Download Regional policy in Europe

MGTECON 580: Class 5
Regional policy in Europe
- Regional disparities: country, regional level
- Regional Policy is core EU policy
- Four examples: business opportunities
- Why are regional differences a problem for policy ?
- Are regional differences a problem for business?
- Does Regional Policy achieve its goals ?
- Did integration favor the core ?
- The next “regional” problem: accession countries
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Regional policy in Europe
Disparities across countries: per capita GNP 2000
(in PPP)
Greece
EU average
Denmark
15.600 Euro
22.500 Euro
27.300 Euro
69%
100%
121%
Poorest regions
50% (French & Portuguese
Isles, Dessau, Isperus,
Algarve
Richest regions
160% (Hamburg, Ile De
France, Vienna)
Disparity of unemployment within countries
Italy:
UK:
Belgium:
Campagnia 4.4 times Vall d’Aosta
Merseyside 3.2 times Surrey Sussex
Hainut 2.2 times Vlaams Brabant
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Regional policy serves important
EU objective
Six founding members rather equal in GDP/head
Regional fund for southern Italy
1973: UK, IRE, DK joined
Fear of intolerable disparities North UK and North
Ireland, Ireland
1981: GR, 1986 SP, P large disparities
The policy answer 1975: Creation of Regional Funds
Plus social cohesion funds (for SP, P, GR, IRE, per
capita GDP, <90% of EU
The fear 1986 that by Single European Act of 1992,
even more favoring the core
Subsidies depending on per capita income and
unemployment
Objective 1: Regions where GDP per capita less than
75% of EU average
Objective 2: Areas with structural difficulties (rapid
change, rural, depressed urban)
Objective 3: Education, training
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Four examples:
opportunities for business
Sachsen East Germany: “productive investment to create and
safeguard jobs”
- Objective 1 area
- Chemical firm in 31% of 25 Mill Euro finances employees
Novi Technology Science Park in North Jutland Denmark
- “Development of endogenous potential”
- Objective 2 area
- Costs of Science Park: 4.9 Mill Euro of which 695 k Regional
Fund
North East England
- Transformation of heavy industry area into knowledge bases
- Infrastructure development, research facilities, training center
- Combined use of regional fund and social funds for training
- Today 34 companies, among them Nokia, advanced
applications and wireless application protocol (WAP),
Ericsson
IT-Bridge Sweden Denmark
- Electronic infrastructure
- Enterprise contact
- Partner twinning meeting
- 200k Euros, of which EU paid 50% Interreg Program
Amount of money between 0.2 and 0.5% of
EU GDP, but significantly higher share of
investment and GNP in Objective 1 areas
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Why are regional differences
a problem for society?
•
Goal of equal distribution of chances (political goal)
•Equity, equal chances, equal education
•
Income differences lead to migration pressure
•Migration has political, economic costs
•
Nation-wide wage (bargaining) leads to cost differences
•
Differences in unemployment is a resource cost
Are regional differences
a problem for business?
Problems:
- Deprived areas
- Unskilled, “non-industrial labor”
- Non-attractive market for selling
Advantages:
- Low wages, log congestion costs
- Outsourcing of simpler stages
Best: low wages, common productivity
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Was Regional Policy in Europe
successful?
Cohesion countries are catching up
86 - 91
4.1% vs. 3.0 (EU 15)
91 - 96
1.7% vs. 1.5
96 - 99
4.1% vs. 2.8
Regional differences smaller
Poor 10 regions 1986 41% of EU average, 1996 50%
Strong catching up in sixties, seventies
Stagnation of convergence in eighties
Further catching up across, but not within
countries 90 ties
Specific: regions of Spain and Italy are falling
behind further
Some regions may use EU integration,
Others do not
Basic human capabilities, skills?
Non-material preferences? Importance of
leisure?
Blockades for entrepreneurship and upward
mobility
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Did integration favor the core?
The fear:
- Core will win at expense of periphery
- Full working economies of scale
- Headquarters in core
- Spillovers, linkages in the core
- R&D, education, interesting services in the core
The facts:
- Big (core) countries do loose shares in GDP, trade
- Core countries possess interesting resources,
but to slightly decreasing extent
The reason:
- Small peripheric countries lose disadvantages of small
markets
- Small cost differences more important than decreased
transportation costs
Concentration of industries
Europe is now less concentrated
Countries are more specialized
- Core in large industries
- Nordic periphery in electronics
- Small country inroads in biotech
- Medical devices
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The next “regional” problem:
accession countries
• High agricultural input
• Substitutive in low wage industries
• Large income gap
• Large income differences (the eastern the lower)
• Competition for regional funds and agricultural
subsidies
• Dynamic market
• Chances for vertical splits (outsourcing)
The regional funds are diverted
- Specifically cohesion countries are defending interests
- Farm regime too costly to be extended to countries with
high agriculture share
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