EU10 February 2009 Special Topic: Reshaping Economic Geography Mihaela Giurgiu MPA, 1 st year, Ngo Management

RECOMMENDATIONS Make economic borders thinner Welcome rising economic density Deepen institutional convergence

A politically divided Europe saw economic divergence GDP per capita in selected Western and Eastern European economies,

Economic Division Thick Borders Impede Specialization Built-up of economic density in a core area Stretches across Western Europe Density built launched western economies forward Geographic distance to density in the west was not long But Eastern European countries denied access by division

EU10 Countries Need to Make Their Borders Thinner, and EU15 Should Not Thicken Its Economic Borders as It Deliberates Fiscal Stimulus

Higher Divisions, Greater Economic Distance, and Lower Density Mean Poorer Market Access in the EU10 Real market potential relative to the US, 2005

Economic Density Agglomeration Should Be Facilitated Density = intensity of economic activity/unit of land area Measured by the level of GDP generated/km² of land Economic density across EU’s sub-national areas shows a strong association with GDP/capita Economic density boosts higher productivity + well being Advantages: ‘thick’ markets – variety of goods + suppliers Pool of labor Beneficial spillovers of knowledge

Mountains in the West, Hills in the East The economic topography of Central Europe and the Baltics

Tackling disparities in productivity and well-being across member states and regions Expansion of CEE countries → disparities within the Union are now wider EU “cohesion policy” ( ) – total funding of €348 billion, 82% - “convergence objective” – 71% allocated to regions with GDP/capita < 75% of EU average 23% of convergence objective → member states with GNI/capita < 90% of EU average AIM: reduce structural disparities, foster development, promote real equal opportunities for all Spatial equality + ‘smooth’ economic landscape

WD Report suggests that this approach is ‘misguided’ at the development stage of much of the EU 10 Economic growth – spatially unbalanced Convergence of E +WE countries requires policies for building economic density in leading areas of EU 10 First, increased spatial concentration → rising spatial disparities in productivity + living standards Cities + leading regions will redraw form rural and remote areas Migration + redistributive tax systems +commitment to universal provision of health, education, security → spatial disparities in living standards diminish

Promoting Prosperity in the EU 10 Institutions That Unify All Places How can EU 10 states: - built economic density - convergence to WE levels of prosperity - reduce disparities in living standards - achieve domestic integration - attain high-income levels? WDR suggests → strengthening their INSTITUTIONS - undertake institutional reforms - improve domestic governance

Institutional reforms include: A sound macroeconomic environment that contains: - inflation and an efficient fiscal system A sound institutional framework that: - limits corruption and - improves governance The SAA between EU and the Balkans specify the legal and regulatory reforms – undertaken – before joining EU CEFTA, intraregional free trade agreement→ simplifies and harmonizes rules of origin, →extends trade + transport facilitation initiative Common power market + open sky agreement – boost tourism

EU 10 states need to continue: To reduce the thickness of their borders Continued domestic institutional reform Improve the ‘Ease of Doing Business’ for Hungary, Bulgaria, Romania, Slovenia, the Czech R and Poland Improvements in governance→ attract investments +facilitate the growth of density in EE cities Strengthen common institutions within each of the EU10 Universal provisions of basic and social services + improved land markets will ↑labor mobility +land use convertibility Improve the flow of workers, goods and services

Dangers During times of prosperity, there is the danger of pursuing the elusive goal of “spatially balanced growth”, which means fighting prosperity itself. During times of crisis, growing protectionism may be the greatest danger to economic recovery.