INCLUSIVE GROWTH: A PLACE-

BASED PERSPECTIVE

OECD-DG JOINT RESEARCH CENTRE- AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH

''A SYSTEMS APPROACH TO SOCIALLY AND ENVIRONMENTALLY SUSTAINABLE GROWTH'‘

OECD, 3 MAY 2017

Joaquim Oliveira Martins (OECD/CFE)

Inclusive Growth needs to be constructed

through an appropriate governance system

Figure 1.2. New Development Paradigm: A Policy Complementarity Matrix

Social policies

Economic Policies

Environmental policies

EquityEfficiency

Sustainedgrowth

Socialcohesion

SustainableEnvironment

EnvironmentalSustainability

Economic reformsmay increase equity

Socialpolicies may increase

efficiency (knowledge, trust)

Green economy may boost innovation

Green growth may

improve sustainability

Environmentally sustainable social

policies

Social policies can enhance inclusiveness;

poor people are the most hurt by

environmental degradation

Inclusive Growth

Inclusive Growth

Green

Growth

Green

Growth

Social

Ecology

Social

Ecology

Constructing a supermodular policy matrix for Well-Being

Source: OECD Regional Outlook, 2011

Well-being is a place-based concept

CITIES

RURAL AREAS

EFFICIENCY/INCOME + -

ENVIRONMENTAL QUALITY - +

SOCIAL DIMENSIONS:

Public goods (e.g. Health, Education) + -

SOCIAL DIMENSIONS:

Community produced goods (e.g. Trust, Security)

- +

4 Well-being is the outcome of the different local dimensions

OECD place-based policy paradigm

The OECD place-based policy paradigm is basically made of good structural economic policy with two main differences:

• It allows for spatial differentiation • Calls for a specific investment in Governance to coordinate policies across

levels of government, sectors and administrative boundaries

Accordingly, the OECD ‘place-based’ approach is based on: • Identification of regional specific assets (or create absolute advantages to

stimulate competition & experimentation across regions)

• Complementarities among sector policies at the regional (or local) level

• Multi-level governance mechanisms for aligning objectives & implementation

Increasing regional disparities may hinder national productivity

performance

OECD economies have converged but, within countries, regions have diverged

GDP per capita dispersion is now greater within

countries than between countries

8

Gini index of disposable income, 2011 (in selected OECD countries and their regions)

Disparities of household income are also large within regions

Source: OECD Income Distribution Database and OECD Regional Well-being database

Well-being outcomes amplify the regional disparities

Source: OECD (2016), Making Cities Work for All, OECD Publishing, Paris.

Differences across regions in multidimensional living standards are larger (MLS index: income, jobs, health and inequality)

The productivity gap between frontier and lagging regions has increased

Notes: Average of top 10% and bottom 10% TL2 regions, selected for each year. Top and bottom regions are the aggregation of regions with the highest and lowest GDP per worker and representing 10% of national employment. 19 countries with data included.

Averages of top 10%

(frontier), bottom

75%, and bottom

10% (lagging) regional GDP per worker,

TL2 regions

50 000

60 000

70 000

80 000

90 000

100 000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

USD PPP per employee

Frontier regions Lagging regions 75% of regions

1.6% per year

1.3% per year

1.3% per year

60% increase

Regional productivity catching-up could have a strong contribution to aggregate growth

Type of regions

Employment

share in 2000

GDP share in

2000

Annual avg. GDP growth,

2000-13

GDP growth contribution

Frontier 16.1% 20.1% 1.7% 21.9%

Catching up 20.3% 18.2% 2.2% 25.3%

Stable productivity gap

38.9% 39.1% 1.3% 30.4%

Diverging 24.6% 22.6% 1.6% 22.4% OECD average 1.6% Note: Frontier regions are fixed for the 2000-13 period. In four countries the values for 2000 or 2013 were extrapolated from growth rates over a shorter time period as data for 2000 or 2013 were not available. The countries are FIN (2000-12), HUN (2000-12), NLD (2001-13) and KOR (2004-13).

Fat tails matter: regional contributions to aggregate OECD growth

Source: OECD (2011) Regional Outlook.

1. A few big regional hubs are main drivers of growth, but many big cities are also making little growth contribution

2. Most economic growth occurs outside the hubs in a largely distributed way 3. The notion of an “average region” is meaningless

Contributions to OECD-wide growth, TL2 regions

Distribution of the contributions to aggregate growth of OECD metropolitan areas

Source: OECD (2013), Regions at Glance

What could make cities more productive and

more inclusive?

Only 1/5 of OECD metro areas have grown inclusively

15

Change in GDP pc and in Gini coefficient of household disposable income, 2000-13

Source: OECD (2016), Making Cities Work for All, OECD Publishing, Paris.

Productivity increases with City size even after controlling for sorting

16

Doubling the size of a city ≈ 3-5% productivity increase

Cit

y pr

oduc

tivi

ty (

norm

alis

ed)

Source: Ahrend, R., E. Farchy, I. Kaplanis, A.C. Lembcke (2014), “What makes cities more productive? Evidence on the role of urban governance from five OECD countries”, OECD Regional Development Working Papers, No. 2014/05, OECD Publishing, Paris.

But administrative fragmentation is correlated with lower city productivity

17 17

Source: Ahrend, R., E. Farchy, I. Kaplanis, A.C. Lembcke (2014), “What makes cities more productive? Evidence on the role of urban governance from five OECD countries”, OECD Regional Development Working Papers, No. 2014/05, OECD Publishing, Paris.

Income inequalities also tend to increase with city size

18

Metropolitan population and income inequality, circa 2014 (controlled for income levels and country effect)

Calera

San Fernando

Linares

Quillota

Ovalle

Melipilla

San Antonio

Punta Arenas

Calama

Curicó

Osorno

Valdivia

Copiapó

IquiqueLos Angeles

AricaChillán

Puerto Montt

Talca

AalborgOdenseRancagua

Antofagasta

Temuco

Coquimbo-La Serena

Aarhus

Toledo

Akron

Saint-Etienne

Irapuato

Venezia

Pachuca de Soto

Toulon

Bari

Gent

Durango

HarrisburgMadisonWichita

Celaya

Linz

Little Rock

Graz

Des MoinesCharleston

Catania

Columbia

Montpellier

Richmond

Colorado Springs

Baton RougeGrenobleMalmö

Benito JuárezRennesRouen

Albany

Providence

Genova

Grand RapidsSaltillo

Firenze

Reynosa

Oaxaca de Juárez

XalapaLiège

Tuxtla Gutiérrez

BolognaStrasbourgDayton

Tampico

VeracruzHermosillo

McAllen

Acapulco de Juárez

Chihuahua

El Paso

NiceMorelia

Culiacán

Omaha

Nantes

Centro

Cuernavaca

Göteborg

Albuquerque

Concepción

Tulsa

Mexicali

Palermo

Birmingham

Aguascalientes

ValparaísoTucson

Buffalo

FresnoFort Worth

AntwerpenRaleigh

Norfolk-Portsmouth-Chesapeake-Virginia beach

Querétaro

Bordeaux

New Orleans

Clearwater/Saint Petersburg

San Luis Potosí

Luisville

ToulouseJacksonvilleOklahoma city

Salt Lake City

NashvilleMemphis

Torreón

Mérida

Juárez

Lille

Pittsburgh

Tampa

Charlotte

Tijuana

León

Milwaukee

Indianapolis

Marseille

AustinCleveland

Torino

Columbus

Lyon

Toluca

Kansas CityCincinnati

StockholmLas Vegas

Copenhagen

BaltimoreSacramento/Roseville

San AntonioOrlando

Puebla

Portland

Bruxelles / Brussel

Denver

Saint Louis

WienSeattleSan DiegoBoston

Minneapolis

Philadelphia

DetroitNapoliRoma

Phoenix

Milano

Monterrey

Atlanta

Guadalajara

Dallas

Washington

MiamiHoustonSantiago

San FranciscoChicagoLos AngelesNew York

Mexico City

.05

.1.1

5.2

.25

Gin

i coe

ffici

ent (

com

pone

nt p

lus

resi

dual

s)

10 12 14 16 18Ln of total metropolitan population

But administrative fragmentation is correlated with higher segregation of people

19

Hypothesis: Fragmented metropolitan governance can facilitate segregation at the level of local units.

-.05

0.0

5.1

.15

Ineq

ualit

y be

twee

n lo

cal ju

risdi

ctio

ns,

(Com

pone

nt p

lus

resid

ual)

0 .2 .4 .6 .8 1Administrative fragmentation

Controlling for country fixed effects and other city characteristics (i.e. income , population, spatial structure), higher administrative fragmentation is associated to higher spatial segregation by income in different municipalities (cf. Brezzi, Boulant & Veneri, 2016)

Overly restrictive land use policies can harm inclusiveness via rising housing costs

An

nu

al c

han

ge h

ouse

pri

ces

(2

00

0-2

012

)

Annual change in developed land per capita (2000-2012)

• Land use regulations should aim to prevent sprawl…

• …but have to provide sufficient space to construct housing for growing populations

• Otherwise, housing costs rise -4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

-1.0% -0.5% 0.0% 0.5% 1.0%

Incentives matter: make planning more flexible and foster good land use

How land is used

Public policies aimed at steering land use

• Spatial planning • Transport planning • Land use planning • Environmental regulations • Building code regulations

Public policies not targeted at land use • Tax policies • Transport taxes and subsidies • Fiscal systems and inter-governmental

transfers • Agricultural policies • Energy policies

How land is permitted to be used How individuals and businesses want to use land

Policies for inclusive growth in cities and

regions

Policy shift towards Inclusive Growth

Cohesion-oriented urban & regional policy

Growth-oriented urban & regional policy

Inclusive growth policy in cities & regions

Objectives

Compensating temporarily for location disadvantages of lagging areas

Tapping underutilised potential in all areas for enhancing urban & regional competitiveness

Fostering both equity & growth in cities & regions

Unit of intervention

Administrative regions/cities & firms Functional economic areas

Functional urban areas (of all sizes) that reflect the reality of where people live and work

Strategies Sectoral approach Integrated development projects for economic growth Multi-dimensional well-being

Tools Subsidies & state aids

Investment in infrastructure to exploit competitive advantages of different places

Integrated policy packages that address both physical/ environmental capital and human/social capital

Key actors Mainly central governments

Different levels of government & business sector

Partnerships across levels of government, as well as between public and private spheres, and civil society

Bottom-line

• Positive Economics (what to do?) need to be combined with Governance (How to do it?) in order to provide a better set of policies to deal with inclusive growth

• Place-based policies help introducing a

systems approach to inclusive growth • Place-based policies also support the

construction of a more integrated structural policy package

THANK YOU!