EU Regional Policy

Question 1

Aim of EU regional policy

Answer 1

Overcome regional disparities in the EU and support the integration process

Question 2

How can they do this?

Answer 2

Structural funds to invest and encourage growth in backward regions

Question 3

When was there a shift in EU spending priorities towards regional policy (reducing disparities)?

Answer 3

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

Question 4

Thus what has happened to ‘structural spending‘ growth since 1980s?

Answer 4

Increased as a proportion of the EU budget

(Structural spending is like infrastructure, phones, roads etc)

Question 5

European economic geography

Answer 5

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

Question 6

More regional disparity evidence
(hint; Luxembourg and Bulgaria GDP per capita)

B) Unemployment inequality (Greece v Germany)

C) Investment/innovation (core v periphery)

Answer 6

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%

Question 7

So they were examples of regional inequality.

What is an example of WITHIN region inequality:

Answer 7

Italy: Lombardy (North) vs Calabria (South)

2016 Figures Lombardy’s GDP per capita is more than double (36k euros) vs 16k

Question 8

Why have EU regional policy, in addition to countries’ national policies? (arguments for EU policy)

Answer 8

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

Question 9

When were major reforms to regional policy made

Answer 9

1989 along with SEM

Question 10

3 main principles of 1989 reforms

Answer 10

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!

Question 11

How did they ensure additionality (EU funding was supplementary to national policy)

Answer 11

Member states had to prove EU funding added value to their national policies/investments

Question 12

Then which reform followed next and its aim

Answer 12

Agenda 2000 (2000-06) - aim to increase efficiency
By reducing objectives from 6 to 3.

Question 13

3 new streamlined objectives of Agenda 2000

Answer 13

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

Question 14

How much of structural funds went to objective 1 (structural assistance for regions with GDP under 75% of EU average)

Answer 14

70% of funding (mainly ERDF)

Question 15

Objective 3: human resource development

How did they do this?

Answer 15

Education
Training
Employment programs

(Funded by ESF - investing in jobs and skills!)

Question 16

What was key to these streamlined objectives of the agenda 2000?

Answer 16

Subsidiarity - decentralised decision making in order to make the best localised adapted decisions

(Same as 2000 reform for agriculture for environment emphasis)

Question 17

What was a constraint to these reforms

Answer 17

EU budget is fixed/limited to 0.46% of EU GDP, and so limited in ability to fund these reforms

Question 18

Next reform…

Answer 18

Multiannual financial framework (MFF) 2007-13

Question 19

Multiannual Financial Framework 2007-13 characteristics (2)

Answer 19

New allocations (following EU enlargement) + Some EU15 regions less funding

3 objectives - now 2.

Question 20

New allocations following enlargement. Why?

Answer 20

12 new member states joint so budget was reallocated

(and reduced funding for EU15, the 2nd characteristic of MFF)

Question 21

2 objectives of MFF and allocation of expenditure

Answer 21

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)

Question 22

Issues with EU regional policy (6)

Answer 22

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

Question 23

Each stage of integration has different effects on regional disparities

Answer 23

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

Question 24

Has EU RP been effective

Answer 24

We’ve seen at best, a narrow convergence between countries

But bigger issue is within state disparities!

Question 25

What can convergence be explained by

Answer 25

Comparative advantage

Question 26

Canada/US regional disparity compared to EU

Answer 26

US has less regional disparities - 1/2 of EU

Question 27

Why greater disparities within country

Answer 27

Agglomeration - clustering of economic activity (major cities)

Question 28

What does agglomeration create (2)

Answer 28

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

Question 29

Agglomeration diagram

Answer 29

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)

Question 30

Regional income inequality index curve B) how is it diagrammed

Answer 30

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

Question 31

Final curve shows what B) how is it diagrammed

Answer 31

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

Question 32

Now look at impact of regional policy on this diagram What is RP usually targeted at, and eval

Answer 32

Infrastructure But can fail… E.g HS2

Question 33

Scenario 1: Structural funds to reduce transaction costs within poor regions e.g new roads What happens to the diagram , and result/implications

Answer 33

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

Question 34

Scenario 2: reduce transaction costs between poor and rich regions (connect them!) e.g HS2 What happens to the diagram , and result/implications

Answer 34

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)

Question 35

Scenario 3: SF reduce INNOVATION costs (NOT TRANSACTION COSTS) E.g faster broadband Key result/implications

Answer 35

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!

Question 36

Overall, narrowing disparities between countries but widening within countries. Empirical evidence to find the increasing disparity within country… A) Paris B) Poland

Answer 36

Paris contributes for 30% France’s GDP Warsaw GDP per capita is double national average GDP

Question 37

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

Answer 37

The Rail Baltica project - to connect Poland Lithuania Latvia and Estonia. (Allow easier labour mobility)

Question 38

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

Answer 38

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

Question 39

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?

Answer 39

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)