productivity, agglomeration and metropolitan governance
TRANSCRIPT
PRODUCTIVITY, AGGLOMERATION
AND METRO GOVERNANCE
2016 CONFERENCE OF THE GLOBAL FORUM ON PRODUCTIVITY
Structural Reforms for Productivity Growth Lisbon, 7-8 July 2016
Joaquim Oliveira Martins
OECD Public Governance Directorate
The presentation draws from:
OECD (forthcoming), OECD Regional Outlook 2016
OECD (2015) The Metropolitan Century: Understanding Urbanisation and its Consequences
OECD (2015) Governing the City
OECD (2012) Redefining Urban: a new way to measure metropolitan areas
References used in this presentation
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Urbanisation and development
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Urbanisation goes along with development, but it is only a necessary condition
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Rea
l GD
P p
er C
apit
a (
as %
of
US
GD
P/C
apit
a)
Level of Urbanization
Brazil
China
Colombia
Japan
Peru
Thailand
Korea
Rest ofthe World
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Urbanisation and income convergence fit approximately an exponential relation…
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… but this relation is much less pronounced for Latin America than for Asian countries
y = 4.4701x - 0.5571R² = 0.8369
y = 2.5795x - 0.1196R² = 0.4867
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3.5
0 0.2 0.4 0.6 0.8 1Log
of th
e re
al G
DP
per
Capi
ta (
as %
of U
S G
DP/
Capi
ta)
Level of Urbanization
Log of the real GDP per Capita (as % of US GDP/Capita) and Level of Urbanization
Latin America & Caribbean, East Asia
East Asia
Latin America andthe Carribeans
Linear (East Asia)
Linear (LatinAmerica and theCarribeans )
How to define cities?
Administrative boundaries miss the realities of metropolitan areas
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• Definition of Functional Urban Areas based on population density in 1km2 cells that are matched to municipal boundaries and connected via commuting patterns.
• Urban centres are identified by aggregating densely populated 1km2 cells. Urban centres with at least 50,000 inhabitants are kept.
• They are matched with the boundaries of the lowest administrative level for which statistical data is typically available (NUTS5/LAU2)
• Urban centres and the less densely populated municipalities in the commuting zone are combined into Functional Urban Areas based on commuting flows (>15%).
• More info: OECD (2012) Redefining Urban, OECD Publishing.
http://measuringurban.oecd.org
The OECD and the EU agreed on a functional definition for cities
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What makes cities more productive?
Reviews by Rosenthal and Strange (2004), Duranton and Puga (2004) and Puga (2010); concepts already present in Marshall (1890):
I. Sharing facilities, inputs, gains from specialisation firms may face lower costs for specialised non-traded inputs that are shared locally in a geographical cluster.
II. Thicker labour markets: labour market pooling; better matching gain from reduced labour acquisition and training costs in thick local labour markets with abundant specialised labour force
III. Knowledge spillovers: learning about and spreading new ideas face-to-face contact can enable tacit knowledge spillovers through increases in the intensity of the interactions with other firms or individuals
Sources of agglomeration economies
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City productivity increases with city size even after controlling for sorting
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Doubling the size of a city ≈ 3-5% productivity increase
Cit
y p
rod
uct
ivit
y (
no
rma
lise
d)
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The size of cities is positively related to productivity levels: USA, 2010
Source: Ahrend et al, 2014
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But some system of cities may not follow this size-productivity relationship: UK, 2010
Source: Ahrend et al, 2014
• Rising prices may offset agglomeration benefits, but people are willing to pay higher prices for local amenities: – Proximity to large bodies of water (coast or
lake), cultural goods (theatres/operas/etc.) and UNESCO World heritage sites make cities more expensive
– Share of highly educated workers might have a consumption externality (creative class)
– Dis-amenities require compensation: PM10 air pollution increases local costs relative to productivity benefits
What are the “net” benefits of agglomeration?
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How cities affect other regions?
Productivity growth of frontier regions outpaces that of most regions
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
Regions with very large cities tend to be in the frontier, OECD TL2, 2000-2013
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70
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Mostly Urban (127) Intermediate (62) Mostly Rural (100)
%
Frontier (41) Catching-up (65) Keeping pace (107) Diverging (76)
70% of mostly urban frontier regions contain very large cities
75% of diverging mostly urban regions contain very large cities
Proximity & connectedness to cities benefits surrounding regions
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Regional catching-up plays an important role for aggregate productivity growth
Annual average growth in real per worker GDP between 2000-2013 (or closest year available).
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Good governance can improve the
performance of metropolitan areas
Horizontal administrative fragmentation is common as cities outgrow their historic boundaries (more than 10 local governments in 75% of OECD Metropolitan Areas; more than 100 in 22%)
A larger number of local governments may be positive:
• Provide more choice in the provision of public services, more tailored solutions and better accountability (Tiebout, 1956).
• Large literature that finds no scale effects for specific public services (Ostrom, 2010) or governmental expenditure (Kalb, 2010).
But it may also have a potential negative impact:
• Policies, investment and services require city-wide coordination (e.g. Cheshire and Gordon, 1996): e.g. transport; land use; ease of doing business; economic promotion; environmental regulation, etc.
The system of metropolitan governance may affect the productivity & inclusion of cities
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Administrative fragmentation is correlated with lower city productivity
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Administrative fragmentation is correlated with higher segregation of people
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Hypothesis: Fragmented metropolitan governance can allow for segregation at the level of local units.
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qu
alit
y b
etw
een
loca
l ju
risd
ictio
ns,
(C
om
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ne
nt p
lus
resi
dua
l)
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Administrative 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
• Urban sprawl creates negative externalities in Metropolitan areas (MAs)
• Cooperation is a way to internalize the externalities when making policy decisions
• Sprawl decreased in MAs with a governance body, while increased in those without
Governance bodies can reduce urban sprawl
Difference significant at the 99%-level after controlling for log-population levels and country specific trends.
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With GovernanceBody
Without GovernanceBody
Change in Urban Sprawl
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Governance bodies can increase the well-being of citizens
55%
60%
65%
70%
75%
80%
With TransportAuthorities
Without TransportAuthorities
Share of Citizens Satisfied with Public Transport
• Public Transport projects usually cut through many jurisdictions
• Cooperation is required for effective implementation and coordination of services
• Citizens are more satisfied in MAs that have metro authorities for public transport
Based on European Urban Audit perception survey. Difference significant at 95% level.
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