IX. Scientific Conference · 2 March 2020| Prof. Dr. Michael Voigtländer Q uelle: Institut der deutschen Wirtschaft Development: below average (greater or smaller than the median

2. März 2020

Regional Disparities and Inequality as Challenges for Social Cohesion?

IX. Scientific Conference

2

Agenda

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Welcome Note and Introduction Prof. Dr. Dominik H. Enste

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I. Regional Disparities in Germany and II. Growth Inequality within the EU => as Challenges for Social Cohesion?

OECD (2019) describes a cohesive society as one which “works towards the well-being of all its members, fights exclusion and marginalization, creates a sense of belonging, promotes trust, and offers its members the opportunity of upward social

mobility.” As such social cohesion is both a desirable end and a means to inclusive development.

Upward Social Mobility – Equal Opportunities

Source: Enste/ Grunewald; Gerechtigkeitsindex, 201733

444747474849

5158

6162636464656566676868

72737374

7980

8687

28 Griechenland

27 Spanien

26 Irland

25 Italien

24 Türkei

23 Slowakische Republik

22 Portugal

21 Rumänien

20 Ungarn

19 Tschechische Republik

18 Luxemburg

17 Frankreich

16 Vereinigtes Königreich

15 Slowenien

14 Niederlande

13 Polen

12 Finnland

11 Belgien

10 Vereinigte Staaten

9 Deutschland

8 Kanada

7 Dänemark

6 Schweden

5 Österreich

4 Schweiz

3 Australien

2 Norwegen

1 Neuseeland

6

0

20

40

60

80

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Dänemark

Niederlande

Deutschland

Irland

Polen

Vereinigtes Königreich

Frankreich

Portugal

Italien

Spanien

Griechenland

Source: Enste/ Suling, 2020 – IW Policy Paper (forthcoming)

Trust in Political and Economic System, and the Society (Social Capital)

Well Being and Life Satisfaction within the EU

Hinweis(e): EU; 14.11.2019 bis 29.11.2019; 27.382 Befragte; EU-Bürger

Quelle(n): European Commission; ID 249947

71%

55%

46%42%

37% 37%33% 32%

26% 26% 25% 25% 24%19% 18% 16% 15%

8% 7% 7% 6% 5% 5%

26%

41%

50% 49%

58% 57%60%

57%

63% 64%67%

59%64%

55%

65%69%

63%68%

45%

64%59%

49%

68%

3% 4% 4%8%

4% 5% 6%9% 10% 9% 8%

13% 11%

21%

13% 11%

20% 19%

33%

23%27%

33%

23%

0% 0% 0% 1% 1% 1% 1% 1% 1% 1% 0%3% 1%

5% 4% 2% 2%5%

15%

6% 8%11%

4%

-10,0%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

80,0%

An

teil

der

Bef

rag

ten

Countries

Sehr zufrieden Ziemlich zufrieden Nicht sehr zufrieden Überhaupt nicht zufrieden

Very satisfied Quite satisfied Not satisfied Not at all satisfied

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Well Being and Life Satisfaction in Germany

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Impulse: „Regional Disparities in Germany” Prof. Dr. Michael Voigtländer

IX. Scientific Conference IW / MPIfG | 2 March 2020 | Prof. Dr. Michael Voigtländer

Regional Disparities in Germany

2 March 2020| Prof. Dr. Michael Voigtländer

• Policy goal of equivalent living conditions is a guiding principle of regional development in Germany (reducing disparities)

• Gains from globalization are unequally distributed: „The revenge of the places

that don't matter” (Rodriguéz-Pose, 2018)

• Economic activities are more and more located in big cities

Motivation

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• Regarding both situation & development => idea: disconnected regions remain at a considerably low or below average level

• 2011 – 2015/16/17, due to data availability

• 96 Planning regions based on commuting patterns

o Planning regions are in the focus of federal and state governments (functional economic areas without overlaps of federal states)

o Neighborhood effects and economic interdependencies of city-regions relations are considered

Identification of ‘disconnected‘ regions with absolute and relative weak growth

Evaluation Approach

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Quelle: Institut der deutschen Wirtschaft

Development: below average (greater or smaller than the median value)

1

Initial situation: considerably below/above average (60 or 140 % of median or 1.5 x IQR)

0.5Relation: considerably below the convergence trend (region is developing worse than it is

expected based on national trend, upper or lower 10 % percent) 0.2

5

–u

ne

mp

loym

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t ra

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+ p

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GD

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–p

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so

ver-

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+ f

ert

ility

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+ li

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ctan

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–av

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ge p

op

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tio

n

age

+ p

op

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+ p

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+ b

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ban

d s

up

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+ p

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–m

un

icip

al d

eb

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Economy Demographic Infrastructure

Identification of region-related problems => Multidimensional Index

Evaluation Approach

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Example for identification of region-related problems with unemployment rate

Evaluation Approach

Duisburg/Essen

Emscher-Lippe

De

ve

lop

me

nt

Initial situation

Unemployment rate 2011-2017

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Criteria sum (> 0.5)

Vulnerable partial developments in comparison

Economy Demographic Infrastructure

Regionally differentiated approaches necessary, strengthening regional capacity to act (municipal debts)

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Multidimensional vulnerable regional developments Criteria sum (> 1.5) over 3 dimensions Economy, Demographics & Infrastructure


0 0,5 1 1,5 2 2,5 3 3,5

Altmark

Anhalt-Bitterfeld-Wittenberg

Emscher-Lippe

Duisburg/Essen

Oberlausitz-Niederschlesien

Saar

Mecklenburgische Seenplatte

Nordthüringen

Südthüringen

Lausitz-Spreewald

Westpfalz

Bochum/Hagen

Ostthüringen

Magdeburg

Halle/S.

Südsachsen

Schleswig-Holstein Ost

Dortmund

Bremerhaven

Rural regions in the east as well as Saarland, Western Palatinate & Ruhr Area

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There is not ONE single disconnected / problematic region

There is no systematic divergencebetween urban and rural regions, yet

Problems are very different, but oftenpersistent

Measures have to be adjusted to localconditions and preferences

Lessons learnt

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Restrict zoning and allocate investmentsto the center

Provide administration and infrastructurein an accesible district center

Promote civil involvement (transfer toschool, ideas for vacant homes, operationof swimming pools)

Shifting administration to smaller cities, establishing new universities

Keep attractivness

Demography

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Structural changes can cause enduringfinancial problems

Examples: Ruhr Area, Pirmasens

Over-indebtness has consequences forpublic services (schools, theatres, publictransportation,…)

Idea: debt relief for troubledmunicipalities

Empower municipalities

Indebtness of municipalities

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Source: Fotolia

The future of regions

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www.iwkoeln.de

[email protected]

Head of the Research UnitFinancial and Real Estate Markets

Prof. Dr. Michael Voigtländer

0221 4981-741

@mvoigtlaender

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A Brief Comment Prof. Dr. Martin Höpner

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Round Table Discussion

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Coffee Break

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Impulse: „(Growth) Inequalities Within the Eurozone” Prof. Dr. Lucio Baccaro

(Growth) Inequalities Within the Eurozone

Lucio Baccaro

IX. Scientific Conference, MPIfG/IW, Cologne, March 2nd 2020

The Growth Model Perspective

> Crisis of "wage-led" growth -> potential problem of insufficient effective demand -> secular stagnation tendencies

> Two solutions to the problem

– Debt-financed consumption-led growth model based on easier access to household debt ("privatized Keynesianism")

– Export-led growth model

> Thes solutions are complementary (one requires the other) and both unstable

> Cross-country variation in growth models depends on

– Key sectors and associated cross-class coalitions

– Policy choices (partly shaped by institutional sets)

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Eurozone Growth Models Prior to the Crisis (1)

> Export-led growth model (Germany)

– Three ingredients:- 1) Unadjustable nominal exchange rate- 2) Mechanisms for domestic wage and price containment- 3) Real wage restraint -> repression of domestic demand

– Sectoral implications: expansion of the external sector, stagnation of the construction sector; consumer banking in crisis

Eurozone Growth Models Prior to the Crisis (2)

> Debt-led growth (Spain)

– Three ingredients:- 1) Strong demand for credit- 2) (Housing) investment boom- 3) General pull effect on domestic demand

– Sectoral implications: external sector saddled with real exchange rate appreciation; expansion of mortgage finance, expansion of construction; expansion of banks' balance sheets (credit creation)

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Complementarity of the Growth Models

> One generates a surplus of domestic savings, the other a deficit of domestic savings (corresponding to external surplus and deficit, respectively)

> The balance was ensured, before the crisis, by cross-border banking flows: the reserves flowing out of the Spanish banking system were replaced by cross-border loans of reserves from core countries

– ECB (like other central banks) unconcerned with asset prices

– Financial markets unconcerned with default risk (low spreads)

– No impact on Target 2 balances before the crisis

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The (Peripheral) Export-Led Growth Model of CEE Countries

> Reliance on export-led growth

> Key firms are either foreign-owned or suppliers to foreign firms (global value chains)

> Host states tend to evolve into "courtesan states"

> Domestic suppliers tend to be "squeezed" by an international division of labor which concentrates profits at the top of GVCs

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Growth Decomposition (Based on Import-Adjusted Exports and Domestic Demand)

-.0

6-.

05

-.0

4-.

03

-.0

2-.

01

0.0

1.0

2.0

3.0

4ye

arl

y r

ea

l g

row

th

94-98 99-03 04-08 09-13 14-15

own elaborations on AMECO and OECD data

Germany

export-driven domestic demand-driven

total growth

-.0

6-.

05

-.0

4-.

03

-.0

2-.

01

0.0

1.0

2.0

3.0

4ye

arl

y r

ea

l g

row

th

94-98 99-03 04-08 09-13 14-15


France


total growth

Growth Decomposition-.

06-

.05-

.04-

.03-

.02-

.01

0.0

1.0

2.0

3.0

4ye

arl

y r

ea

l g

row

th

94-98 99-03 04-08 09-13 14-15


Portugal


total growth

-.0

6-.0

5-.0

4-.0

3-.0

2-.0

10

.01

.02

.03

.04

ye

arl

y r

ea

l g

row

th

94-98 99-03 04-08 09-13 14-15


Spain


total growth

Growth Decomposition-.

06-

.05-

.04-

.03-

.02-

.01

0.0

1.0

2.0

3.0

4ye

arl

y r

ea

l g

row

th

94-98 99-03 04-08 09-13 14-15


Greece


total growth

-.0

6-.0

5-.0

4-.0

3-.0

2-.0

10

.01

.02

.03

.04

ye

arl

y r

ea

l g

row

th

94-98 99-03 04-08 09-13 14-15


Italy


total growth

Impact of the Euro Crisis

> Sudden stop of cross-border banking flows + capital flight

> Balance of payment crisis, tempered by the Target 2 system

> Deficit countries forced, directly or indirectly, to adjust

> The debt-led growth model becomes unviable (or some time)

> Only the export-led growth model remains viable

– However, it is not an option for most countries (which explains the slow recovery)- Export sector too small and uncompetitive

Inadequate Policy Response

> Impression that the conditions for previous growth models are being restored:

– Recovery of the Spanish and Irish housing markets; the housing-mortgage finance nexus (which finances domestic consumption as well) as restarted

> Overall, no major changes were introduced and the Euro remains incomplete- No European budget- No common banking insurance- No European safe asset- No European industrial policy

Future Challenges

> The German export-led growth model challenged by

– Protectionist threat

– Threat of technological obsolescence (investment stagnation)

– Domestic problems (e.g. housing crisis), which would require a more expansionist fiscal stance

> Italy is a ticking bomb

> The world is about to face a COVID19-related recession and monetary policy is ineffective

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Thank You!

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A Brief Comment Dr. Hans-Peter Klös

Hans-Peter Klös

IX. Scientific Conference, MPIfG/IW, Cologne, March 2nd 2020Comment on Prof. Baccaro

Regional Disparities and Inequality as Challenges for Social Cohesion?

Hans-Peter Klös

IX. Scientific Conference, MPIfG/IW, Cologne, March 2nd 2020

(Growth) Inequalities within the Eurozone?Comment on Prof. Baccaro

42March 2nd 2020 / Hans-Peter Klös

1. Only the export-led growth models remain viable

2. The Euro remains incomplete because there is no industrial policy

3. The German export-led growth model is challenged by

› Protectionist threat

› Threat of technological obsolescence (investment stagnation)

› Domestic problems (e.g. housing crisis), which would require a more expansionist fiscal stance

Main Points of Prof. Baccaro


Source: Destatis

– 8,0

– 6,0

– 4,0

– 2,0

0,0

2,0

4,0

6,0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Foreign Balance contribution Contribution of domestic demand Total real GDP growth

Share of contribution to GDP-variation YoY, in percent and percentage points

Growth decomposition: a different view on Germany


Developing Systemic Approaches European Coherence as a Prerequiste

Number of jobs linked to trade, non-EUShare of manufacturing industry in per cent of gross value added, selected countries (2000/2017)

Strengthening Manufacturing

Source: Business Europe, 2019


*Latest value from 2015; **Latest value from 2016; ***Value from 2004 and 2016


Source: European Innovation Scoreboard, 2019

Improving Innovation Performance

Performance of EU Member States‘ innovative systems Global performance

Change in global performance


Source: European Industrial R&D Investment Scoreboard 2019

World vs. Europe

Investing in Research and Development


Source: https://stats.oecd.org/Index.aspx?DataSetCode=VC_INVEST

0

0,1

0,2

0,3

0,4

0,5

0,6

Italy 2018 Spain 2018 Germany 2018 France 2018 Switzerland 2018 Israel 2014 USA 2018

Seed Start-up and other early stage Later stage venture

Percentage share of GDP

Expanding Venture Capital Investments


„Place based policies“

Understanding the new economic geography

› “A handful of cities with a right mix of industries and a solid basis of human capital endowment are more and more attracting good employers and are paying high wages. Cities at the lower end of the distribution are dealing with dead-end jobs and poor wages.” (Moretti, 2012)

› “The economic convergence of American regions has greatly slowed, and rates of long-term non-employment have even been diverging.[…] Should more permanent economic divisions across space lead American economists to rethink their traditional skepticism about place-based policies? […] Place-based policies may not mean large-scale transfers to distressed areas, but place-based tailoring of policies to particular locales.” (Austin, Glaeser, Summers, 2018)


Understanding the superstar economics

Agglomeration forces

› Increasing returns to scale on large labour markets

› Productivity enhancing knowledge spill overs in urban centres

› Economies of scope through specialisation

› Saving of transaction costs

Dispersion forces

› Higher rents and higher land prices› Congestion, Pollution, Noise› Higher crime prevalence in

metropolitan areas

“In the 20th century income gaps narrowed across American states and European regions. No longer. Divergence is the result of big forces: Returns to scale create fewer, superstar firms clustered in fewer, superstar places. Everywhere else is left behind.”

Documents

IX. Scientific Conference · 2 March 2020| Prof. Dr. Michael Voigtländer Q uelle: Institut der deutschen Wirtschaft Development: below average (greater or smaller than the median