Rethinking regional development strategy in the context of Structural Funds: Lessons from the Irish cross-border region John Bradley and Michael Best Presentation made at the DIRECTORATE-GENERAL REGIONAL POLICY – EVALUATION NETWORK MEETING, Brussels, June 2012 Full paper available on:

Early days of Cohesion Policy macro impact evaluation 1988: Initial ex-ante macro impact evaluations of Irish Structural Fund programme : Application of macro techniques to Greece, Portugal and Spain : Gradual extension to ex-ante evaluations in candidate states : Cohesion System of HERMIN models (CSHM) for all Objective 1 states 2010-date: Extension of CSHM to all 27 (+1) member states

Small regions need different techniques The Ireland-Northern Ireland INTERREG project focused on a small sub-region of the island National economy research: Theory -> Data -> Empirical analysis -> Models -> Policy impact analysis Small region research: Theory: New, complex, untested, only suggestive Data: Scarce, often not very relevant Empirical analysis: Mainly cross-region panel studies

Implications for CP design and analysis CP mainly designed at the national level But CP programmes implemented at regional level Macroeconomic analysis at national level ignores spatial aspects Macro-type knowledge often not available at the regional level But CP design and impact analysis needs knowledge of the structure and performance of the regional economy target

The two meanings of macro The macro view of any economy, national or regional, takes into account all relevant aspects (e.g., production, income generation, expenditure, labour market, external interactions, etc.) and their interactions Large Operational Programmes (OPs) and the complete CP programme are referred to asmacro policies since they have macroeconomic consequences for all aspects of the target economy

The two meanings of micro Microeconomic analysis focuses on a specific element of the economy (skill levels; transport costs between location A and B; social disadvantage in the labour market) Individual CP projects or small groups of projects (measures) are often referred to asmicro policies (e.g., small scale policy actions that can be assumed to have mainly specific, localised impacts)

Macro and micro impact analysis in practice It is essential to be aware of where micro impact analysis and macro impact analysis overlap The overlap challenge is illustrated by two recent ex-post studies a.M1 motorway project in Ireland b.International transhipment port of Gioia Tauro in Southern Italy

The Irish M1 motorway project

The M1 motorway: wider context

The impact analysis challenge: M1 The M1 motorway was only one element of a national network of motorways, inside and outside the island of Ireland The wider network benefits dwarfed benefits specific to the M1 catchment area CBA technique was unable to quantify network benefits Wider macroeconomic benefits were understated

The Gioia Tauro transhipment port: Regional context

The impact analysis challenge: Gioia Tauro Micro analysis and CBA techniques pointed to a low rate of return on the investment An expected spin-off from Gioia Tauro was development in the regional hinterland of the port This never happened. Why? Answer needed a deeper microeconomic as well as macro-structural analysis of the regional economy, which was missing from the project design and evaluation

What to do??? Regional Development Strategy Frameworks Macroeconomic analysis is often possible at a regional level, but requires considerable effort to make maximum use of available data. Good data permit development of regional models (Polish NUTS- 2 regions), but formal modelling usually impossible Business strategy frameworks should also be used to understand the regions enterprise sector (e.g., Porter, Best) Narrative analysis can also generate insights about the regional economy (e.g., Jane Jacobs)

A good example of narrative regional economic research

The historical context of the Irish border region economy Island was part of the UK between (like Scotland and Wales), integrated into British economy Famine of depopulated rural areas. Population of island two million less than in 1845! Second industrial revolution only benefited Belfast agglomeration (Titanic!); rest of island rural Industrial decline and civil unrest in Northern Ireland ( ) South (Ireland) industrialised first through import substitution ( ) and then through export orientation (FDI, as in Flanders) Border region was bypassed and decoupled from rest of island economy; towns isolated from their natural hinterlands But tradition of manufacturing in the border region endures, as case studies showed

Research by walking about Officially published regional data tends to be patchy or not available Commercial databases can sometimes be used (e.g., FAME for many EU states) Targeted visits to selected enterprises and regional organisations can fill in gaps But you need to know what you are looking for! Strategy frameworks act as a guide

The Irish border counties

Snapshots from the Irish border project Clothing: Hunter Apparel Solutions, Derry, NI Food Processing: Castlecool, Co Monaghan, Ireland Metal Fabrication: Walter Watson Ltd, Castlewellan, Co Down, NI Electronics: Bose (Ireland), Co Monaghan, Ireland

Hunters: Hi-tech uniforms

Snapshots from the Irish border project Hunter Apparel Solutions, Derry, NI The insights arising from Hunters related mainly to the question of how a firm in a very traditional manufacturing sector (clothing) can transform itself and survive in a declining sector and a de-industrialising region. When we visited the Derry region and spoke to people in local government and NGOs, there was a tendency to regard this sector as a lost cause and to want to move on to high-tech sectors that appeared to offer more promise. Hunter Apparel Solutions showed us how short-sighted and flawed this view was.

Castlecool: Food processing logistics

Snapshots from the Irish border project Castlecool, Castleblayney, Co Monaghan, Ireland The insights arising from our discussions with Castlecool related to the complex storage and supply logistic systems that are essential in supporting the growth of high added value food manufacturing, much of which is located in the cross-border area. They also illustrated how firms that take the island market seriously see the cross-border region as an important strategic location for supplying the large population centres, North and South.

Walter Watson: Metal fabrication

Snapshots from the Irish border project Walter Watson Ltd, Castlewellan, Co Down, NI Our discussions with Walter Watson gave valuable insights into how a sophisticated, modern firm engaged in the production of a range of complex metal products could evolve in a rural area near the border and thrive in highly competitive domestic and export markets. It also illustrated how a firm can start by manufacturing simple products destined for local markets, but can grow to become a large and sophisticated exporter.

Bose Ireland: A lost opportunity for the traditional furniture sector?

Snapshots from the Irish border project Bose (Ireland), Carrickmacross, Co Monaghan, Ireland Our discussions with Bose in Ireland, gave us an example of an extraordinarily sophisticated, foreign-owned firm that located in the border region in 1978, originally hoping to source some of its supply chain locally (i.e. production of wooden cabinets for the Bose top-of-the-range audio equipment), failed to find suitable suppliers and then put in place its own supply facility. It also illustrated how the valuable experience of a firm like Bose was largely ignored by the existing furniture sector in the area, which has suffered a catastrophic decline in recent years.

Towards more integrated policy design and analysis Micro and macro perspectives are needed in CP design and impact evaluation Over the years the two approaches have drifted apart and do not communicate with each other An integrating approach is needed, and is illustrated in the following table

What did we learn? Micro and macro analysis of CP design and impacts needs to be carried out in a more integrated way Cohesion Policy works better when micro and macro perspectives are in harmony Gaps in macro research can only be addressed by better formalised micro research (like M1 and Gioia Tauro studies) Only improved macro analysis can provide the correct economic context for big individual projects like M1 and Gioia Tauro Micro and macro are not competing analytical perspectives, but are essential complements