly Reporting and Interim evaluation Report: limiting renegotiation of financial commitments allowing a fair assessment of policy EX POST Providing a base for policy changes by basing Plan on ex post evaluation Fabrizio Barca

12 Regional development policies V. CONTEXT INDICATORS: REGIONAL COMPARISON (Italy = 100) Source: Italian Ministry of Economy and Finance, 2005 Annual Report Fabrizio Barca