1. EU PROJECT TERA      Pre-Congress Symposium XIIth EAAE Congress Gent, 26-29 August, 2008 EU PROJECT TERA      FINAL CONFERENCE Territory and rural development in six European countries

2. EU PROJECT TERA (CT 2005-006469) [T]erritorial aspects of [E]nterprise development in [R]emote Rural [A]reas       Main Findings of the TERA Project Demetris Psaltopoulos University of Patras

3. Afternoon Session of the Symposium:  model design,  data collection  model construction Next presentation by Prof. Kola:  interpretation of results  link to territorial factors  policy implications and recommendations Introduction

4. Aim of this presentation: To present an overview of the main findings of the TERA modeling work. Results of the three modeling approaches:  CGE Models (bi-regional; rural/urban)  NEG model (“No Taxation without Infrastructure” paper by Marattin)  New-NEG model (multi-region multi-sector model of inter-regional trade by Mion) Comparison of these results Introduction

5. 1. Labour and Migration: +/- 10% in labour supply; +20% unskilled labour; -20% skilled labour 2. Changes in Trade: +1% in the price of all exports/imports; +10% in the export price of agriculture; +10% in the price of hotels and restaurants; +10% in the export price of most important manufactured commodities 3. Agricultural Policy: -30% of coupled subsidies; full decoupling; 100% transfer of Pillar 1 subsidies into Pillar 2 (Axis 3); 20% modulation – 80% SFP 4. Transport Infrastructure: +20% in the productivity of the transport sector; -20% in transportation costs Common CGE Simulation Scenarios

6.  Basic Analysis  +10% in labour supply: increase in GDP (4.6% Greece to 8% Italy)  -10% in labour supply: similar negative GDP effects  Rural GDP effects: +2% (Greek area) to +9% (Italian area)  Urban GDP effects: +5% to + 8%  Increase in labour supply: wage reduction (2-15% skilled labour; 2-13% unskilled labour) Labour and Migration Labour and Migration

7.  -20% skilled labour  Considerable losses in output (-5% Greece/Finland to –13% Czech area)  Reduction in tax revenue  Urban areas and secondary sectors worst hit  Increase in skilled labour wages  +20% unskilled labour  Income gains (+1% Czech area to +5.8% Finland)  Decrease in unskilled labour wages  Very small effects on producer and consumer prices  Change in skilled labour results into higher GDP effects compared to changes in unskilled labour Labour and Migration Labour and Migration

8.  Basic Analysis  +1% in world export prices: small effect on GDP (-0.4% Finland to +1.7% Czech area); increase in regional exports (+1% Greece to +11% Scotland)  +1% in world import prices: small negative effects on regional income; reduction of private consumption (-0.34% Italy to -6.55% Czech area) and imports (- 0.8% Greece to -21% Scotland)  Wages: Increase when export prices rise – decrease when import prices rise Changes in Trade Changes in Trade

9.  +1 0% in world export price of “agriculture”  Considerable rural/urban differences (much larger rural GDP effects)  Positive GDP effects (except Finland), especially for the primary sector  Large shift in factor incomes/rents towards agricultural sectors of the study areas  +10% in the world export price of “hotels and restaurants”  Very small GDP impacts  Possibly explained by the “Dutch-disease” literature Changes in Trade Changes in Trade

10.  -3 0% in coupled agricultural support  Marginal negative effects on GDP (-0.004% Italy to -0.8% Latvia) with the exception of the Finnish area (slight gains)  GDP losses concentrate in rural areas  Marginally positive effects on urban GDP: increases in allocative efficiency  Losses in rural unskilled jobs (mostly primary sector)  Very marginal effects on consumer prices; agricultural products prices increase much higher than changes in non-farm products prices  Decline in household consumption (especially agricultural households) Agricultural Policy Agricultural Policy

11.  Full Decoupling  Higher negative GDP impacts compared to SC1, due to significant negative projections for the primary sector (-1% Greek area to - 28.6% Czech area)  Rural economies affected more negatively and urban economies more positively compared to SC1  Pillar 2  Mixed impacts: Higher negative impacts (compared to SC1 and SC2) for Italian, Scottish and Greek areas; more positive impacts for the Latvian, Italian and Czech areas  Main loser is the rural primary sector but rural manufacturing and services rather gain  Positive urban impacts, especially for the secondary sector Agricultural Policy Agricultural Policy

12.  Increase in the productivity of the transport sector  Short-run: gains in (especially urban) GDP (+1% Italy to +3.6% Latvia); tertiary sector benefits most  Long-run: Higher (compared to S-R) total impacts in the Italian, Scottish and Latvian areas, lower (still positive) in the rest  Long-run benefits directed towards rural parts of the study areas  Increase in both indirect taxes and income tax earnings  S-R: Marginal increase in the prices of all commodities; decrease in the price of transport (-3.5% Scotland to -20.2% Greece). Notably higher price increases in the L-R Transport Infrastructure Transport Infrastructure

13.  Decrease in transportation costs  Short-run: Very marginal re-distribution of economic activity; losses for secondary sectors  Long-run: Marginal gains for Scotland and Greece; marginal gains elsewhere  Benefits for unskilled rural labour and skilled urban labour  Marginal increase in commodity prices; decrease in the price of transport  Short-run: Increase in household consumption; higher long- run effects  Benefits directed towards urban parts of the study areas Transport Infrastructure Transport Infrastructure

14. Aim: To explore region-specific issues raised in the context of interviews with local stakeholders and policy makers (WP7: TF and structural policies; policy implications and recommendations) Here we (indicatively) present the results of the following 4 region-specific simulations:  Investment (Italian area): +10% investment in innovative sectors + 10% skilled labour demand for urban manufacturing  Soft Modulation (Scottish area): Pillar 2 spending not only in Construction (as in SC4), but split between Construction, Education, Business Services and Public Administration  -10% on employers social security payments (Finnish area)  +30% in land prices and rents of the rural part of the study region (Greek area) Some Additional Region-Specific CGE Simulations

15.  + 10% in innovative investment  Very slight decline in domestic activity (-0.02%), household consumption (-0.20%) and imports (-0.04%)  Very marginal increase in exports  + 10% in skilled labour demand  Notable positive effects: +1.7% GDP; +1.5% HHS Consumption; +2.4% Exports; +0.72% Imports  Important to note here that an equivalent increase in investment in Construction generates positive impacts for the Italian area Investment Simulation (Italy) Investment Simulation (Italy)

16.  GDP losses marginally lower than “Hard Modulation” (- 0.15% compared to -0.19%); losses remain for the rural area (- 0.63% to -0.64%), but the urban area gains (+0.17% to -0.11%)  Further decline in private consumption (-1% to -0.2%) and exports (-0.41% to -0.34%)  Gain in investment (+3.39% to -0.39%)  Wages of skilled workers fall by less than in HM, but the decrease in the wages of unskilled workers almost doubles  The decline in urban rents is reversed  The large fall in the value of agricultural land persists Soft Modulation Simulation (Scotland) Soft Modulation Simulation (Scotland)

17.  Small increase in investment, private consumption, exports and imports  Very marginal decline of GDP, but benefits for the secondary sector  Positive impact on demand for blue-collar workers; negative for demand for white-collar workers  Marginal decrease of factor incomes  Increase in the income of working households – decrease for other households Cut in Employers’ SSP Simulation (Finland) Cut in Employers’ SSP Simulation (Finland)

18.  Notable GDP decline (-0.36%), especially for rural area (- 5.3%), rural primary (-9.4%) and secondary (-4.2%) sectors  Slight decline in urban GDP (-0.13%)  Decline in private consumption and exports  Highly negative effects for rural skilled and unskilled employment: Indicatively unskilled rural jobs in the primary & secondary sectors decrease by 8%; rural skilled jobs by almost 6%  Marginal gains for urban jobs  Significant increase in the price of primary goods (+6.25%)  Household income declines, especially for rural and (mostly) agricultural households Rural Land Prices Simulation (Greece) Rural Land Prices Simulation (Greece)

19.  Tax rate simulation  +2% / +4% in the urban region tax rate  +2% / +4% in the rural region tax rate  Main findings  Increase in urban tax rates decreases production differentials especially in Latvia, Greece and Italy  The economy is less hit if the initial tax rate is high  Real wage differentials increase (taxes finance infrastructure development which in turn, promotes economic activity concentration)  Increasing rural tax rates increases production differential (i.e. the periphery is hit)  Real wage differentials decrease very marginally NEG model (Marattin) NEG model (Marattin)

20.  Labour force simulation  +5%/+15% in the urban area labour force (third region / rural region)  +5% / +15% in the rural area labour force (third region)  Main findings  Increase in urban LF increases production differentials  In the case of outside-migration, effects are higher where the rural region is large in size (IT, SC, FI)  The bigger the periphery, the greater the increase of production differentials in favour of the urban region  Production differentials decrease if the labour force of the rural region increases (especially if the periphery is bigger)  Real wage differentials increase if the urban labour force increases and vice-versa NEG model (Marattin) NEG model (Marattin)

21.  Inter-regional trade simulation (rural area + 5 adjacent areas)  Inter-regional trade barriers reduced by 5% (further trade integration)  Main findings  Notable gains in average productivity (4.8% Greece – 0.5% UK)  Significant gains for rural areas in Czech Republic, Scotland, Finland; smaller gains for Greece, none for Italian and Latvian areas  Adjacent urban areas have little to gain  Gains vary substantially across sectors New-NEG model (Mion) New-NEG model (Mion)

22.  Population increase simulation (rural area + 5 adjacent areas)  Population increases by 5% in the area where the study area is located  Main findings  Remote rural record sizeable gains if population and market size increase.  Impacts do not display a significant industry heterogeneity  For East Highlands, Plain Po and Latgale an increase in local market size is more beneficial than market integration New-NEG model (Mion) New-NEG model (Mion)

23.  Three different approaches have been used to analyse rural development and the role of policy in remote rural regions of Europe  Our findings would be clearer and more robust if results from different approaches lead to the same direction  Labour Simulations  An increase in labour supply clearly benefits the study regions (according to results from all 3 approaches); there are considerable positive effects on economic growth  The direction of immigration is a key issue  Also, the New-NEG approach shows considerable gains in productivity Last, but not least…. Last, but not least….

24.  Infrastructure Simulations  CGE (increase in transport sector productivity; decline in transportation costs); NEG (impact of taxation utilized to build infrastructure); New-NEG (reduction in trade costs)  Results are mixed and much less univocal than those related to the migration simulations  In some cases (e.g. Italy), the New-NEG approach indicates no gains from trade integration; this rather contradicts the direction of the CGE and NEG findings  In other cases (e.g. Scotland, Greece), results suggest regional benefits in terms of productivity (New-NEG) or GDP (CGE); on the other hand, NEG results show a significantly positive correlation between urban-tax increase and real wage differentials Last, but not least…. Last, but not least….

25. THANK YOU FOR YOUR ATTENTION!