REGIONAL POLICY

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REGIONAL POLICY

Valanta Milliou

[email protected]

http://www.aueb.gr/users/milliou/teaching.html

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1. Introduction

2. Justification

3. Practice

4. Regional Policy and EU Enlargement

5. Recent Developments

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1. Introduction

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Regional Policy

One of the EU priorities is the existence of equal incomes and economic growth in its member-states and its regions.

This is clearly stated in the preamble of the founding treaty of the EEC (Treaty of Rome, 1957):

‘need to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing among the various regions and the backwardness of the less-favored regions.’

→Attempt to fulfill the above through the Regional Policy (RP).

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Regional Policy (cont.)

More than 1/3 of the EU budget is allocated to the Regional Policy.

Regional Policy:

Aims to reduce gaps in development among the regions

Works to improve disparities among the wellbeing of citizens

Helps lagging regions to…

- catch up

- restructure declining industrial regions

- diversify the economies of rural areas with declining

agriculture

- revitalize declining neighborhoods in the cities.

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Regional Policy (cont.)

Seeks to generate new resources by investment

It sets job creation and the reduction of long-run unemployment as

its primary concern.

In other words, the Regional Policy seeks to strengthen the

economic, social and territorial ‘cohesion’ of the EU.

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Inequalities in EU Europe is highly centralised in

terms of economic activity:

The ‘core’ regions (W.

Germany, Benelux, N.E. France,

S.E. England) have 14% of the

land, 33% of the population &

50% of EU GDP.

The ‘periphery’ regions have

65% of the land, 40% of the

population & just 20% of EU

GDP.

Periphery

Centrality of EU25 Regions

Intermediate

Core

Periphery

Centrality of EU25 Regions

Intermediate

Core

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Why should we be interested in the distribution of economic activities?

Their distribution affects importantly the wellbeing of the EU citizens. E.g.:

The unemployment rate in the ‘periphery’ regions is much higher than the one in the ‘core’ regions.

Youth unemployment rate: 134.2% in ‘periphery’ regions, 60.5% in ‘core’ regions (2001, EU27=100)

The income of the citizens in the ‘periphery’ regions is much lower than in the ‘core’ regions.

More specifically:

Inequalities in EU (cont.)

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0

50

100

150

200

250

lu ie dk at nl uk be se fr fi de it es cy gr sl pt mt cz hu sk ee pl lt lv bg ro tr us

EU25=100

2003: Average per capita national GDP (corrected for prices) relative to the average per capita GDP of ΕU25=100

Very uneven income distribution geographically . :

Luxembourg 215%, Ireland 132%, Bulgaria 26%

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50 - 75

75 - 90

90 - 100

100 - 125

125

EUR27 = 100<50

Income distribution even

more uneven at regional

level:

1/4 of ΕU27 population in 64 regions have per capita GDP below the 75% of the EU average.

13% of EU15 population have per capita GDP below the 75% of the EU average.

(less even within the nations)

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Strong regional contrasts in:

- Portugal (Lisbon and the North vs. the South and Centre)

- France (Paris vs. the rest)

- Spain (Northeast and Madrid vs. South and West)

- UK (South vs. North)

- Germany (South vs. North)

- Sweden (South vs. North)

- Belgium (North vs. South)

No regional contrasts in:

- The Netherlands

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Inequalities in EU (cont.) French example:

-Ile de France (Paris) has almost 1/3 of all economic activity (GDP).

- Per capita incomes (not shown) are 158% of EU15 average.

- Mediterranee has 10% of GDP, 12% of population.

• GDP/pop only 86% of EU15 average.

Outre-Mer are former French colonies (poor islands in Caribbean, etc.).

0.00 0.05 0.10 0.15 0.20 0.25 0.30

Ile de France

Bassin Parisien

Nord - Pas-de-Calais

Est

Ouest

Sud-Ouest

Centre-Est

Mediterranee

Outre-Mer

GDP share

Pop share

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2. Justification

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Theoretical Justifications

Theoretical explanations can be divided into two large groups:

– Agglomeration theories and models

– Dispersion theories and models

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Agglomeration Theories

Endogenous growth theory:

Concentration of economic activity as a result of:

- Increasing returns to scale to investment in human capital and

R&D

- Concentration of these factors in core areas to the detriment

of the periphery

- Especially as a result of economic integration

A regional policy is needed in order to counterbalance this tendency

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Agglomeration Theories (cont.)

New economic geography:

Concentration of economic activity as a result of:

- Trade as a substitute for factor mobility

- Once we allow for factor mobility, clustering is likely to occur as a result of the

prevalence of agglomeration forces:

- Technological externalities

- Specialised labour skills and labour turnover

- Firm level scale economies

- Transport costs: As they fall, greater competition & dispersion forces less

strong

A regional policy is needed in order to counterbalance this tendency.

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Dispersion Theories Classical Ricardian trade theory:

– Factor endowment is less important

– Integration leads to a rearrangement of economic activity

– Investment and innovation will flow to low cost areas

– Labour will flow to high cost areas

– Disparities will even out and policies are not needed

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Dispersion Theories (cont.)

Neoclassical growth theories:

– Investment as the only endogenous factor (technology is

exogenous)

– Decreasing returns to scale will lead to convergence

– Even without economic integration

– No need for regional policies

→

Economic theory is inconclusive about the territorial impact of

economic integration

user

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Other Justifications

- Equity and fairness

- Efficiency (location patterns inefficient)

e.g. unemployed resources, congestion

- Coordination

(i.e. need supranational coordination to be effective)

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3. Practice

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Short History Review

1957: The preamble of the Treaty of Rome refers to the need ‘to

strengthen the unity of their economies and to ensure their

harmonious development by reducing the differences existing among

the various regions and the backwardness of the less-favored

regions.’

1958: European Social Fund (ESF) and the European Agricultural

Guidance and Guarantee Fund (EAGGF) are established.

1965: First Commission Communication on Regional Policy:

conclusions of the three groups of experts.

1968: Creation of the Directorate-General for Regional Policy.

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Short History Review (cont.)

1975: Creation of the European Regional Development Fund

(ERDF).

1986: The Single European Act lays the basis for a genuine cohesion

policy designed to offset the burden of the single market for the

southern countries and other less-favoured regions.

1989: The European Council in 1988 overhauls the operation of the

Solidarity Funds (now referred to as the Structural Funds) and

allocates ECU 68 billion to them.

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1992: The Treaty of the European Union designates cohesion as one

of the main objectives of the Union , alongside economic and

monetary union and the single market.

It also establishes the creation of the Cohesion Fund to support

projects in the fields of the environment and transport i the least

prosperous Member States.

1994–99: The Edinburgh European Council (1993) allocates almost

200 billion ECU, one third of the Community budget, to cohesion

policy.

Alongside the Structural Funds, a new Financial Instrument for

Fisheries Guidance (FIFG) is created.

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1999: The Berlin European Council reforms the Structural Funds

and adjusts the operation of the Cohesion Fund. These funds will

receive over 30 billion euros per year between 2000 and 2006.

2004: On 18 February, the European Commission presents its

proposals for the reform of cohesion policy for the period 2007–13:

‘A new partnership for cohesion: convergence, competitiveness,

cooperation.’

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The Funds

There are 5 main funds that financially support the Regional Policy

of the EU.

Four Structural Funds:

- European Regional Development Fund (ERDF)

- European Social Fund (ESF)

- European Agricultural Guidance and Guarantee Fund (EAGGF -

Guidance Section)

- Financial Instrument for Fisheries Guidance (FIFG)

And

- Cohesion Fund

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The Funds (cont.)

The European Regional Development Fund (ERDF):

Promotes economic and social cohesion within the EU.

Finances investment leading to the creation of new jobs,

infrastructure improvements, local development initiatives and the

activities of small and medium-sized businesses

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The Funds (cont.)

The European Social Fund (ESF):

Focuses on employment policy.

Aims to prevent unemployment and to develop human resources.

Promotes integration of the labour market.

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The Funds (cont.)

The European Agricultural Guidance and Guarantee Fund

(EAGGF - Guidance Section):

Helps in both the development and the structural adjustment of rural

areas whose development is lagging behind.

Improves the efficiency of their structures for producing, processing

and marketing agricultural and forest products.

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The Funds (cont.)

The Financial Instrument for Fisheries Guidance (FIFG):

Focuses on the structural reform of the fisheries industry to achieve

a sustainable balance between fishery resources and their

exploitation.

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The Funds (cont.)

The Cohesion Fund:

Established to provide financial contribution to projects in the fields

of environment and trans-European networks.

Four beneficiaries: Countries whose GNP per capita is below 90%

of the EU average

– Ireland

– Greece

– Portugal

– Spain

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Priority Objectives

Objective 1:

Promotes the development and structural adjustment of regions whose

development is lagging behind, i.e. whose average per capita GDP is

less than 75% of the EU average.

Covers the most remote regions (the French overseas departments, the

Azores, Madeira and the Canary Islands) as well as the areas with low

population density created by the Act of Accession of Austria,

Finland and Sweden.

Two thirds of Structural Fund operations concentrate on Objective 1.

Almost 20% of the EU's total population is affected by measures

taken under this Objective.

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Priority Objectives (cont.)

Objective 2:

Contributes to the economic and social conversion of regions in

structural difficulties other than those eligible for the Objective 1.

Covers areas undergoing economic change, declining rural areas,

depressed areas dependent on fisheries and urban areas in difficulty.

About 11.5% of the Structural funds operations concentrate on

Objective 2.

No more than 18% of the Union's population is covered by this

Objective.

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Priority Objectives (cont.)

Objective 3:

Gathers together all the measures for human resource development

(e.g. training) outside the regions eligible for Objective 1.

The people that are eligible for financial support can be either in rich

or poor regions.

About 12.3% of the structural funds operations concentrate on

Objective 3.

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The Community Initiatives

Besides the 3 objectives, the regional policy of the EU includes a

number of community initiatives. For the period 2000-06, these

initiatives were:

- Interreg III, which aims to stimulate cross-border, transnational and

inter-regional cooperation;

- Leader+, which promotes rural development;

- Equal, which provides for the development of new ways of

combating all forms of discrimination and inequality in access to the

labour market;

- Urban II, which encourages the economic and social regeneration

of declining towns, cities and suburbs.

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Community Support Frameworks

They lay down the general strategy for ERDF assistance in a certain

number of regions within a Member-state.

The Community Support Frameworks are documents approved by

the Commission following appraisal of the plans presented by the

interested member state. They contain descriptions of the strategy

and priorities of the action, its specific objectives, the participation

of the Funds and other financial resources.

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4. Regional Policy and EU Enlargement

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Number of Member-StatesThe number of EU member-states has changed over the years.

1957: 6 Benelux, Germany, France, Italy1973: 9 + Denmark, Irland, UK1981: 10 + Greece1986: 12 + Spain, Portugal1995: 15 + Sweden, Finland, Austria 2004: 25 + Cyprus, Chech Republic, Estonia, Hungary Leetonia, Malta, Lithuania, Poland, Slovakia, Slovenia 2007: 27 + Bulgaria, Roumania???? : ? + Ukrania, ...

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2004 Enlargement The regional problems of the EU got worse with the accession of 10 new members.

The new member states (except Cyprus and Slovenia) are poorer than the member-states of EU15.

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50

100

150

200

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lu ie dk at nl uk be se fr fi de it es cy gr sl pt mt cz hu sk ee pl lt lv bg ro tr us

EU25=100

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2004 Enlargement (cont.)

Difficulties that arise:

– The cost could increase significantly.

– Some poor regions of the EU15 now appear relatively rich:

→

The entry pushes the per capita GDP above the average of EU25.

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2004 Enlargement (cont.)

Most of the new member-states have a per capita GDP lower than the 75% of EU25.

Some regions which with the enlargement exceeded the 75% of EU25 and were in danger of loosing the status of being regions of Objective 1 (“statistical effect”):

Since the 2000-06 programme was “locked” their funding was not affected.

Regions below 75% in EU25

Regions “statistically” above 75%

Regions above 75% in EU15

Others

Regions below 75% in EU25

Regions “statistically” above 75%

Regions above 75% in EU15

Others

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5. Recent Developments

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2007-13 Programme

2004: On 18 February, the European Commission presents its

proposals for the reform of cohesion policy for the period 2007–13:

‘A new partnership for cohesion: convergence, competitiveness,

cooperation.’

308 billions euros for the regional policy of the new period.

51.3% will go to the new memeber-states.

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ObjectivesConvergence: support employment growth and job creation in the

Member States and least developed regions

This objective will involve primarily the regions in which GDP per

inhabitant is less than 75 % of the Community average (84 regions).

To counter the ‘statistical effect’ of the enlargement, temporary support is

proposed for the regions in which GDP per capita would have been less

than 75 % of the Community average calculated for the EU15 (16 regions).

81.5 % of the budget for regional policy.

Member-states whose GDP is less than 90 % of the EU average will be

eligible for the Cohesion Fund, which will continue to finance programmes

in the areas of transportation and the environment.

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Objectives (cont.)

Regional competitiveness and employment: anticipate and

encourage the change

The regional policy outside the most disadvantaged member-states and regions

will have two fundamental objectives:

1.It will use the regional programmes to assist regions and regional authorities to

anticipate and promote economic change in industrial, urban and rural areas and

to strengthen their competitiveness and attractiveness.

2. It will use national programmes to assist people in preparing and adapting to

economic development in keeping with the priorities established in the European

strategy for employment by supporting policies targeting full employment, the

quality and productivity of work and social integration.

168 regions and 16% of the budget for regional policy.

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Objectives (cont.)

European territorial cooperation: ensure harmonious and

balanced development throughout the entire Union

On the basis of the experience acquired in the Interreg initiative, the report calls

for the pursuit of a policy promoting harmonious and balanced integration

through the territory of the EU by supporting cooperation at cross-border and

transnational level.

Cross-border cooperation would involve in principle all regions adjacent to

internal or external land or maritime borders. This involves essentially the search

for common solutions to common problems by means of cooperation among the

responsible authorities of neighbouring bodies involved in such areas as the

development of urban, rural and coastal areas, strengthening economic relations

and networking small and medium-sized enterprises.

2.5% of the budget for regional policy.

Documents

REGIONAL POLICY