Distributive policy

The trap of regional development in Europe

Andreas Diemer, Simona Iammarino, Andrés Rodríguez-Pose, Michael Storper July 19, 2022

Long-term regional economic stagnation at different levels of development is becoming the norm in many parts of Europe (European Commission 2017, 2022). Poor economic performance, lack of employment opportunities and loss of competitiveness are causing social and political resentment towards what is increasingly seen – rightly or wrongly – as a system that does not benefit the areas left behind. for account (Dijkstra et al. 2020). Regional stagnation also fuels the perception of a two-speed Europe, shared between a reduced number of dynamic and competitive super-regions, in which economic and political power combine, and ever-increasing ranks of spaces left behind, increasingly seen as unimportant or of much less importance than before (McCann 2020, McCann and Ortega-Argilés 2021, Rodríguez-Pose 2018).

Stagnation has received some attention internationally under the guise of the “middle income trap”. But stagnant regions have not been the subject of coherent policy scrutiny so far, partly because the problem of stagnation has not been precisely defined and analyzed at the sub-national level, and because that some stagnating regions do so at relatively high income levels. As a result, in Europe, the difficulties of these regions have fallen through the cracks of a European policy mainly oriented towards the less developed regions and national policies which have tended to reinforce the winning areas.

Defining and measuring the pitfalls of regional development in Europe

In a recent article (Diemer et al. 2022), we fill these gaps in existing knowledge by introducing and operationalizing the concept of the regional development trap in Europe. This concept borrows from the theory of middle-income countries (Eichengreen et al. 2012, Kharas and Kohli 2011) but rethinks it to reflect the specificities of regional development trajectories in economies with a long tradition of industrialization.

We define the regional development trap as the state of a region unable to maintain its economic dynamism in terms of income, productivity and employment, while underperforming its national and European peers on these same dimensions. In other words, a region is in a development trap if the prosperity of its inhabitants does not improve compared to its past performance and the prevailing economic conditions in the national and European markets. We apply this concept to regions that fall into this state from different levels of starting economic development relative to the European distribution, distinguishing regional development pitfalls at high, middle and low income levels.

We measure development pitfalls along a three-dimensional continuum, including GDP per capita, productivity and employment. In line with the literature on growth slowdowns (Hausmann et al. 2005), the focus is on the growth rates of these variables, comparing the relative performance of a region against three benchmarks: the region itself as a whole immediate past, other regions in their country and the rest of Europe. We then develop a synthetic dynamism index to map the regions of Europe that have been trapped or were at risk of falling into a development trap.

A portrait of the pitfalls of regional development in Europe

Figure 1 maps the average scores of the development trap measure over the period 2001-2015. Only regions in the first two risk quartiles are mapped, with quartile values ​​calculated using the distribution of index values ​​over the period 1990-2015, to compare risk levels across all historical values possible.

Figure 1 Risk of being trapped (2001-2015) by initial levels of development

The darker regions are those that, on average, can be considered to be in a developmental trap; those with lighter shades are at high risk of being trapped. Color coding helps distinguish development traps at high income levels (in blue), middle income levels (in yellow) and low income levels (in red), depending on whether the initial regional GDP per capita was higher than the EU average, between 75% and 100% of it, or less than 75% of the EU average. This three-level categorization visually highlights the different types of regional pitfalls across Europe: decline, stagnation and persistent backwardness.

The map shows several regions considered to be in or close to the European core – often those at the heart of the so-called “blue banana” – which are stagnating. The highest level of confinement is found among “industrial losers” (Rosés and Wolf 2018) in France, especially around Paris, and in northern Italy.

By using categories (and a staining scheme) consistent with those in Figure 1, characteristics of regions that are or are at risk of being in a developmental trap can be compared to those that are not. We compare them across a range of characteristics related to economic structure, physical capital and infrastructure, human capital and labor force characteristics, economic geography, and institutional quality. Figure 2 shows the average characteristics per group in levels; Figure 3 considers them in evolution.

Figure 2 Characteristics of trapped regions by level of income group

picture 3 Evolution of trapped regions by level of income group

A few features stand out. Regions in a development trap, or at risk of being trapped, show lower shares of manufacturing and higher shares of non-market services (mainly covering public services in the areas of social protection, health, education and defence), compared to other regions. untrapped regions at comparable levels of development. Regions trapped or at risk of being trapped also have lower secondary education levels among the working-age population and higher age dependency ratios. Institutional quality is linked to relatively low development scores in low- and high-income regions.

Industry growth is weakest (even negative) among regions trapped or at risk of being trapped. Moreover, being trapped is linked to the growth of non-market services. Trapped low-income areas also show lower growth in the share of residents with higher education, although this group is growing faster overall (due to starting at lower levels). Trapped regions consistently show the lowest growth in patents per capita. In the poorest areas, dynamic regions are registering strong increases in their production, underlining the potentially important role played by innovation in achieving regional dynamism.

Trapped regions deserve political attention

The identification of trapped regions shows a Europe at different speeds. Lockdown causes social and political resentment towards what is increasingly seen – rightly or wrongly – as a system that does not help areas left behind (Dijkstra et al. 2020). This fuels the perception of a two-speed Europe, divided between a relatively small number of dynamic and competitive super-regions which combine economic, political and social power and prestige, and growing ranks of those left behind, including residents feel less and less important (McCann 2020, McCann and Ortega-Argilés 2021, Rodríguez-Pose 2018, Guiso et al. 2018). The analysis of the pitfalls of development makes these places visible.

Issues related to economically trapped regions have been mostly overlooked by European and national policymakers, who have historically tended to target less advanced regions or have focused on reinforcing winners in dynamic urban agglomerations. Caught between these two priorities, many trapped regions are struggling to generate interest.

The challenge for policymakers is to add development pitfalls to their portfolio of concerns, given the many and varied circumstances that exist in Europe. This problem deserves attention not only ex post, when stagnation is entrenched, but also when looking to the future. The identification of regions in a development trap sounds the alarm about these surprisingly widespread risks in Europe.

References

Diemer, A, S Iammarino, A Rodriguez-Pose and M Storper (2022), “The regional development trap in Europe”, economic geography.

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European Commission (2017), My region, my Europe, our future: Seventh report on economic, social and territorial cohesionL Dijkstra (ed.), European Commission, Directorate General for Regional and Urban Policy.

European Commission (2022), Cohesion in Europe by 2050: Eighth report on economic, social and territorial cohesionL Dijkstra (ed.), European Commission, Directorate General for Regional and Urban Policy.

Guiso, L, H Herrera, M Morelli and T Sonno (2018), “The backlash of populism: an economic backlash”, VoxEU.org, 18 March.

Hausmann, R, L Pritchett and D Rodrik (2005), “Growth Accelerations”, Economic Growth Journalhrs 10(4): 303–329.

Kharas, H and H Kohli (2011), “What is the middle-income trap, why do countries fall into it and how can it be avoided? », Global Journal of Emerging Market Economies 3(3): 281–289.

McCann, P (2020), ‘Perceptions of regional inequality and the geography of discontent: perspectives from the UK’, Regional Studies 54(2): 256–267.

McCann, P and R Ortega-Argilés (2021), “The UK ‘geography of discontent’: Narratives, Brexit and cross-regional ‘race to the top'”, Cambridge Journal of Regions, Economy and Society 14(3): 545–64.

Rodríguez-Pose, A (2018), “The revenge of the places that don’t matter (and what to do about it)”, Cambridge Journal of Regions, Economy and Society 11(1): 189–209.

Rosés, JR and N Wolf (2018), “The return of regional inequalities: Europe from 1900 to today”, VoxEU.org, 14 March.