Chapter 2. Regional development: Policies to promote catching up1
The purpose of this chapter is to understand current regional development approaches among OECD countries to help lagging regions catch up and improve the quality of life for residents in all regions. It reviews the objectives and policy tools for regional, urban and rural development as well as trends in country practices and the nature of recent changes. It then explores the governance arrangements to underpin better policies, such as the organisation of such policies at national level, the role of national networks of regional development agencies, and reforms of regions in terms of competencies and administrative borders.
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Regional, urban and rural development policies seek to target public investment in ways that are tailored to the economic and well-being needs of different types of regions and cities.
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Regional development policies across OECD countries are generally focusing on productivity drivers. Countries could do more to ensure a broader mix of innovation support instruments that boost productivity and to improve subnational government capacity. While in many countries regional development policies seek to reduce gaps across regions, they should avoid stifling growth in the highest-productivity regions.
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Several countries are developing national urban policy frameworks to better manage the many policies that influence urban development. Governments could do more to cultivate the economic success of the system of cities and provide frameworks for improving the governance of metropolitan areas.
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Rural development policy approaches in most OECD countries remain largely focused on agriculture. Policies should better address the diversity of rural region types, non-farm economic activity, local community needs and the ties between rural areas and cities.
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The governance arrangements to manage regional, urban and rural development can be as important as the policy itself. Many national governments are testing different methods for organising their policies across ministries, including regional development agencies. Reforms of regional and local governments can also lay the groundwork to improve conditions for productivity and social inclusion.
Introduction
OECD countries have been implementing over the last fifteen years the regional development policy approach discussed by the OECD’s Regional Development Policy Committee.2 Nevertheless, many structural and sectoral policies have a profound and differential impact depending on the characteristics of the region. While there are certain policy strategies that can be applied in a uniform manner across a country, the specific conditions in large metropolitan areas versus remote rural areas, and the different spaces in between, warrant more tailored solutions. National approaches for regional, urban and rural development complement other national level policies in delivering on growth and well-being goals. Subnational governments are responsible for 59% of total public investment3, therefore the ability for different levels of government to work effectively together is a condition for policy effectiveness in regional development. This chapter focuses on those policies explicitly labelled by governments as place-based policies targeting regions in general, as well as specifically urban and rural places.
Priorities for regional, urban and rural development policies: Cross-country trends
Regional development approaches focused on growth
OECD countries are prioritising the competitiveness of all regions (on a global scale) as their top objective, followed closely by the competitiveness of lagging regions and balanced development. Countries remain concerned about ensuring the contribution of all regions for national performance, with the vast majority of reporting countries (28 out of 33) ranking this as high/very high in importance (Figure 2.1). This share was around the same in 2010 (OECD, 2010). As noted in Chapter 1, a dynamic frontier region (i.e. one with strong productivity growth) is also a potential driver of catching-up dynamics among other regions. Policies to supporting lagging regions should therefore not stifle growth at the top. The traditional focus on lagging regions remains strong (26/33 countries) along with the related objectives of balanced growth (24/33 countries) and reducing interregional disparities (20/33). In some countries there is a constitutional mandate to address interregional disparities, such as in Germany, Italy, Korea and Spain (OECD, 2010). An analysis of EU countries indicates that of the 23 that are also a member of the OECD, 9 had a main objective of contributing to national growth, 5 of tapping the potential of all territories, 6 a dual objective of reducing economic disparities and tapping the potential of all regions and 3 a main objective of reducing economic disparities (EPRC, 2014).
Note: Figures based on 33 countries reporting on the importance of each priority in their regional development policy efforts on a scale of 1 (not important) to 5 (extremely important). Responses with a value of 4 or 5 are included.
Source: OECD (2015a), “OECD Regional Outlook Survey”, GOV/RDPC(2015)8, OECD, Paris.
Some countries prioritise reviving distressed areas due to industrial shocks or demographic change. Fewer countries rate more context-specific objectives such as reviving distressed areas due to industrial shocks or addressing population shocks and demographic change as a higher priority relative to addressing regional disparities more generally. There are many countries that nevertheless have this mission as an integral part of regional policy actions. For example, the United States programmes through the Economic Development Administration focus on economically distressed areas. Some country programmes are seeking to build an element of economic resiliency by averting shocks, such as Finland’s “Proactive Approach to Structural Change” (Box 2.1). Some countries have focused on natural disasters and/or demographic change (e.g. Japan), albeit generally these policies are one component of broader regional development frameworks.
Subnational governance capacity is a growth barrier for many lagging regions, but only half of OECD countries rated it a high priority for regional development. Insufficient subnational governance capacity and other governance challenges are perhaps one of the most overlooked areas of regional development policy. One of the reasons this issue may not be as high a priority in some countries is that it is simply not part of the mandate of the ministry responsible for regional development and therefore not framed as a regional development policy issue. Among the countries reporting this as a priority are those with long-term structural weaknesses or Eastern European countries with underdeveloped subnational government capacity. However, subnational capacity is not only a matter for unitary countries, as several federal countries, including those with high GDP per capita, did rank subnational capacity as a high priority.
Some countries, such as Finland, have adopted a proactive approach aimed at anticipating industrial shocks and at restructuring local economies towards the opportunities of the future rather than waiting for a shock to instigate change. “Proactive structural change” is the method first tested in the Lahti region for this purpose. It is based on an analytical framework that quantifies the sensitivity of a region to structural shocks based on its characteristics. Stakeholders are consulted to identify the drivers of change that could impact the region’s economy and how this maps to the sensitivity analysis. This process helps to identify drivers of change that could be threats to a region’s economic structure, but also opportunities for the region’s development. After scenarios for the region’s future(s) have been outlined, the stakeholders, including public and private actors, academia and other research institutes, devise plans to orient their region’s economy. These plans seek to promote future opportunities and shift away from areas subject to threats to keep regions competitive, dynamic and sound in a changing economic environment. The stakeholder engagement process began as a pilot in the Lahti region.
Source: Hautamäki and Vesasto (ed.) (2013), “Proactive Approach to Structural Change”, publication series of the Lahti University of Applied Sciences, Lahti, Finland.
Support for rural-urban linkages is gaining ground in regional development policy, albeit other policies often exacerbate instead of reduce the rural-urban divide. The performance of many rural regions may benefit from more active ties to nearby cities, particularly since almost 81.7% of OECD rural residents live in regions near cities. Recent studies have shown that rural-urban linkages are an important element for integrated development (OECD, 2013). One of the reasons they are not encouraged is precisely due to policies that tend to treat urban and rural spaces as distinct and separate. Greater recognition of the complementarities and connections among these spaces has received less attention than it should (see Chapter 4). Mexico is a country placing an increasing accent on these linkages and has introduced a definition of rural-urban systems to inform policy. Estonia has increased its focus on regional centres and travel-to-work areas for its regional policy.
For EU countries, many of the changes in regional development policy approaches (as well as rural development policy) are in large part driven by EU policy. With the current programming period 2014-20, there are new elements drawing further attention to competitiveness goals. For example, a “smart specialisation” strategy was introduced as a pre-condition for accessing funds so as to orient research and innovation investments towards strengths in the region. Such a strategy requires more active engagement of different public and private actors to identify opportunities to better target research and innovation funding. Administrative changes are also making it easier to support cities and functional areas, and thus not only at the level of administrative regions. In addition, rural development is more linked with other European Structural and Investment Funds (Box 2.2).
Many OECD country regional and rural policy frameworks are linked to EU policies. The changes in the most recent programming period include:
EU Cohesion Policy
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Investing in all EU regions and adapting the level of support and the national contribution (co-financing rate) to their levels of development: i) less developed regions (GDP < 75% of EU-27 average); ii) transition regions (GDP 75% to 90% of EU-27 average); more developed regions (GDP > 90% of EU-27 average).
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Targeting resources at key growth sectors: investments under the European Regional Development Fund (ERDF) will be concentrated on 4 key priorities: innovation and research, the digital agenda, support for small and medium-sized enterprises (SMEs) and the low-carbon economy, depending on the category of region (less developed: 50%, transition: 60%, and more developed: 80%).
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Fixing clear, transparent, measurable aims and targets for accountability and results: countries and regions will have to announce upfront what objectives they intend to achieve with the available resources and identify precisely how they will measure progress towards those goals. This will allow regular monitoring and debate on how financial resources are used. It will mean additional funds can be made available to better performing programmes (through a so called “performance reserve”) towards the end of the period.
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Introducing conditions before funds can be channelled to ensure more effective investments: for example, “smart specialisation” strategies to identify particular strengths and potential, business-friendly reforms, transport strategies, measures to improve public procurement systems, compliance with environmental laws, strategies to fight youth employment, early school leaving or to promote gender equality and non-discrimination are all necessary preconditions.
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Establishing a common strategy for more co-ordination and less overlap: a Common Strategic Framework provides the basis for better co-ordination between the European Structural and Investment Funds (ERDF, Cohesion Fund and ESF as the three funds under Cohesion Policy, as well as the Rural Development and Fisheries funds). This also links better to other EU instruments such as Horizon 2020, the Connecting Europe Facility or the Programme for Employment and Social Innovation.
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Cutting red tape and simplifying the use of EU investments through a common set of rules for all European Structural and Investment Funds as well as simpler accounting rules, more targeted reporting demands and more use of digital technology (“e-cohesion”).
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Enhancing the urban dimension of the policy by earmarking a minimum amount of resources under the ERDF to be spent on integrated projects in cities – on top of other spending in urban areas.
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Reinforcing co-operation across borders and making the setting up of more cross-border projects easier. Also ensuring macro-regional strategies like the Danube and the Baltic Sea are supported by national and regional programmes.
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Ensuring that Cohesion Policy is better linked to wider EU economic governance: programmes will have to be consistent with National Reform Programmes and should address the relevant reforms identified through country-specific recommendations in the European Semester. If necessary, the Commission can ask Member States – under the so-called “macro-economic conditionality” clause – to modify programmes to support key structural reforms. As a last resort, it can suspend funds if economic recommendations are repeatedly and seriously breached.
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Encouraging the increased use of financial instruments to give SMEs more support and access to credit: loans, guarantees and equity/venture capital will be supported by EU funds through common rules, a broadening of the scope of their use and providing incentives (e.g. higher co-financing rates). The emphasis on loans rather than grants should improve project quality and discourage subsidy dependence.
EU Rural Development Policy
In line with Europe 2020 and the overall Common Agricultural Policy objectives, three long-term strategic objectives for EU rural development policy in the 2014-20 period can be identified: i) fostering the competitiveness of agriculture; ii) ensuring the sustainable management of natural resources, and climate action; and iii) achieving a balanced territorial development of rural economies and communities including the creation and maintenance of employment.
The 2013 reform leaves in place many of the key features of rural development policy from 2007-13. In particular, as in the past, the policy will be implemented through national and/or regional rural development programmes (RDPs) which run for seven years. However, overall, the 2013 reform brings change by: i) improving the strategic approach to constructing RDPs; ii) strengthening the content of rural development measures; iii) simplifying rules and/or reducing the related administrative burden where possible; and iv) linking rural development policy more closely to the other European Structural and Investment Funds.
Member States will have to build their RDPs based upon at least four of the six common EU priorities: i) fostering knowledge transfer and innovation in agriculture, forestry and rural areas; ii) enhancing the viability/competitiveness of all types of agriculture, and promoting innovative farm technologies and sustainable forest management; iii) promoting food chain organisation, animal welfare and risk management in agriculture; iv) restoring, preserving and enhancing ecosystems related to agriculture and forestry; v) promoting resource efficiency and supporting the shift toward a low-carbon and climate-resilient economy in the agriculture, food and forestry sectors; and vi) promoting social inclusion, poverty reduction and economic development in rural areas. In turn, each rural development priority identifies more detailed areas of intervention (“focus areas”).
Source: Excerpts from European Commission (2013) “Refocusing EU Cohesion Policy for Maximum Impact on Growth and Jobs: The Reform in 10 points”, Brussels, Belgium, http://europa.eu/rapid/press-release_MEMO-13-1011_en.htm (accessed 25 June 2016); http://ec.europa.eu/agriculture/rural-development-2014-2020/index_en.htm.
Urban policy objectives are typically related to transport, spatial planning and social inclusion
Transport is the most frequently ranked high priority among OECD countries for urban policy. Policies to improve accessibility of public transport are reported by 21 out of 25 responding countries to be of high importance (Figure 2.2). In addition, the third most frequently reported objective of high importance is that of creating a system of cities through improved inter-city transport links (17/25). Urban sustainability is also strongly linked to transport: as such these efforts tend to be focused on the spatial planning and associated transport so as to reduce greenhouse gas emissions.
Around half of responding countries rank inclusion-related objectives as high on the urban policy agenda. These include priorities such as housing (13/25), social cohesion and service delivery (13/25), employment integration (12/25), and urban investment in targeted neighbourhoods (11/25). Generally those countries that rank one of these inclusion-oriented objectives high also rank the others high.
Economic development is another top-ranked objective for urban policy, but typically for a social policy (inclusion) goal targeting specific communities as opposed to improving productivity more generally. Policies aimed at fostering economic development are the second highest ranked objective in 18 out of 25 responding countries. These policies to attract and retain firms or provide incentives for job creation tend to be targeted to specific disadvantaged urban locations, and are therefore more focused on inclusion within a city than the overall city’s competitiveness. Innovation support, which is more focused on firms than low-income neighbourhoods or individuals, is ranked as a high priority for a smaller group of countries (13/25). It may also be the case that innovation is considered “easier” in cities, and therefore national support via urban policy might be less necessary. Most of the countries reporting innovation support in urban areas are also those implementing innovation support schemes in the rural areas, implying a national framing of place-based development as an innovation or productivity issue.
Note: Figures based on 25 countries reporting on the importance of each priority in their urban development policy efforts on a scale of 1 (not important) to 5 (extremely important). Responses with a value of 4 or 5 are included.
Source: OECD (2015a), “OECD Regional Outlook Survey”, GOV/RDPC(2015)8, OECD, Paris
Similar to regional development policy, the least prioritised objective for urban policy is related to governance, in this case inter-municipal co-ordination and metropolitan governance. However, urban areas are plagued by co-ordination problems given the density of interactions across levels of government and jurisdictions. Fragmentation of local jurisdictions in a metropolitan area is found to penalise productivity and exacerbate spatial segregation on income that reinforces disparities in opportunities and outcomes (see Chapter 1). Policy fragmentation prevents integration in a specific place. In short, urban policies are also a governance issue. Several countries have recently implemented national level reforms on metropolitan governance (e.g. France and Italy).4
Rural policies are still mainly sectoral, but moving towards cross-sectoral approaches
Agricultural production is the most commonly reported high priority objective for rural development policies. This was true in 22 (out of 24) reporting countries (Figure 2.3). Considering that for most countries the lead ministry for rural development is an agriculture ministry, this result is not surprising. It is another illustration of the importance of the lead ministry in the framing of national approaches to different elements of place-based policy. So while agricultural production is no longer the core economic activity in most rural areas (OECD, 2006), it remains the cornerstone of rural policy. Agricultural production is followed by environmental sustainability (20/24). Environmental sustainability as a part of rural policies typically promotes greening of agricultural practices through a reduction in pollution and water consumption, and also the sustainable use of natural resources and amenities with regard to their economic use, such as a sustainable wood industry or other elements of the bio-economy. Some of the landscape preservation efforts (17/24) also underpin recreational use of rural amenities, which can help strengthen attractiveness and competitiveness of rural areas as well as quality of life. Innovation support is also part of the rural development picture for many countries (17/24). Often it is targeting the food sector and food value chains, or in some cases tourism. Among recent changes in rural policy, a stronger focus on innovation is not typically cited, with some exceptions (e.g. Switzerland, Box 2.3).
Note: Figures based on 24 countries reporting on the importance of each priority in their rural development policy efforts on a scale of 1 (not important) to 5 (extremely important). Responses with a value of 4 or 5 are included.
Source: OECD (2015a), “OECD Regional Outlook Survey”, GOV/RDPC(2015)8, OECD, Paris.
Throughout the mid-1990s, the scope of Swiss regional policy shifted away from redistribution towards a new focus on efficiency, competitiveness and the creation of value added in rural areas. This shift was formalised with the introduction of the New Regional Policy (NRP) in 2008 which encourages an endogenous “growth-oriented” approach emphasising open markets, export capacity and competitiveness. The previous system of investment aid that began in 1974 was therefore replaced. NRP focuses in particular on rural, mountainous, and border areas. The spatial scope was expanded to go beyond the most disadvantaged and to cover a much wider range of regions. The seven urban cantons may also apply for NRP funds if they can demonstrate that the areas to be supported present the same structural challenges as the traditional target areas of NRP. The NRP also acts at a supra-cantonal level in order to enhance geographic coherence and economic functionality. The Regiosuisse network supports innovation at this cross-cantonal scale.
An evaluation carried out for the Regiosuisse network in 2012 (Regiosuisse, 2012) showed that the potential impact of individual projects was significant, but subject to the project size and scope, as well as the share of public funding compared to private funding. Small projects which had a deep level of public funding displayed the smallest impact, whereas medium-sized projects with limited scope and mixed funding showed the biggest potential impact (relative to their size). Private sector benefits seem to rise with private-sector involvement. The evaluation also mentioned that most of the funds in observed projects were benefiting small and medium-sized enterprises, showing proper targeting.
A subsequent evaluation was carried out in 2013 (Sager and Huegli, 2013) for the implementation of programming years 2008-15 that confirmed the usefulness of the NRP. The bottom-up approach for the funding and selection of local projects had positive results. The additional leeway given to cantons in the implementation of the NRP had its own challenges, but it fostered their creativity and their ability to innovate. The study suggests that the room to manoeuvre given to local governments, although potentially more sensitive to local political pressures, should be kept intact. Private sector involvement was more characterised by project-partnership rather than project leadership, due to the nature of the projects presented, questioning the goal to make private sector leadership the rule rather than the exception. Overall impact assessment (in jobs and output) was challenging due to the difficulty of measuring the qualitative impact of the NRP, for example in terms of regional (re)branding, firm networks for innovation and inter-canton co-operation. The export-oriented and competitiveness focus was very relevant for rural and mountainous areas. The weight of tourism among supported projects was high. The overall assessment of the NRP by the study is highly positive.
A preparatory evaluation for the latest period found lasting impacts for the NRP. The evaluation was mainly centred on the tax breaks offered to firms and showed that the ongoing projects in 2010 had created 12 260 jobs in structurally weak rural areas. Overall, 24 650 jobs could be linked to the ongoing projects. For the 231 ongoing projects in 2011, the value added generated was 6.5 billion Swiss Francs. No firm was reported to leave because of the tax breaks phasing out. This highlights that some temporary measures may well have lasting effects. The study shows that tax breaks were effective at creating jobs and added value in structurally weak regions.
Switzerland’s NRP was renewed in 2016 for another eight-year period, with an even greater focus on innovation and tourism. The three pillars address i) an increase in the economic strengths and competitiveness of regions (85% of total funding), ii) co-operation and synergies between NRP and sectoral policies (5-10% of total funding) and iii) capacity building in the knowledge system of regional policy (5-10% of total funding). In 2015, Switzerland also issued its Policy on Rural Spaces and Mountainous Regions that prioritises greater cross-sectoral and multi-level governance co-ordination and rural-urban linkages. It serves as a complement to the updated Federal Agglomeration Policy and the New Regional Policy.
Source: OECD (2011a), OECD Territorial Reviews: Switzerland 2011, https://doi.org/10.1787/9789264092723-en; European Policy Research Centre (2015) “Regional Policy Developments in Switzerland 2014-15”, unpublished country note; Regiosuisse (2012), “Wirkungsmessung NRP-Projekte 2012“, Synthesis, Final Report; Sager, F. and E. Huegli (2013), Evaluation des Mehrjahresprogramm 2008-15 zur Umsetzung der NRP, Bern: Kompetenzzentrum für Public Management der Universität Bern und Büro Vatter AG.
The importance of rural-urban linkages and subnational capacity building are underestimated in many countries’ rural development policies. Rural policies, through definitions of the rural space and their orientation, may in some cases insufficiently promote the relevant connectivity. However, a few countries have highlighted these linkages as part of the national regional policy approach (see above), more so than they report it in the context of rural policy itself. Given the often greater development challenges in more remote rural regions, this may reflect the recognition that rural areas close to urban areas are doing better. Capacity-building, as in other policy fields, is ranked a high priority for fewer countries (11/24). Countries reporting this as important were almost exclusively unitary countries, with both high and low GDP per capita. However, better local decision making and improved public services is also part of competitiveness. Tools reported by countries were generally technical support, knowledge transfer and public-private partnerships. In addition, this capacity may be found in the private sector and civil society, implying a particularly important role for community capacity building (See Chapter 4).
Countries have set out these objectives in multiple national strategies
The vast majority of OECD countries are following an explicit regional development strategy, defined in one or several documents (Figure 2.4). Those not reporting an overarching strategy include federal countries for which competencies are mainly in the hands of subnational governments (e.g. Belgium, Germany and the United States). Others may have an implicit strategy through agencies (e.g. Chile). Some countries may not target an explicit regional scale per se in their policies or may focus on a local scale (i.e. the Netherlands and the United Kingdom). Most countries have more than one strategy document (on average two), in some cases a legal framework complemented by a more regularly updated plan (e.g. seven years is common in EU countries to map with the EU policy cycle), thereby keeping a balance between policy stability and flexibility to adapt to changing circumstances.
Source: OECD (2015a), “OECD Regional Outlook Survey”, GOV/RDPC(2015)8, OECD, Paris.
Urban development frameworks are undergoing change in many countries. Several countries report framework documents or national statements on urban policies under preparation (e.g. Hungary, Israel, Netherlands, New Zealand, Poland and the Slovak Republic). While some of them may have had a spatial planning guidance in their countries for cities, they are moving beyond spatial planning to consider a wider range of urban policy issues. A few countries have recently updated older strategies (e.g. Switzerland) or report increasing the level of activities for urban areas in the context of EU regional policy funds (e.g. Italy, Portugal and Spain). A couple of countries have recently created new ministers for urban issues, such as Australia’s new Assistant Minister for Cities and Digital Transformation (created 2016) or Sweden’s Minister for Urban Development in the Ministry of the Environment and Energy. In some countries with few cities (e.g. Iceland), one would not necessarily expect a national urban policy framework. There is a pronounced trend of greater attention to cities in country approaches to place-based policies.5 Some of the increasing attention appears to be associated with environmental sustainability concerns through better spatial planning (i.e. curbing urban sprawl). Urban development is also among the top global issues, and the Habitat III process is raising awareness about the importance of national urban policy frameworks (Box 2.4).
As part of the Habitat III process culminating in the 3rd United Nations Conference on Housing and Sustainable Urban Development, a policy paper on national urban policies proposes ten recommendations regarding the design, implementation, monitoring and evaluation of a national urban policy.
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International Agreements: national urban policy has proved to be valuable for implementing the Habitat Agenda and should be further mainstreamed as a critical instrument to implement the New Urban Agenda. The normative base of a national urban policy should additionally reflect existing international agreements including: i) Universal Declaration of Human Rights; ii) Paris Agreement; iii) Sendai Framework; and iv) Agenda 2030 and the Global Goals.
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Institutional Form: the institutional form of a national urban policy must create channels of participation and take into account the need to affect high-level change, including: legal reform, allocation of fiscal resources, generation of information on the overall urban system (including formal and informal), and integrated long-term urban planning and design that extends beyond the political cycle. Quality of legal frameworks signifies the ability to produce the regulatory reforms required by policy makers. Effective legislation must have a clear purpose, introduce consistent and well-thought-out rules and enforcement mechanisms, and unambiguous rules and obligations. Finally, it must allow for systematic monitoring and evaluation of the results of legislation. Implementing an evidence-based national urban policy process requires investment in civil service, research, university curricula, and educational opportunities.
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Leadership: there needs to be both formal and informal political leadership from within government and/or from other stakeholders to ensure the legitimacy of the national urban policy process and effectiveness of implementation.
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Inclusive and equitable: national urban policies need to be inclusive and enable stakeholders to effectively engage in the process, making sure all voices are heard. The outcomes and impact need to promote equality, reach the most vulnerable, those at risk, and the urban poor.
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Sustainability and resilience: a national urban policy has to address social, economic and ecological dynamics and the interplay between them in the territorial context.
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Priority Issues: a national urban policy should be people-centred and needs to complement, and not replicate, strong sectorial strategies in areas such as infrastructure, water, energy, health, education, housing or social and economic inclusion policies. Ideally, a national urban policy will address the territorial, fiscal and institutional relationships across sectors. A national urban policy should safeguard the interests and rights of both current and future generations as well as be mindful of the natural ecosystem impacts of policy choices. A national urban policy provides the information platform or process to mediate long-term versus short-term priorities across territorial scales, allowing difficult decisions to be debated and communicated with the public.
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Co-ordination: a national urban policy should emphasise and facilitate institutionalised and informal co-ordination and collaboration among different actors, sectors and functions across all scales and systems of cities. Co-ordination should consider national territorial concerns, including the urban-rural continuum, and metropolitan, regional and supranational urbanisation dynamics and issues.
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Capacity: to be effective, a national urban policy process requires preparation, an institutional host, budget, training and opportunities for in-country and transnational peer-to-peer learning within and across governments and other stakeholders. Effective internal monitoring and evaluation should be built into the process.
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Communication: the national urban policy process should employ a multimedia communications strategy that is comprehensive and transparent, and is targeted to inform all civil servants, residents, media and other stakeholders both within and outside national boundaries. A communication strategy for a national urban policy should also be used to promote broad awareness on the integrated nature of urban development.
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Data: a national urban policy should be grounded in the most current and comprehensive qualitative and quantitative data. The process of developing a national urban policy can be used to improve data collection systems and also develop new and additional data to improve disaggregation (e.g. gender and age), coverage (sector and geography) and the inter-operability of data. Specific attention must be given to enumerating and making visible all aspects of urban informality. Data collected for a national urban policy needs to engage with global and local systems of data and should be open access.
Source: Habitat III Policy Unit 3 (2016), Policy Paper on National Urban Policy, www.habitat3.org/.
Most countries are reporting a rural-related policy framework. A few almost exclusively focus on agriculture and several others are a mix of agriculture and other rural development themes. For many EU countries in the OECD, this is driven by EU policy on rural development (see previous Box 2.2). In some countries, the regional policy frameworks are essentially about rural development given the highly rural character outside of a few main cities, such as for Iceland and New Zealand.
The institutional context and type of national guidance also structure the way that national and regional actors work to fulfil national objectives. There are differences in the type of national guidance, whether it is a more broad “framework approach” or a more pre-defined “planning approach”. Framework approaches use strategic guidelines and more tailored contracts as opposed to laws and pre-defined instruments, whereas planning approaches tend to be more associated with binding laws and instruments.
Regional policy tools mainly split between business development and infrastructure
In recent years, there has been a transition to greater use of policy tools that involve investments instead of basic subsidies in the goal of boosting competitiveness (Figure 2.5). Many of the infrastructure investments and business development tools are designed to improve firm productivity. In addition, more than half of the countries report using a common tool box of 5 out of 8 core tools. The use of public service subsidies is less common than other tools, 14 out of 30 responding countries have reported using subsidies for their public service provision, only two more for special economic zones. Subsidies for public services are more widely used in non-EU countries than they are in EU countries. These subsidies are generally associated with remote rural areas, for preservation of locations with a heritage, or particularly disadvantaged regions in terms of economic performance.
Note: Figures based on 30 countries responding to the question.
Source: OECD (2015a), “OECD Regional Outlook Survey”, GOV/RDPC(2015)8, OECD, Paris.
Business development is the most frequently reported policy tool to achieve regional development policy objectives. Virtually all countries report using this tool (27/30). Several countries are reporting a recent shift away from a focus on infrastructure in favour of competitiveness and innovation (e.g. Estonia, Hungary and Spain). Many of the national networks of regional development agencies have a primary purpose of business development, generally focusing on SMEs (see later section). Related to business development are a range of instruments for promoting innovation that are seeking to boost productivity of firms or even improve the productivity of the public sector (Table 2.1). As often science and technology policies are de facto directed towards the leading firms and institutions, often in frontier regions, many of these instruments oriented towards non-leading regions are used by regional development policy as opposed to national innovation policy.
Cluster policies are tools to organise support for groups of firms with a greater focus on spillovers as opposed to an individual firm in isolation. Indeed, 24 out of 30 countries report using cluster policies. Over the last twenty-five years, there has been an evolution of cluster policy approaches, from SMEs to national champions to innovation clusters. Different types of ministries are using these policies: science and technology ministries, enterprise and industry ministries, and regional development policy ministries. The different orientations of the policy will determine the types of instruments, from supporting a cluster organisation to R&D subsidies for firms in a designated cluster or sector (OECD, 2007). Clusters (specialisation) are considered one of the opportunities for both regional development as well as innovation diffusion more generally. While there is debate about the policies to “create” or promote clusters and/or cluster initiatives, the role of clusters in the economy is an area many researchers and policy makers are seeking to understand further. Measuring clusters through specialisation indicators is therefore a tool used by several countries to better diagnose regional economies and identify cluster partners (Box 2.5).
Clusters, groups of geographically proximate firms in related industries connected through multiple local linkages and externalities, have long been recognised as an important feature of regional economies (Porter, 1990; OECD, 1999). The initial case-based studies have in recent years given way to cluster mapping, the analysis of comprehensive data sets covering entire regional and national economies, based on a transparent set of benchmark cluster definitions (Porter, 2003; Delgado et al., 2016). Comparable data sets were first created for the United States, followed by the European Union and Canada. They capture economic activity (measured by employment, establishments, and payroll) by cluster category for different levels of geography (e.g. US: county, metropolitan area, economic area, state; EU: NUTS-2 regions and higher; Canada: Census Metropolitan regions, provinces). A range of other countries, including Mexico and Korea, have recently started efforts based on this methodology.
This new generation of cluster data has been applied to quantitatively examine the role of clusters in regional economies. Clusters of traded industries, defined as those that concentrate in specific locations, competing with rivals based elsewhere, and serving markets outside of their location (e.g. biopharmaceuticals), register significantly higher productivity, innovation, and wage rates than local industries (e.g. retail). Traded industries’ share of total employment, currently at 30-40% in many countries, has been falling over time. Strong clusters, i.e. those in which individual regions exhibit a high relative presence of employment, account for about two-thirds of all traded industries employment. The data has been used in a series of papers by researchers connected to the cluster mapping effort to explore the relationship between cluster presence and economic performance. They find cluster strength to be associated with: higher job growth of the related industries that constitute the clusters; higher resilience of employment to economic crisis; higher growth in innovation and entrepreneurship; and with the emergence of new regional industries. They also find regions with a larger share of regional employment/payroll in strong clusters to register higher prosperity levels (Delgado, Porter and Stern, 2010, 2014, 2016; Ketels and Protsiv, 2014).
Governments across the OECD have drawn on this work to launch cluster portals that make this data available for policy and economic development practice. In the United States, the Economic Development Administration (Department of Commerce) has supported the 2014 launch of the US Cluster Portal (www.clustermapping.us). The European Commission has hosted the EU Cluster Portal (http://ec.europa.eu/growth/smes/cluster/index_en.htm) on its site since 2015; the first version was launched in 2007. The Canadian government has, in its 2016 budget, announced its intent to create a similar portal for Canada. These portals provide comparable”open data” on the cluster composition of regional economies and the geographic footprint of specific cluster categories across regions. Some combine this with cross-cutting data on regional competitiveness and on the presence of cluster organisations, i.e. public-private initiatives to enhance the competitiveness of a specific regional cluster (Solvell, Lindqvist and Ketels, 2003).
Cluster portals enable regions to assess their specific strengths and identify opportunities within existing and related emerging clusters. Organisations like SelectUSA are using the cluster portal to communicate the profile of specific locations to potential investors. The portals aim to help national governments make evidence-based policy choices based on an understanding of the specific needs and opportunities of individual regions, both overall and for cluster-specific efforts. Cluster organisations can use the data to compare themselves with rival locations, and identify collaboration partners elsewhere. The European Commission has recently re-launched the Cluster Collaboration Platform (www.clustercollaboration.eu) as a companion site to support the collaboration among cluster organisations.
Source: Porter, M.E. (1990), Competitive Advantage of Nations, Free Press, New York; OECD (1999), Boosting Innovation: The Cluster Approach, https://doi.org/10.1787/9789264174399-en; Porter, M.E. (2003) “The Economic Performance of Regions,” Regional Studies, Vol. 37, pp. 549-578; Delgado et al. (2016), “Defining clusters of related industries”, Journal of Economic Geography, No. 16, pp. 1-38; Delgado M., M.E. Porter, and S. Stern (2010), “Clusters and Entrepreneurship,” Journal of Economic Geography, Vol 10(4), pp. 495-518; Delgado, M., M.E. Porter, and S. Stern (2014), “Clusters, convergence, and economic performance”, Research Policy, No. 43, pp. 1 785-1 799; Ketels C. and S. Protsiv (2014), “European Cluster Panorama 2014”, European Cluster Observatory; Sölvell, Ö., G. Lindqvist and C. Ketels (2003), The Cluster Initiative Greenbook, Stockholm.
Infrastructure investments are still a mainstay in regional development policies, mainly for transport, but for other forms of infrastructure as well. Generally these investments are for transport (motorways, for example). Investments in other types of infrastructure are also the third most frequently used instrument. Basic water, sewer and energy investments tend to be reported in OECD counties with below average GDP per capita, but not exclusively (e.g. the United States). Several countries note investments in social infrastructure such as schools, public spaces or other buildings, particularly in sparsely populated areas. Occasionally this infrastructure is more focused on firms (such as incubators) or for tourism. Finally, telecommunications is another field reported, for both broadband connections and mobile telephone networks.
Skills are critical for economic development but are often managed outside of regional development policy. With respect to regional development needs, generally OECD countries report focusing their efforts on low-skilled or otherwise disadvantaged workers (unemployed, migrants, aboriginal groups, etc.). As low skills are a considerable bottleneck to regional growth, this focus is not surprising (OECD, 2012). In more rare cases, the skills focus is more specifically on new technologies and entrepreneurship.
Tools related to service delivery for regional development are often dedicated to rural areas, where the cost of delivering such services is higher. There are several categories of service delivery reported by OECD countries. One category is that of reaching remote areas (e.g. Australia subsidising regular flights to remote areas). Another is to retain public services, including through multi-purpose service centres, and generally for rural areas (one-stop shops) (e.g. Sweden and France). In other cases, there may be service delivery to protect and make use of valuable amenities (e.g. Hungary and Turkey).
Special economic zones (SEZs) are a widespread place-based policy tool used by many countries, within the OECD and worldwide. SEZs focusing on the attraction of foreign direct investment (FDI) are generally established to tackle a range of issues such as to overcome market-failures (in provision of goods and services), generate positive externalities (e.g. knowledge-intensive activities), overcome administrative barriers to reforms, experiment with new policies, or to overcome infrastructure bottlenecks by focusing on a specific location (OECD, 2014a). Such place-based policies are not without their common pitfalls, however. The distortions associated with fiscal incentives should be compensated by other tangible results. Countries often have challenges integrating the foreign firms located in such zones into the wider economy. The tax incentives also may not promote innovation per se, but simply attract or displace firms from outside to inside the designated zone.
For regional development policy, SEZ examples range from firm-focused to those that are supporting individuals (Table 2.2). Some SEZs are targeting people in disadvantaged areas (e.g. Australia and Norway), or to help firms in particularly disadvantaged places (e.g. Mexico and the United States). Others have a more classic FDI focus, sometimes targeting specific sectors, and seeking to promote more economic balance across a country (e.g. Korea and Poland). Others are aiming at maintaining a competitive edge so as to retain frontier firms and sectors (e.g. the United Kingdom). Spatial planning is another consideration for these zones, which offer incentives to encourage firm location taking into account land use concerns (e.g. Turkey and Luxemburg). In some countries, while certain locations may not have the characteristics of an SEZ, those locations may be prioritised for infrastructure investment to support firms (e.g. the Netherlands).
Governance strategies to promote catching-up dynamics and inclusion
For policy in general, and place-based policies even more so, the “how” is as important as the “what”. The governance of regional development policy at the national level, and the interaction between national and regional/local policies are both considerations for promoting policy effectiveness. Some key issues concern the national level organisation of the regional, urban and rural development policy portfolio and the manner in which it is monitored and evaluated. The way national governments organise their interventions in different parts of a country can involve different strategies, one being that of regional development agencies. There are many strategies for interacting with regions and localities. Some countries have been promoting reforms to the regional level as part of their efforts to decentralise. As countries develop economically they tend to rely more on subnational governments (Figure 2.6). Building subnational capacity (technical and financial) is therefore an important element in regional development efforts.
Most of the recent changes in regional policy reported by countries are related to the governance elements of their implementation, not in the actual policy tools. For example, two countries created agencies to help administer regional development policy (e.g. Italy and Portugal for European funds). Some countries are changing the level at which certain regional development policy funds are being used: Austria is managing the next round of European programmes at the national, not regional level, while Greece transitioned management from the national to the regional level. Some countries are seeking to build subnational capacity or prepare for decentralisation (e.g. Chile and the Czech Republic). Some are implementing new types of contacts between the national and regional level, such as Finland’s Growth Agreements with major cities, or in the Netherlands the national-provincial agreements, in addition to countries already using this process (e.g. France and the United Kingdom). Cross-sectoral policy co-ordination at national level is a new goal for Hungary, and has been a goal at the United States federal level. A few countries have had ministerial changes at national level for regional development.
Source: Calculations based on OECD (2016a), OECD Regional Statistics (database), https://doi.org/10.1787/region-data-en (accessed 18 June 2016).
The entity responsible for regional, urban and rural development portfolios frames policy approach
The most common type of ministry for regional development is one that focuses on economic affairs. Almost half of OECD countries (16/34) reported this ministry as the lead on the regional development policy portfolio. Some countries house this portfolio in ministries with a strong infrastructure orientation such as Japan and Australia (6/34 countries). Other ministries that may lead the regional development portfolio are ministries of interior or local government (3/34 countries). In a few countries, this portfolio is either managed by a Centre of Government (Austria), an Interministerial Committee (France) or in the case of Belgium, almost entirely in the hands of regions.
The lead ministry for urban development tends to be more oriented towards infrastructure and spatial planning. Indeed, 15 countries indicated an infrastructure or spatial planning ministry. Two countries reported an interministerial committee as being their lead actor in urban policies. Other countries report ministries of interior (5/30) or economy (5/30). Urban ministry portfolios appear to change more often than that of regional and rural policy, with a few countries changing their lead ministry recently.
Responsibilities and leadership for rural policies remain predominantly in agricultural ministries, and generally rural development is less dispersed across different ministries than regional and urban policy. The majority (20 countries) report agriculture ministries as the lead.6 However, 29 countries report such ministries are involved, even if not the lead ministry, indicating the prevalence of agriculture in framing rural development policies. Other types of ministries and entities charged with a rural development portfolio are economy and development ministries (5) or central government agencies (4) and infrastructure ministries (3). Very few countries reported either an interior or local government ministry or a regional development ministry as its lead actor for rural development. In several countries, regional and rural development may be synonymous when most of the country has a rural character.
Some countries have integrated responsibilities through different combinations among regional, rural and urban policy. In a few countries, the same ministry or other body is the lead on regional, rural and urban policy, and several others have the same lead for at least two of these three policy areas (Figure 2.7). The way these responsibilities are split across ministries influences the degree to which some policies may be integrated, or not, as well as the need for co-ordination structures to work across ministries. The most common integration is between regional and urban policy portfolios. Responsibilities split across three ministries (one for each field) is reported in 13 countries.7
Source: Based on self-reported responses by countries to OECD (2015a), “OECD Regional Outlook Survey”, GOV/RDPC(2015)8, OECD, Paris.
Interministerial committees are one governance arrangement that address the policy co-ordination challenges associated with multiple ministries. In France for example, an interministerial committee is the lead body for regional development at the national level. Overall, such bodies exist in 24/34 countries. Interministerial committees are also used for urban policy (20) and rural policy (21). A previous study found that countries were on average involving six ministries with an explicit role for urban policies, the most fragmented among the three policy areas (OECD, 2014a).
The effectiveness of such interministerial committees is mixed. The dominant approach to interministerial committees at the national level has been to endow them with a co-ordination function to streamline implementation of regional developments policies. Committees that do not meet regularly or lack a permanent structure tend to have significantly less influence in the definition of policies. Some interministerial committees and bodies have provided a genuine forum to advocate policy reforms at the national level through horizontal co-ordination, such as Australia’s COAG (which in addition serves a vertical co-ordination role). The United Kingdom’s Cities Policy Unit (created in 2011) is a form of interministerial collaboration and provides a policy forum for a wide range of actors (public, private, national, and subnational). It is involved in the design of the city deals that constitute urban policy.
The shared responsibilities for regional development across ministries complicates efforts to track budgets, as well as monitor and evaluate regional development policies (Figure 2.8). For regional development policy 25/32 countries reported the use of indicators to monitor their policies, 22/32 that they were evaluating them and only 17 that they tracked spending at the national level. The results are not as high for urban policies, likely due both to the greater range of ministries involved in urban policy and the less frequent presence of an overarching urban policy framework. Rural policies are more frequently monitored than urban policies but less so than regional policies. The role of EU policy in promoting monitoring of regional and rural policy is evident in the country responses. Most OECD countries have therefore acknowledged the necessity of monitoring and evaluation as complementary tools. Those that track national spending were more often reporting that they also perform both monitoring and evaluation.
Note: Numbers in parenthesis indicate the total number of reporting countries.
Source: Based on self-reported responses by countries to OECD (2015a), “OECD Regional Outlook Survey”, GOV/RDPC(2015)8, OECD, Paris.
Evaluations of place-based policies are fraught with challenges, but necessary to understand what works and what does not. Often these evaluations are conducted on specific programmes, as opposed to overall regional development efforts, given the challenges of attribution. One attempt to look across policies in an evaluation of the actions of English Regional Development Agencies noted that more than half of the benefits were due to less than 20% of the spending (Box 2.8). These results are one of the reasons for the closure of these agencies; albeit they are part of a wider set of place-based policies at regional and local scale that have been launched and in some cases closed in recent decades. Figure 2.9 highlights the challenges of evaluating collective programme impacts given the different scales and timeframes of specific programmes. Among findings to improve the effectiveness of regional development policy efforts is indeed the complementarity of actions in a coherent strategy (Box 2.6). Some of the evaluations on the specifics of individual programmes can also help guide future rounds through a revision of the instrument, such as the type of business support. The time frame for the benefits to materialise above and beyond individual programmes may also be longer than common policy cycles (Box 2.7).
Note: Programmes may concern England only.
Source: Based on the National Audit Office (2013), Funding and structures for local economic growth.
When evaluating different regional development policies it has always been a challenge to document the nature and time frame of impacts. The results of the evaluations below propose potential ways of promoting the catching up of regions.
An evaluation of the EU’s Cohesion Policy for 15 regions from 1989 to 2013 conducted by the European Policy Research Centre shows that Cohesion Policy delivered on some of its objectives in the longer run. Taking a panel of 15 regions, mostly lagging or facing specific challenges, the report assesses the ability of Cohesion Policy to fulfil its ex ante objectives. The report shows that Cohesion Policy did deliver since 1989 and increasingly so. The earlier period studied showed that the effect of Cohesion Policy funds was unequal according to programme, region, and period. For 1989-93, only six regions achieved results beyond their initial objectives. In 2000-06, most of the observed regions had met or exceeded their initial objectives (Bachtler et al. 2013). According to the study: “with respect to specific areas of intervention, short-term effectiveness appears to be higher for large-scale physical infrastructure, environmental improvements and local business and innovation infrastructure. Regions had difficulty with areas such as structural adjustment, business support, innovation and community development which required strategies, systems and capacity. A further difficulty reflected in the overall assessment of effectiveness was the co-ordination of measures into a coherent strategy.” (Bachtler et al. 2013). The latter point is being addressed by the new programming period requirements of EU Cohesion Policy.
Business support measures are one of the most common tools used in regional development policy. Assessing their differentiated effects on firms of varying sizes, a counterfactual evaluation of the Cohesion Policy and Italy’s co-funded business support schemes found that the effect was differentiated by programme and firm size with respect to investments and jobs created (ASVAPP 2012). Going beyond the impact, it also analyses the cost tied to generating impact, showing that the schemes displaying the biggest impact are not necessarily the most cost-effective ones. It also assessed the effectiveness of different instruments in business support. Namely, large non-repayable grants, especially to large firms, are ineffective at stimulating employment and investment. Small grants to small firms are more cost effective. Second, interest rate subsidies and repayable soft loans are an even more effective way to support firms.
Source: Bachtler, J., I. Begg, L. Polverari and D. Charles (2013), “Evaluation of the Main Achievements of Cohesion Policy Programmes and Projects over the Longer Term in 15 Selected Regions (from 1989-93 Programme Period to the Present (2011.CE.16.B.AT.015”“)”, Final Report to the European Commission; Associazione per lo Sviluppo della Valutazione e l’Analisi delle Politiche Pubbliche (2012), “Counterfactual impact evaluation of cohesion policy: Impact and cost-effectiveness of investment subsidies in Italy”, Final Report to DG Regional Policy, Contract No. 2010.CE.16.B.AT.042.
A paper by Kline and Moretti (2013) sought to evaluate the effects of both local and national place-based policies. The research analyses the effects over a period of almost 100 years of one of the most ambitious regional development programmes in the history of the United States, the Tennessee Valley Authority (TVA), spanning multiple states. The goal of the TVA was to modernise the economy of the region rapidly. The counterfactual evaluation run by Kline and Moretti uses control groups to quantify the impact of the policy, and analyses the impact in the long run, dividing the period in two. The first period spans from inception to 1960 when federal transfers were high and the second period 1960-2000 when federal transfers were cut. The researchers assessed the impact of the sectoral support given to agriculture and manufacturing as well as the effect of the large infrastructure investments that took place in the TVA since its inception in May 1933. The results show that while support for agriculture did not raise employment levels beyond the period of time it was provided, support to manufacturing had a lasting effect that went beyond the initial sums invested in the TVA, resulting in large benefits at the local level from manufacturing growth. The study thus suggests that while manufacturing displays agglomeration economies, this need not be the case for agriculture, in line with previous studies (see Hornbeck and Naidu, 2012).
The effect on the national economy is two-fold, as it has both direct and indirect effects. Direct effects measure the impact of the federal investments on output and the effects of gains in manufacturing on local, sectoral and national output and productivity. These, according to the research, are unambiguously positive, showing that place-based investments outweigh their costs and reap benefits for the local and national economy, because they generate local agglomeration benefits. The majority of the benefits are coming from the substantial federal investments in the region. Indirect effects, which compute the spillover effects of agglomeration economies, were limited, suggesting that local gains did not spillover to other regions. This suggests that the “big push” is limited (see Rosenstein-Rodan, 1943; Murphy, Shleifer, and Vishny, 1989).
Source: Kline P. and E. Moretti (2013), “Local economic development, agglomeration economies and the big push, 100 years of evidence from the Tennessee Valley Authority” , The Quarterly Journal of Economics, Vol. 129(1), pp. 275-331; Hornbeck R. and S. Naidu (2012), “When the Levee Breaks: Labor Mobility and Economic Development in the American South,” NBER Working Paper, No. 18296; Murphy K. M., A. Shleifer and R. Vishny (1989) “Industrialization and the Big Push,” Journal of Political Economy, Vol. 97(5) pp. 1 003-1 026; Rosenstein-Rodan P. (1943) “Problems of Industrialization of Eastern and South- Eastern Europe”, Economic Journal, Vol. 53, No. 210/211, pp. 202-211.
National networks of regional development agencies: One governance tool
Regional development agencies (RDAs) are one governance tool countries have used to organise the delivery of policies targeting specific regions. RDAs of different forms are common in OECD countries. Theoretically, an agency model implies “separateness” and generally a higher set of expectations for performance accountability. The “principal” to which the agency is accountable may be a central or regional government (and sometimes a public-private board), and these models have distinct differences. Most OECD countries have regionally-managed RDAs, with a trend towards increasing specialisation in a particular sector, notably business development and/or innovation. Even when RDAs are accountable directly to a region, they are still part of a complex governance landscape involving multiple levels of government. A survey in Europe noted that 40% of surveyed RDAs8 had funding sponsorship from other levels of government beyond the region (Halkier, 2011). A few countries have nationally-initiated RDA networks to support regional development. The choice for central government action is nested in a set of alternatives to address governance challenges, many of which may be used simultaneously (Figure 2.10).
In most OECD countries with a national RDA network, the impetus for creation was to build capacity at the regional level in a centralised country context. The institution of RDAs or structures of a similar purpose has been driven in many OECD countries by the EU accession process, notably for countries in Eastern Europe, such as Hungary. The creation of these national networks of regional agencies is designed to map to statistical areas that would receive EU regional policy funds. EU engagement with Turkey was one of the drivers, among others, behind the development of its national model. The Inter-American Development Bank co-financed the development of Chile’s national network of 15 RDAs. In several of these examples, the central government has worked to embed these agencies in the regions over time for a greater sense of regional “ownership”, albeit Hungary has chosen to re-centralise its network.
A little less common is the development of national RDAs to help organise national interventions for regional development in an already decentralised country. The case of Canada is such an exception. It is the most decentralised country in the OECD with respect to public expenditure, investment and debt. Furthermore, individual provinces and municipalities have their own regional/local development agencies that co-exist with the national network. However, it has used RDAs as a way to transition federal action towards a more regionalised approach (Figure 2.11). The United States’ Economic Development Administration’s regional offices cover areas of a scale similar to those in Canada, with six offices covering the country, but these are not agencies per se, rather regional offices of a national department (ministry). The United States also has selected areas for national place-based support that function like an agency, such as the Appalachia Regional Commission, generally covering parts or all of multiple US states.9
Source: Presentation made at the OECD Regional Development Policy Committee, 29 April 2016.
One of the goals for an RDA may be to benefit from the complementarity of actions across national policy sectors in a given region. The previous English RDA model had multi-ministry financing (six ministries contributed to a single pot) in support of a Regional Economic Strategy. Portugal’s Commissions for Regional Co-ordination and Development are charged with delivering regional development policy, and are significantly influenced by EU regional policy. As there are no regional governments at this scale, these Commissions administer a range of programmes in their coverage area. Although Finland’s 15 ELY Centres (Centres for Economic Development, Transport and the Environment) are not RDAs per se, they are a form of cross-sectoral decentralised national action to support regional competitiveness, well-being and sustainable development in each region. They therefore cover a wide range of issues from business and industry support (including labour force and skills), transport and infrastructure and the environment/natural resources.10
More common among national RDA networks is a targeted approach focusing on business development. The models in Chile, the Czech Republic, Iceland, New Zealand, and Turkey, for example, address one or more of the following: business support, cluster development, innovation programmes and investment attraction. They therefore don’t actually address this goal of complementarity, but are rather more focused on action as a one-stop shop for firms to get information on programmes delivered by the agency itself or other sources.
The RDA tool may be used to deliver policy at a more adapted spatial scale when there is no regional tier or it is too small a scale. The Turkey model corresponds to larger statistical regions that do not match the smaller scale regional governments. In other country examples, the national RDAs are assigned to cover an administrative region. An alternative to a national RDA policy is a set of incentives for interregional collaboration when the regions are not of sufficient size. For example, Switzerland's cantons are in several cases at a scale that is perhaps too small for certain aspects of regional development. To address this challenge, the federal government's New Regional Policy offers incentives for cantons to collaborate to access funding and achieve actions at a more relevant scale than would have been achieved otherwise (Box 2.3). The Canadian RDAs are not designed to correspond to a functional region. Rather they have a coverage area that is typically significantly larger than a potential functional region as the six agencies offer nation-wide coverage.
The network of regional development agencies (RDAs) in England was created between 1998 and 2000 as part of the United Kingdom’s efforts towards devolution. RDAs were in use in England for a period between 1998 and 2011. The devolved administrations of Scotland, Northern Ireland and Wales have a different status: therefore any agencies they create are accountable directly to their respective authorities. In 2003, the Modern Regional Policy was developed with a position that economic disparities across regions may be the result of particular failures (market/government-based). Furthermore, an initiative to devolve some parliamentary power to directly elected regional assemblies in Northern England was tested. Central government’s orientation grew to increasingly focus on productivity drivers. RDAs were also deemed important measures for the Regional Economic Performance Public Service Agreement established in 2004. Another milestone in 2007 was the "Review of Sub-National Economic Development and Regeneration” that continued to emphasise productivity drivers. The subsequent 2008 consultation document “Prosperous Places: Taking Forward the Review of Sub-National Economic Development and Regeneration” raised issues of how to deliver on these goals. An evaluation of RDAs noted that more than half of the benefits were attributed to less than 20% of the spending. The highest value for money was achieved by competitiveness measures. The cumulative value for money was computed as the ratio between cost and gross value-added gains accumulated over the years. It included also potential gross value-added gains from the lasting impact of RDAs spending. Each pound invested in competitiveness of businesses by RDAs could reap as much as GBP 11.6 over the years, outperforming physical infrastructure (GBP 8.0). On average each pound spent by RDAs generated a potential of GBP 6 in gross value added over the years.
With the change in Government in 2010, a decision was made to eliminate the RDAs in favour of more bottom-up defined actions at a smaller scale than the regions. As a result, RDAs in the English regions terminated their activities and closed, as did the Government Offices. Furthermore, regional ministers were not appointed by the new Government. Alternatively, municipalities were provided an opportunity to group themselves into Local Enterprise Partnerships (LEP) between local authorities and firms to help prioritise choices for physical infrastructure investments and apply to different national funds, participate in city deals or request the designation of a business economic zone (and the corresponding funding and regulatory easing).
Source: Elaboration based on PricewaterhouseCooper LLP, (2009), Department for Business, Enterprise & Regulatory Reform. Impact of RDA Spending, National Report, Volume 1, Main Report and presentation made at the OECD Regional Development Policy Committee, 29 April 2016.
Reforming regional governance to boost capacity and deliver on regional development objectives
Most OECD countries have a regional level of elected government (28 out of 34).11 Strong regionalisation processes took place in the OECD in the 1980s and 1990s, resulting in the creation (or strengthening) of the regional level. This is the case, for example, in France, Italy, Spain,and certain regions in the United Kingdom. This was also true in several Central and Eastern European countries, such as the Czech Republic, Poland and the Slovak Republic, and driven in part by EU regional policy. More recently, regional reforms in unitary countries have focused on delegating more powers or strengthening institutional capacity (Table 2.3).
Many OECD countries have engaged in reforms of the intermediate and regional levels in the context of multi-level governance reforms more generally. Indeed, many regional boundaries were established in some cases decades or even centuries ago in a world with a different reality than that of today (OECD, 2014a).12 Sometimes the reforms address both competencies and the actual borders of regions, in other cases, these two issues are treated separately over time. A changing regional governance landscape may also be due to a need for decentralisation, the re-emergence of historic regions, or changes in competencies at other levels. Another rationale for reforming regional borders is reducing the sheer number of regions to facilitate intergovernmental relations, or public administration cost savings (Chatry and Hulbert, forthcoming).
One of the commonly cited rationales to increase the size of regions is to address the cost of the public sector or improve financial and skill capacity. There is no particular norm or optimal geographic/population size (Figure 2.12). Regional budgets for OECD countries with data range from 1% of GDP in Poland to 19.4% in Canada (Figure 2.13). This value of course is determined by the nature of the functions performed by regions. From a credit rating perspective, larger regions can have improved negotiating power with suppliers and with accessing financing through banks and other debt markets. These same principles apply to local levels of government as well.
Note: France (without the 5 overseas regions). Belgium and the United Kingdom are not represented on the graph. The OECD average is weighted by both population and surface area.
Source: Calculations from OECD (2016b), Subnational Governments in OECD Countries: Key Data 2016, OECD, Paris, www.oecd.org/regional/regional-policy/Subnational-governments-in-OECD-Countries-Key-Data-2016.pdf; OECD (2016c), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 30 June 2016).
Note: Dark blue: federal and quasi-federal countries. Light blue: unitary countries. Figures for: Austria excluding Vienna; Norway excluding Oslo; Czech Republic estimated 2011 figures.
Source: Elaboration based on national data sources.
Regional development concerns such as interregional inequalities and global competitiveness are behind many of the regional reforms. This is the case for health and social service delivery in Finland, where the new 18 regions would take responsibilities from the municipalities. In Denmark, the prior merger from 13 counties to 5 regions was also driven by health service delivery considerations, as well as regional economic development. Competitiveness and visibility of regions within Europe and beyond was one of the stated motivations for reforms in the Netherlands (proposed) or France (implemented) (Chatry and Hulbert, forthcoming). Above and beyond sheer size, larger regions can help promote greater capacity for specialised technical skills among regional public sector employees. In Sweden, bottom-up reforms of regions have allowed 14 county councils out of 21 thus far to now have responsibilities for regional development. Of course larger region sizes can result in reductions of inequalities in the data without actually changing the conditions for the people living in different locations.
Another goal in merging or reshaping regions is to better match administrative boundaries to functional areas. In other words, the boundaries correspond to an area relevant for a social, economic or environmental function (such as commuting patterns, water basins, or economic ties). It is also perhaps more relevant in some countries at the intermediate region level given the determination of local labour markets. A prior proposal in the Netherlands sought to merge certain provinces to correspond with functional areas (OECD, 2014a). New Zealand’s reform to replace 200 local authorities with 12 regional councils and 75 city and district councils (now 11 regions and 67 city and district councils) was largely established by following the boundaries of drainage basins (Chatry and Hulbert, forthcoming). An entire reshaping of boundaries, as opposed to merely mergers, has proven a particularly difficult type of reform process.
The changing multi-level governance environment for the intermediate level regions has raised concerns about the voice of rural areas within subnational governance. Different evolutions in merging or municipal recomposition (up-scaling), inter-municipal co-operation (trans-scaling) and metropolisation have called into question the role of these intermediate-level regions (Chatry and Hulbert, forthcoming).13 Several governments are discussing or have recently removed this level of government such as in Italy, France, Belgium and Poland (Council of Europe, 2013). Abolition of counties or city-county mergers has also taken place in some US states. In Turkey, some of the city-county mergers involve rural areas within the province. One of the concerns with the removal of these intermediate layers is the power dynamics within the remaining higher level regional layer. Rural communities that previously had greater political clout at the smaller intermediate level now find themselves having to raise their needs alongside the more populous urban locations at this larger scale of elected government.
Conclusion
For several decades, OECD countries transitioned their regional policy approaches to focus on productivity. There is a trend to focus such policies on boosting national growth as well as the performance of all regions, albeit with an eye to some form of balanced growth that helps reduce interregional disparities. The instruments to achieve these goals in many countries have also been shifting away from basic infrastructure or subsidised services towards those that will support firm productivity. EU policy has spurred this transition in many EU countries. However, current global productivity trends are calling into question whether these efforts are sufficient for helping ensure that the productivity growth in those top firms is indeed benefiting the rest of the economy, across all regions. More research is needed to understand the mechanisms to increase innovation diffusion and the policy tools most effective at promoting catching up among regions.
Governance of regional development policies has also been an area of change since “how” policies are conceived and implemented is critical for place-based approaches. National governments have been using different strategies to better organise and evaluate their efforts. One tool used in several countries is a national network of regional development agencies. While they are often seeking to boost subnational capacity in the context of decentralisation in OECD countries and beyond, they are also a choice in some federal countries to co-ordinate support in a particular location. Models are increasingly focused on business development as opposed to a wider range of policies. Countries have also been reforming the regional level, with the goals of increasing subnational capacity, improving the quality of services and augmenting economic development prospects to make regions more “competitive”.
Urban and rural places have particular challenges above and beyond those often covered directly by regional policies. Urban policies tend to have a more transport and spatial planning orientation as well as social inclusion focus, with economic development efforts more focused on social goals than productivity per se. Urban policy is also the most actively changing policy field (relative to regional and rural) with many countries now in the process of creating national urban policy frameworks. Rural policies are still framed in most countries around agriculture – in terms of lead ministry and the content of many policy instruments. However, the opportunities in rural areas go far beyond agriculture, which also implies the need for greater attention to rural-urban linkages. Part II of this Outlook therefore explores the special concerns regarding productivity and inclusion for rural regions, and the need for a Rural Policy 3.0 to address these goals.
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Notes
← 1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
← 2. Discussions of the new paradigm in regional development policy have taken place since late 1999, with these concepts discussed at the High-level Meeting of the Territorial Development Policy Committee in Martigny, Switzerland June 2003. See also, for example, OECD, 2005 and OECD, 2009.
← 3. Data for 2014. Public investment is defined as the sum of capital transfers and investment. Gross fixed capital formation is the main component of investment (see Annex B of OECD, 2016d for a more detailed definition).
← 4. For further information on metropolitan and municipal reforms, see OECD (2014a) and OECD (2015b).
← 5. The above figures are based on country self-reported responses to the OECD Regional Outlook Survey. A desk review in mid-2013 showed 16 countries with a national urban strategy (OECD, 2014a). While the exact figures may not be entirely comparable, there appears to be an increasing awareness at national level of the need to address urban areas in a more systematic way.
← 6. Belgium’s rural policies are defined at the regional level, and both Flanders and Wallonia reported an agriculture-related type of ministry as the lead on rural development.
← 7. In Belgian regions, ministries are similar in regional and urban policies for Wallonia, while in Flanders there is a different lead ministry for each policy field.
← 8. Out of 178 RDA responses from a 2007 RDA Survey database.
← 9. In addition to the Appalachian Regional Commission (ARC) are the more recently created Denali Commission, the Delta Regional Authority (DRA), the Northern Great Plains Regional Authority, the Southeast Crescent Regional Commission, the Southwest Border Regional Commission, and the Northern Border Regional Commission.
← 10. While the ELY Centres are overseen by the Ministry of Employment and the Economy, they also deliver policy coming from several other ministries, including of: Environment, Transport and Communications, Agriculture and Forestry, Education and Culture, and the Interior.
← 11. Those without an elected regional level are generally countries that are not large in surface area (Estonia, Iceland, Ireland, Israel, Luxembourg and Slovenia). For the number of different levels of subnational government, see OECD, 2016b.
← 12. This is the case, for example, of the départements in France, provinces in the Netherlands, Belgium, Italy and Spain, prefectures in Japan, counties in Sweden and Norway and the cantons in Switzerland.
← 13. The terms up-scaling and trans-scaling are used by LocRef Network, 2013.