EU Regional Policy Flashcards
Aim of EU regional policy
Overcome regional disparities in the EU and support the integration process
How can they do this?
Structural funds to invest and encourage growth in backward regions
When was there a shift in EU spending priorities towards regional policy (reducing disparities)?
1986 - Following the entry of Spain and Portugal into EU, which created a voting bloc (QMV) which moved spending away from CAP to addressing regional disparities
Thus what has happened to ‘structural spending‘ growth since 1980s?
Increased as a proportion of the EU budget
(Structural spending is like infrastructure, phones, roads etc)
European economic geography
Core is only 1/7 of EU land area, but 1/3 of EU population lives there, and worth 50% of EU GDP.
Intermediate and periphery regions - lower standard of living
More regional disparity evidence
(hint; Luxembourg and Bulgaria GDP per capita)
B) Unemployment inequality (Greece v Germany)
C) Investment/innovation (core v periphery)
Luxembourg GDP pc is double EU average
While Bulgaria GDP pc is 55% of EU average
B)
Some areas in Greece: unemployment rate 20%
Regions in Germany: <3%
C)
In core regions often R&D is >3% GDP
Periphery often <1%
So they were examples of regional inequality.
What is an example of WITHIN region inequality:
Italy: Lombardy (North) vs Calabria (South)
2016 Figures Lombardy’s GDP per capita is more than double (36k euros) vs 16k
Why have EU regional policy, in addition to countries’ national policies? (arguments for EU policy)
Overcome market failures AT THE EU level e.g labour immobility (improving ability to move borders, whether linguistic, cultural or structural barriers e.g ‘The Rail Baltica’)
Can be used as a counterbalance for other EU policies like CAP which worsened inequality (favoured wealthy NW EU and big farms over small farms)
EU regional policy can coordinate national policy - align states towards common objectives to ensure consistency and shared benefits
When were major reforms to regional policy made
1989 along with SEM
3 main principles of 1989 reforms
Regional policy became a collaborative effort between EU and states
Multi-annual programs: no longer short-term programs
Additionality: the idea that EU funds are supportive and supplementary to national policy/funding, not a replacement!
How did they ensure additionality (EU funding was supplementary to national policy)
Member states had to prove EU funding added value to their national policies/investments
Then which reform followed next and its aim
Agenda 2000 (2000-06) - aim to increase efficiency
By reducing objectives from 6 to 3.
3 new streamlined objectives of Agenda 2000
1: structural adjustment in regions with GDP less than 75% of the EU average
2: support regions in decline and rural areas
3: human resource development
How much of structural funds went to objective 1 (structural assistance for regions with GDP under 75% of EU average)
70% of funding (mainly ERDF)
Objective 3: human resource development
How did they do this?
Education
Training
Employment programs
(Funded by ESF - investing in jobs and skills!)
What was key to these streamlined objectives of the agenda 2000?
Subsidiarity - decentralised decision making in order to make the best localised adapted decisions
(Same as 2000 reform for agriculture for environment emphasis)
What was a constraint to these reforms
EU budget is fixed/limited to 0.46% of EU GDP, and so limited in ability to fund these reforms
Next reform…
Multiannual financial framework (MFF) 2007-13
Multiannual Financial Framework 2007-13 characteristics (2)
New allocations (following EU enlargement) + Some EU15 regions less funding
3 objectives - now 2.
New allocations following enlargement. Why?
12 new member states joint so budget was reallocated
(and reduced funding for EU15, the 2nd characteristic of MFF)
2 objectives of MFF and allocation of expenditure
Convergence - structural adjustment (worth 82% of expenditure)
Regional competitiveness and employment (16% of expenditure, via human resource development funded through ESF)
(Convergence objective same as 1st objective of agenda 2000, and 2nd objective is basically agenda 2000 2nd and 3rd objectives combined)
Issues with EU regional policy (6)
Dependency (countries become dependent on EU (external) funds, can become inefficient
Additionality (proving funding gives added value to national policy is hard to monitor)
Subsidiarity (threat to EU model - variable geometry - since decisions are local, may cause greater divergence)
Enlargement (underfunded despite increased finance in 1990s - budget fixed to 0.46% of EU GDP)
Absorption by CEECs (corruption - may not receive funds!!)
Each stage of integration - different effects on regional disparities
Each stage of integration has different effects on regional disparities
Initial integration - poorer regions benefit more from EU structural funds.
However as integration progresses - shift towards promoting competitiveness, so makes difficult to balance benefits of integration across all regions
Has EU RP been effective
We’ve seen at best, a narrow convergence between countries
But bigger issue is within state disparities!
What can convergence be explained by
Comparative advantage
Canada/US regional disparity compared to EU
US has less regional disparities - 1/2 of EU
Why greater disparities within country
Agglomeration - clustering of economic activity (major cities)
What does agglomeration create (2)
Positive externalities (e.g labour moving firms can bring knowledge transfers, economies of agglomeration key term)
Attracts complementary factors
Hence why firms cluster in the same area
Agglomeration diagram
Income inequality y axis (beneath is innovation rate and LR growth rate)
Industrial agglomeration x axis
Agglomeration index curve - upward sloping i.e as more agglomeration, more inequality (firms locate in core/rich areas for economies of agglomeration benefits e.g London, Frankfurt etc for finance)
Regional income inequality index curve
B) how is it diagrammed
As agglomeration rises, income disparities narrow
Because agglomeration reduces innovation costs, it incentivises more competition/market entry raising innovation but lowers profits reducing disparity between regions (gap narrows between rich and poor, contrary to the agglomeration index curve)
B) downward sloping curve
Final curve shows what
B) how is it diagrammed
As agglomeration rises, innovation and growth rise.
(since reduces cost of innovation mentioned in the regional income inequality index previously)
B) downward sloping beneath the curve
Now look at impact of regional policy on this diagram
What is RP usually targeted at, and eval
Infrastructure
But can fail…
E.g HS2
Scenario 1: Structural funds to reduce transaction costs within poor regions e.g new roads
What happens to the diagram , and result/implications
Agglomeration curve shifts to the left (i.e for a given level of inequality, agglomeration falls as firms attracted to poor region so less clustering)
Result: we get a trade off, as we see inequality has risen, and innovation/growth has fallen
Thus this policy is not desirable; 1/3 objectives achieved
Scenario 2: reduce transaction costs between poor and rich regions (connect them!) e.g HS2
What happens to the diagram , and result/implications
Curve A shifts right (greater concentration in rich region since easier to get there so firms go there)
Agglomeration is not desired
Inequality has fallen (greater concentration in rich has also reduced the gap between rich and poor due to lower cost of innovation competition/market entry lowers profits thus reducing the gap between rich and poor)
Growth and innovation has risen
2/3 targets
E.g HS2 makes it more likely for more concentration in London (rich area)
Scenario 3: SF reduce INNOVATION costs (NOT TRANSACTION COSTS)
E.g faster broadband
Key result/implications
3/3 targets. No trade off!
Raises innovation/growth
Reduces agglomeration
Reduces inequality clustering since level playing field, policy is less regional in nature. (E.g makes it easier for people in remote areas to work)
Better compared to infrastructure which was done historically, which is very regional!
Overall, narrowing disparities between countries but widening within countries.
Empirical evidence to find the increasing disparity within country…
A) Paris
B) Poland
Paris contributes for 30% France’s GDP
Warsaw GDP per capita is double national average GDP
So reason for EU regional policy was to overcome market failure at EU level
Labour mobility is a failure whether it be cultural, borders, or cost.
Name example of policy that addressed labour mobility
The Rail Baltica project - to connect Poland Lithuania Latvia and Estonia. (Allow easier labour mobility)
Martin beliefs on policy recommendations: what did he think should invest in (2)
B) what did he accept?
C) what else did he find a relationship between
Reduce transaction costs and physical infrastructure
Instead, do LESS REGIONAL IN NATURE POLICIES:
Innovation policy
Human capital (since helps people benefit from opportunities wherever they arise)
B) And ACCEPT that some concentration is inevitable as a price of growth
C) transport costs and concentration
So agglomeration happens as clustering creates positive externalities and attracts complementary factors (external economies)
But what else did Martin find regarding what determines degree of concentration?
Relationship between transport costs and concentration.
If high transport costs - more incentive to cluster
If transport costs are medium - likely to increase concentration
Low - might lower concentration (since can afford to be dispersed)
