Regional power

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Today’s post is from Kate Lancaster, editor in charge of publications on regional development at the OECD.

“Vous venez d’ou?” (Where are you from?) is not an unusual question in a large city like Paris. People come here from all over the world, for a holiday, for a business trip, for a temporary posting, or even to stay permanently. Ask them where they are from and they’ll probably tell you their nationality.  But talk to a French person in Paris and many will say that they aren’t really Parisian. They’re Alsatian or Breton, Basque or Norman. Even if it is their great-grandparents who came to Paris from the provinces, these people still claim a connection to the French region which their ancestors left to seek a better life. As the French singer Charles Aznavour memorably put it: “At 18 / I left my province / Determined to seize life with both hands … I was sure to conquer Paris”.

This story of migration from the provinces to the city, and the idea of the city as wealthy pinnacle of opportunity and the country as a sleepy, poor backwater, is an old one, seen in life and literature alike. But what are the economics behind this cultural trope?

Data show economic activity tends to concentrate in large cities and metropolitan regions. Indeed, a handful of such regions tend to account for a disproportionate share of total national growth in OECD countries. Typically, around 4% of regions generate about one-third of total growth, while the rest of the regions collectively account for the other 66% of growth, but individually do not contribute much.

Governments have long grappled with what to do about these underdeveloped regions. Do such regions even have anything to offer to the rest of the country?  At first glance, the answer might seem to be “no”. Very underdeveloped regions can impose high costs on national budgets, often in the form of quick-fix subsidies. And it has too often been assumed that there is no growth potential in these regions; they have been seen as a drag on national performance, not as potential assets.

The OECD believes otherwise. The recent report Promoting Growth in All Regions argues that relatively underdeveloped regions can in fact potentially be important sources of national growth and challenges the widespread view that rural is synonymous with decline.

Drawing on statistical analysis and a set of 23 case studies of OECD regions, the report shows that all regions have growth potential, particularly those that are currently lagging behind. It argues that promoting growth in all regions – whether rural or urban, underperforming or economic powerhouse – can drive total national economic growth and make economies and individuals alike less vulnerable to external shocks.

So, what should policy makers do? While there is no “one size fits all” solution, a few major themes emerge from the case studies.

First, education pays off and not just in the usual ways. We all know that the return on a university degree can be substantial, but these case studies demonstrate that improving skills of lower achievers – by reducing school dropout rates, focusing on marketable skills, and strengthening vocational training programmes – is equally important.

Second, infrastructure is not a cure-all. While building new roads, bridges and ports may create jobs, focusing only on improving infrastructure will not bring economic success. Big infrastructure projects do have a role to play – as a part of a larger policy package that brings improvements in a number of areas, from human capital to governance.

Third, the old saying “give people fish and they eat for day, teach them to fish and they eat for a lifetime” really is true. The case studies illustrate how dependence on top-down solutions and subsidies limits regional growth. Interestingly, the report also points out that the ways in which policy makers “frame” the challenges they are facing can make a big difference. As long as regional policy makers regard external subsidies as the main response to local difficulties, growth is unlikely to be substantial or sustainable. But reframing the policy challenge, looking at it in terms of local partners, institutions and investment, will encourage real growth and for the long term.

This doesn’t mean that regional underdevelopment is all in our heads, far from it. But it does mean that we must all put our heads together to help lagging regions to catch up with their better performing peers. This not only benefits national economies, but also contributes to a more inclusive and sustainable growth model. It helps to build a fairer society, in which no region and no one is left behind.

Useful links

OECD Regional Outlook 2011

OECD Regions at a Glance 2011

Regions and Innovation Policy



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