the oecd territorial review of ukraine william tompson regional development policy division public...

THE OECD TERRITORIAL REVIEW OF UKRAINEWilliam TompsonRegional Development Policy DivisionPublic Governance and Territorial Development Directorate

Joint EU-Ukrainian seminar Kyiv, 10 September 2012

EU-UA Seminar, Kyiv 2

Aims of the review

The review aims to provide national and sub-national policymakers and other stakeholders in Ukraine with

• a rigorous and systematic analysis of socio-economic trends across the four counties, with particular emphasis on entrepreneurship and innovation;

• an assessment of regional policies on policies to assist Ukraine in developing its comparative advantages and tapping unexploited opportunities; and

• an analysis of the multi-level governance challenges facing Ukraine.

10 Sep 2012

Impact & use of Territorial Reviews: some examples

Key input for the new National Strategy ofRegional Development 2010-2020

Basis for a reform of the Constitution through a law on regional government and administration (October 2009)

Roadmap for the 2004-2008 agenda of the newly created Montreal Metropolitan Community

10 Sep 2012 3EU-UA Seminar, Kyiv

HOW WE THINK ABOUT REGIONAL DEVELOPMENT

Part I

10 Sep 2012 4EU-UA Seminar, Kyiv


• A few big regional hubs are the main drivers of growth…• …but most growth occurs outside the hubs• The notion of an “average region” is meaningless

Contributions to OECD-wide growth,

TL2 regions

Regional contributions to aggregate growth are highly concentrated

10 Sep 2012


What does this mean for policy?

• Policy makers are right to be concerned about the performance of the big regional hubs that are their main drivers of growth.

• An exclusive focus on the hubs neglects the potential impact on growth of policies that helped the great mass of regions to improve their performance.

• Analysis of the determinants of growth at regional level suggests that the constraints on growth that confront the leading regions are different from those confronting the rest. This points to the need for differentiated – place-based – approaches.

• There is low-hanging fruit in the “fat tail”. Although the big drivers of growth are mainly large urban areas, as one would expect, there are many big urban regions that make little or no contribution to aggregate growth.

10 Sep 2012


Agglomeration tends to be associated with higher value added, productivity and employment…

Deagu

Berlin

Lille

Tampa Bay

Manchester

Valencia

Ankara

Krakow

Phoenix

St.Louis

Pittsburgh

Melbourne

Copenhagen

Busan

Randstad-Holland

Portland

Turin

Puebla

Istanbul

Dublin

OECD average

Barcelona

San Diego

Aichi

Atlanta

Helsinki

Guadalajara

Vienna

Dallas

Milan

Stockholm

Minneapolis

Rome

Athens

Houston

Mexico city

Prague

Paris

Budapest

Warsaw

-50% 0% 50% 100% 150%

Naples

Leeds

Montreal

Vancouver

Lille

Tampa Bay

Fukuoka

St.Louis

Melbourne

Phoenix

Miami

Barcelona

Stuttgart

Milan

London

Portland

Osaka

Hanburg

Frankfurt

Zurich

Madrid

Cleveland

Brussels

OECD average

Detroit

San Diego

Los Angeles

Denver

Prague

Athens

Paris

Seattle

Boston

Budapest

Auckland

New York

Washington

San Francisco

Busan

Warsaw

-40% -20% 0% 20% 40% 60% 80% 100%

NaplesRhine-Ruhr

PueblaOsaka

MonterreyFukuoka

BirminghamHoustonVienna

New YorkParis

StuttgartLos AngelesCopenhagen

AnkaraMontreal

AthensLeeds

OECD averagePhiladelphia

DallasVancouverBaltimoreSan Diego

LondonAichi

PhoenixTampa Bay

SydneySt.LouisWarsawBrussels

ZurichWashington

ValenciaTurin

KrakowBudapest

BarcelonaMinneapolis

-30.0% -20.0% -10.0% 0.0% 10.0% 20.0%

10 Sep 2012

Higher GDP per capita… Higher Productivity… Higher Employment…


…But not necessarily faster growth

Only 45% of metro--regions grow faster than the national average.

0

20000

40000

60000

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%

Init

ial

GD

P p

er

wo

rke

r in

PP

P

Average annual growth rates in GDP per capita 1995-2005

III IVBudapest

Warsaw

NaplesIzmir

Istanbul

II I

Ankara

III IV

DublinPrague

BusanMonterrey

II I

PueblaKrakow

WashingtonSan Francisco

San DiegoDetroit

Atlanta

Phoenix

Berlin

Osaka

Deagu

Metro-regions appear to have entered in a process of convergence.

10 Sep 2012


There is no unique path to growth…

10 Sep 2012

A large number of urban regions grow faster than the average rural region – and many rural regions grow faster than the urban average.


It’s about activation and productivity

Key drivers of TFP:• Investment• Innovation• Skills• Entrepreneurship• Competition

Labour productivity is a function of capital intensity and total factor productivity.

Output Labour utilisation

CapitalTotal factor productivity

Labour utilisation is a function of average hours worked and the employment rate.

The basic regional economic diagnosis begins with an analysis of each factor with reference to relevance at the appropriate territorial scale and the institutional context.

Labour productivity

10 Sep 2012


Towards sustainable, inclusive growthEfficient Inclusive Sustainable

1. Activation

2. Productivity

• Investment

• Innovation

• Skills

• Entrepreneurship

• Competition

1. Health & mortality trends

2. Poverty

3. Barriers to education & skills development

4. Barriers to labour-market entry

5. Disadvantage stemming from service access

1. Global assessment of environmental indicators

2. Place-based challenges:

• Infrastructure needs

• Greener services?

• Green innovation opportunities?

• Skills for greening?

Looking for coherence and complementarities across policies

10 Sep 2012


Regional growth: an overview of model results

First key finding: the key growth drivers are endogenous to the region.

• Skills appear to be critical for all types of regions.

– The proportion of the workforce with low skills appears to have a greater impact on growth than the share with tertiary qualifications.

– This implies a critical role for regional level action: labour markets for low- to medium-skill activities are smaller, and the low-skilled tend to be less mobile.

• Mixed results concerning transport infrastructure raise questions about the prominence of such investments in many regional strategies.

• Innovation, as measured by technology-based variables, has the strongest correlation with growth:

– The greater the level of GDP per capita in the given country, the more it matters..

– Among regions with higher than national average GDP per capita, those that are growing above average have much higher values on innovation variables than those that are growing below average.

Second key finding: the relative weight of different factors depends in part on the relative level of development of the region.10 Sep 2012


• The analysis points to the potential drawbacks of isolated interventions and “unbalanced” policy packages.

• Improving regional performance requires a feasible strategy for addressing a number of policy challenges in a co-ordinated fashion.

• Such an approach should make it easier to balance different welfare goals.

10 Sep 2012

Efficiency Equity Environmental sustainability

Economic policies Sustained growth Economic reforms may increase

equity

Green growth may improve sustainability

Social policies

Social policies may increase efficiency (knowledge, trust,

security)

Social cohesion Environmentally sustainable social

policies

Environmental policies

Green economy may boost innovation

Social policies can enhance inclusiveness; the poor are most hurt

by environmental degradation Sustainable environment

Policy complementarities matter


To sum up…

OECD analysis points to a few broad lessons for policy design:

• Provide infrastructure as part of an integrated regional approach.

• Invest in human capital.

• Emphasise innovation and R&D.

• Focus on integrated regional policies.

• External finance (e.g. EC funds) works best as part of a well designed local strategy that seeks to identify and mobilise endogenous assets.

10 Sep 2012


THE IMPLICATIONS FOR GOVERNANCE

Part II

10 Sep 2012


Institutions matterThe quality of institutions (I) mediates the impact of policies.

OutputLabour

utilisationCapital

Total factor productivityI

1. Activation

2. Productivity

• Investment

• Innovation

• Skills

• Entrepreneurship

• Competition

1. Health & mortality trends

2. Poverty

3. Barriers to education & skills development

4. Barriers to labour-market entry

5. Disadvantage stemming from service access

1. Global assessment of environmental indicators

2. Place-based challenges:

• Infrastructure needs

• Greener services?

• Green innovation opportunities?

• Skills for greening?

Looking for coherence and complementarities across policies

10 Sep 2012


Implementing regional development policies: Getting governance right

Problems are not defined or shaped like public departments and agencies => policy-making presents risks of gaps.

Key question: how to integrate public authorities around the problems, solutions and outcomes that citizens and firms needed under budgetary constraints?

A match between top-down and bottom-up information and initiative is critical.

The answer requires a diagnosis and incentives for coordination of public administration actions in order to achieve coherent policy-making (implementing as well as designing future policies).

=> No one size fits-all answer. 10 Sep 2012


‘Mind the Gaps’ : a Tool for a Diagnosis

Administrative gap “Mismatch” between functional areas and administrative boundaries => Need for instruments for reaching “effective size”

Information gapAsymmetries of information (quantity, quality, type) between different stakeholders, either voluntary or not => Need for instruments for revealing & sharing information

Policy gap Sectoral fragmentation across ministries and agencies => Need for mechanisms to create multidimensional/systemic approaches, and to exercise political leadership and commitment.

Capacity gap Insufficient scientific, technical, infrastructural capacity of local actors => Need for instruments to build capacity

Funding gap Unstable or insufficient revenues undermining effective implementation of responsibilities at subnational level or for crossing policies => Need for shared financing mechanisms

Objective gap Different rationalities creating obstacles for adopting convergent targets => Need for instruments to align objectives

Accountability gap Difficulty to ensure the transparency of practices across the different constituencies => Need for institutional quality instruments10 Sep 2012


A multi-level governance analysis

10 Sep 2012

Coordination & capacity

gaps

Performance indicators

Information systems

Earmarked grants

Contracts

Independence of regulatory authorities

Independence of mediaInter-municipal

cooperationCitizen

participationPublic

procurement tenders and rulesExperimentation

Training

Public officials mobility

Inter-ministerial collaboration


Sub-national Governance: Getting Institutions Right

• No one-size fits all solution, but a strong case for local empowerment:

The foregoing points to the need for differentiated development strategies for regions. There is a need to detect and exploit existing or potential niches for the development of new activities.

To generate such strategies, mechanisms and incentives are needed to address information gaps – to prompt agents to reveal knowledge. This is likely to be local knowledge.

In many OECD countries, the municipal/central vertical governance gap is significant: the centre faces information gaps and the municipalities confront capacity gaps.

Intermediate bodies’ credibility depends on their capacity.

• The actual division of labour is key: where spillovers are likely to extend beyond regions/localities, the case for centralisation is stronger (e.g. primary/secondary education).

10 Sep 2012


A PRELIMINARY LOOK AT UKRAINE

Part III

10 Sep 2012


The challenge for Ukraine

Investment rates are low, investment needs are huge, and investment resources are constrained.

Output Labour utilisation

CapitalTotal factor productivity

Demographic trends limit any future contribution from labour mobilisation.

Labour productivity

10 Sep 2012

Bottom line: TFP growth is the key.ReallocationEntrepreneurshipHuman capital/skillsCompetition

Inter-regional disparities are relatively large

10 Sep 2012 EU-UA Seminar, Kyiv 23

0 10 20 30 40 50

NetherlandsDenmark

SwedenFinlandAustria

SloveniaItaly

GreeceFrance

BelgiumCzech Republic

GermanyLithuaniaPortugal

United KingdomIrelandCroatiaPoland

Former Yugoslav Republic of …SlovakiaUkraine

RomaniaLatvia

EstoniaHungaryBulgaria

Inter-regional dispersion of per capita GDP


Growth is regionally concentrated but has become less so since the mid-2000s

10 Sep 2012

0

0.05

0.1

0.15

0.2

0.25

2000-2004

2004-2009

Contributions to national growth by region, 2000-2004 and 2005-09


There is no obvious link to regional specialisation

10 Sep 2012

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Agricultural Industrial FIRE Construction Public Administration

Change in contribution (%) from 2000-04 to 2005-09


Kyiv apart, there has been remarkably little divergence in growth performance

10 Sep 2012

Republic of Crimea

Volyn

Dnipropetrovsk

Donetsk

Zhytomyr

Zaporizhzhia

Ivano-Frankivsk

Odesa

Kharkiv

Kyiv City

Sevastopol

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Cont

ribu

tion

to

aggr

egat

e gr

owth

(%),

1997

-200

7

Share of national GDP (%) , 1997

EU-UA Seminar, Kyiv

Pre-crisis growth rates were impressive, even in lagging regions…

10 Sep 2012 27

Republic of Crimea

Vinnytsia

Volyn

Dnipropetrovsk Donetsk

Zhytomyr

Zakarpattia

ZaporizhzhiaKyiv

LuhanskLviv Odesa

Sumy

Kharkiv

Kherson

Cherkasy

Chernivtsi

Chenihiv

Kyiv

Sevastopol

0%

5%

10%

15%

20%

25%

30%

0 5 10 15 20 25 30

CAGR

200

0-20

07

GRP (2000, at constant 2005 prices), million UAH


…but the contraction in 2009 was severe.

10 Sep 2012

Republic of Crimea

Volyn

Dnipropetrovsk

Donetsk

Zakarpattia

Zaporizhzhia

Kyiv

Luhansk

Lviv

Odesa

Kharkiv

Kherson

Cherkasy

ChernivtsiChenihiv Kyiv

Sevastopol

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

0 20 40 60 80 100 120

CAG

R 20

07-2

009

GRP (2007 at constant 2005 prices), million UAH


Measures of inter-regional dispersion in wages and incomes are diverging

10 Sep 2012

0

0.1

0.2

0.3

0.4

0.5

0.6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Disp

ersio

n in

dex

GDP Wage Household income

*The dispersion index is measured by the sum of the absolute differences between regional and national per inhabitant value, weighted with regional share of population and expressed in percent of the national figure per inhabitant.


Part of the dispersion in incomes is accounted for by price differences

10 Sep 2012

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

Wages

Milk

Rice


The main institutional and governance challenges include…

• Weaknesses in the broader institutional and macroeconomic environment.

• A framework for regional policy that has been both under-developed and unstable.

• A budgetary process that has hitherto made any medium- or long-term investment particularly difficult.

• Highly centralised policy processes.

• A slow transition from a compensatory logic of regional policy to a competitiveness logic.

• Administrative capacity challenges at sub-national level.

10 Sep 2012


Thank you for your attention

10 Sep 2012

the oecd territorial review of ukraine william tompson regional development policy division public...

Documents

kyiv slide

euua seminar

faster growth

growth of policies

aggregate growth

big drivers of growth

determinants of growth

main drivers of growth