2. Territorial scenarios of the MASST3 model in the ET2050 project Roberto Camagni, Roberta Capello, Andrea Caragliu and Ugo Fratesi Politecnico di Milano ESPON MC meeting, Luxemburg, 14 March 2013

3. The MASST3 model: objectives to produce economic scenarios, i.e. “quantitative foresights” (and not forecasts) for all European regions up to 2030; to produce scenarios for all NUTS2 (2010 classification) regions of all 27 EU countries, with an additional sub-model in order to cover 31 ESPON countries. Previous versions of MASST developed for ESPON 3.2; ESPON SPAN; DGRegio projects. This project is based on a new version of MASST, considering the economic crisis, public budget constraints, innovation modes, the role of urban areas in regional growth. 2

4. The MASST3 model: peculiarities and innovative aspects The model is able to simulate effects on regional growth of: -the economic crisis; -the macroeconomic aspects (public budget constraints, sovereign debt, spread, exchange rates); -the territorial capital elements (innovativeness, trust, accessibility); -cohesion and infastructure policies. 3

5. Output of the MASST3 model At EU, national and regional levels, MASST produces up to 2030: -GDP growth; -GDP per capita level; -employment growth rates; -industrial employment growth rates; -service employment growth rates; -population growth rates. 4

6. Assumptions of the Baseline scenario The general assumption of the Baseline scenario is that: –no change in policies will be implemented up to 2030, and that –the general slow economic recovery will start in 2016. 5

7. RESULTS FOR THE BASELINE SCENARIO (2030)

8. Aggregate results of the Baseline scenario 7 Average annual GDP growth rate Average annual population growth rate Average annual employment growth rate Average annual manufacturing employment growth rate Average annual service employment growth rate EU27 1.880.311.581.381.64 Old 15 1.880.471.531.491.54 New 12 1.90-0.381.900.972.33 1. The New12 countries grow a little more than the Western countries. 2. New12 countries increase employment in services more than in manufacturing, entering a new stage of development. 3. Western countries have a balanced growth between manufacturing and services.

9. National results of the ET2050 Baseline 8

10. Baseline: annual average GDP growth rate 9 Two speed Europe; Southern peripheral countries grow less than Northern countries. Southern European countries discount the difficult present conditions on their future evolutionary trajectories. Eastern European countries still grow more than the EU 15, but this is not enough to catch up the GDP per capita levels of the Western countries in 2030. Overall intra-national regional disparities increase.

11. Theil index in the Baseline scenario 10

12. Baseline: annual average total employment growth rate 11 Total employment increases across Europe, which partly allows a recovery from present huge unemployment rates. Different growth patterns: Some peripheral regions in Poland, Southern Italy, Spain, Greece show a good employment growth rate, even in presence of reduced GDP growth rates (low functions - low salaries model of growth; decreasing price model of growth). Some Northern countries show a low employment growth rate, even in the presence of high GDP growth rates (productivity led growth).

13. Baseline: annual average industrial employment growth rate Europe registers an increase in manufacturing employment, also in central/core regions. The increase of manufacturing employment is more limited in Eastern regions than in the past; these countries are losing part of their cost advantage, i.e. unit labour cost. Peripheral areas like Southern Italy, Greece and Spain gain manufacturing jobs, but with low productivity and salaries.

14. Baseline: annual average service employment growth rate The tendency to increase service employment will persist also in the future, almost everywhere. Greece does not gain competitiveness. Probably this is especially true for its specialized service sector - tourism - and this can explain partially its low GDP growth. Eastern countries present a lower increase of jobs in manufacturing, entering a new development stage characterised by the creation of (low-level) jobs in the service sector.

15. EXPLORATORY SCENARIOS (2030)

16. Summary of assumptions for the exploratory scenarios “Megas/Flows” scenario Market driven scenario; welfare system fully privatized; financial debt repaid in 2030; budget reduced for cohesion policies; concentration of investments in European large cities. “Cities” scenario Public policies mostly at national level; actual welfare system reinforced through increased taxation; financial debt not fully repaid in 2050; budget maintainted for cohesion policies; concentration of investments in second rank cities. “Regions” scenario Social policies; strong public welfare system; financial debt repaid in 2050; budget significantly increased for cohesion policies; concentration of investments in rural and cohesion areas. 15

17. 16 Aggregate GDP growth results for the exploratory scenarios 1. The “Cities scenario” is the most expansionary: territorial capital and the urban system are better exploited than in the other scenarios. 2. This holds also for New 12 countries. BaselineMegasCitiesRegions Megas vs. baseline Cities vs. Baseline Regions vs. Baseline EU271.882.152.291.820.270.41-0.07 old151.882.152.291.810.270.41-0.07 new121.892.162.201.930.280.310.04 3. New 12 countries are those that gain in the regions scenario with respect to the baseline. 4. New 12 countries gain as much as the Western countries in a megas scenario.

18. Annual average growth rate with respect to the baseline for GDP, population and employment GDPPopulationEmployment Manufact. Employment Service Employment Megas EU270.270.040.290.690.18 old150.270.040.290.760.18 new120.280.010.230.390.16 Cities EU270.410.060.370.270.39 old150.410.070.350.360.34 new120.320.010.420.270.43 Regions EU27-0.070.00-0.03-0.300.04 old15-0.07-0.01-0.03-0.400.05 new120.040.08-0.010.08-0.06 1. The “Megas” scenario registers a higher manuf. employment growth than the baseline, especially in the Western countries. 2. The “Cities” scenario has a more pronounced growth in service employment than in industrial employment in the East. 3. The “Regions” scenario registers a higher manuf. employment growth than the baseline in the East.

19. GDP growth rates in the Megas scenario: differences with respect to the baseline In Western countries: - strong advantages to rich and central regions; - rural areas of rich regions gain relatively less; - relatively poor countries (like Greece) take advantage of a general increase in demand. In Eastern countries: - relatively more diffused growth, thanks to a general recovery of the EU economy.

20. GDP growth rates in the Cities scenario: differences with respect to the baseline In Western countries: - more widespread and diffused growth at intranational level; - strong countries like Germany, the Netherlands, Austria, increase less than Southern countries (catching-up). In Eastern countries: - diffused advantages, relatively less pronounced than in Western; - similar increase in growth than in the megas scenario.

21. GDP growth rates in the Regions scenario: differences with respect to the baseline Central/core regions grow less than in the baseline scenario. Rural or peripheral areas gain relatively more than in the baseline scenario. This holds for both Western and Eastern countries.

22. Employment growth rates in the Megas scenario: differences with respect to the baseline Manufacturing employment growthService employment growth

23. Employment growth rates in the Cities scenario: differences with respect to the baseline Manufacturing employment growth Service employment growth

24. Employment growth rates in the Regions scenario: differences with respect to the baseline Manufacturing employment growth Service employment growth

25. THANK YOU VERY MUCH FOR YOUR ATTENTION! 24