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Economic Issues of Southern
European Regions:
Functions and Territorial Structure
Ugo Fratesi
EDULOG International Conference
Economic development in Southern European
Regions: Policies and higher education
25th and 26th May 2017, Porto, Portugal
Ugo Fratesi
The need of regional upgrading
Regional upgrading concept in the global value chain
approach: (Gereffi, Humprey and Sturgeon, 2005)
• Technological upgrading
• Functional upgrading
Structural upgrading considered in the literature as
fundamental for the possibility of middle and high income
regions and countries to thrive in the global economy.
Fast globalization processes have significantly affected
European regions, affecting them with new challenges
(Capello et al. 2011).
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Ugo Fratesi
Introduction: four underperforming
European countries
3
0
50
100
150
200
250
300
Luxe
mb
ou
rg
Au
stri
a
Ire
lan
d
Net
her
lan
ds
Swed
en
De
nm
ark
Ge
rma
ny
Be
lgiu
m
Fin
lan
d
Fran
ce
Un
ite
d K
ingd
om
Ital
y
Eu
rop
ean
Un
ion
Spa
in
Cyp
rus
Ma
lta
Slo
ven
ia
Cze
ch R
ep
ub
lic
Gre
ece
Slo
vaki
a
Po
rtu
gal
Est
on
ia
Lith
ua
nia
Po
lan
d
Hu
ng
ary
Latv
ia
Cro
atia
Ro
man
ia
Bu
lgar
ia
GDP per person in PPP as a % of EU 28 mean- year 2012
Ugo Fratesi
Introduction: four underperforming
European countries (2)
Real GDP (2010 prices)
4
Source of data: Eurostat
50
60
70
80
90
100
110
120
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Greece
Spain
Italy
Portugal
Rest of EU15
Ugo Fratesi
Introduction: four underperforming
European countries (2)
Real GDP (2010 prices)
5
Source of data: Eurostat
50
60
70
80
90
100
110
120
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Greece
Spain
Italy
Portugal
Rest of EU15
Ugo Fratesi
Total real GDP growth (%)
2008-2013
<-20
-20 - -9
-9 - -5
-5 - -2
-2 - 0
0 - 2
2 - 5
5 - 9
> 9
6Countries are in
relative decline but
regional differences
still exist
Source of data: Eurostat
Ugo Fratesi0
20
40
60
80
100
120
140
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Real labour productivity per hour worked (EU27=100)
EL Greece
ES Spain
IT Italy
PT Portugal
Weak economies in terms of
productivity
The weakness of Southern European countries and their
regions has been linked to their low levels of productivity
This is a long-standing issue, started well before the crisis
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Source of data: Eurostat
Ugo Fratesi
Disentangling the effects of
productivity and employment growth
Relative decline
of GVA pp
Despite good
employment
performance
Due to very bad
productivity
performance
GVA per person as a % of EU27
1995 2001 2006
Old North 135.3 134.5 133.5
Old South non obj1 122.9 120.3 111.5
Old South obj1 66.4 67.3 67.5
EU27* 100.0 100.0 100.0
employment rate as a % of EU27
1995 2001 2006
Old North 101.9 104.3 102.8
Old South non obj1 100.3 104.9 107.3
Old South obj1 81.9 84.3 87.6
EU27* 100.0 100.0 100.0
GVA per employee as a % of EU27
1995 2001 2006
Old North 132.8 128.9 129.9
Old South non obj1 122.6 114.7 103.9
Old South obj1 81.1 79.8 77.1
EU27* 100.0 100.0 100.0
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Ugo Fratesi
At regional level, Southern European
Regions are characterized by specific patterns
9
1.98
1.985
1.99
1.995
2
2.005
2.01
2.015
2.02
1.985 1.99 1.995 2 2.005 2.01 2.015
Virtuous cycleRestructuring
Dropping out
Relative declineIndustrial conservatism
Economic take-off
Relative
employment
growth
Relative
productivity
growth
Ugo Fratesi
EL11
EL12
EL13
EL14
EL21
EL22
EL23
EL24
EL25
EL30
EL41
EL42
EL43ES11
ES12
ES13
ES21
ES22
ES23ES24
ES30
ES41
ES42
ES43
ES51
ES52
ES53
ES61
ES62
ITC1
ITC2
ITC3ITC4
ITF1ITF2
ITF3
ITF4
ITF5
ITF6
ITG1ITG2
ITH1ITH2
ITH3
ITH4
ITH5
ITI1
ITI2
ITI3
ITI4
PT11PT15
PT16PT17
PT18
1.98
1.985
1.99
1.995
2
2.005
2.01
2.015
2.02
1.985 1.99 1.995 2 2.005 2.01 2.015
New12
North EU15
South_EU
Virtuous cycleRestructuring
Dropping out
Relative declineIndustrial conservatism
Economic take-off
At regional level, Southern European
Regions are characterized by specific patterns
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Relative
productivity
growth
Relative
employment
growth
Ugo Fratesi
How to improve productivity
Three possible strategies for the improvement of regional
productivity (Affuso et al., 2011)
1. increasing productivity through innovation
2. reconverting the regional sectoral structure
3. reconverting to higher phases of the production
process
Each of them has its difficulties
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Ugo Fratesi
Southern European Regions need to
upgrade their economies
The role of regions in the increasingly fragmented global
value chain networks is an important determinant of their
development levels (Coe and Yeung 2015).
Southern peripheral European regions squeezed between
core European regions and competitors from emerging
countries.
For peripheral regions of Southern European Countries,
upgrading towards higher functions is no longer needed to
converge towards richest regions,
but to avoid decline
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Ugo Fratesi
Measuring functional upgrading
There is no single way to measure functional upgrading.
Here the approach uses the professions as coming from
European Labour Force Survey (ISCO classifications).
Professions (ISCO codes) linked with high-value functions:
• 11 Legislators and senior officials
• 12 Corporate managers
• 13 Managers of small enterprises
• 21 Physical, mathematical and engineering science
professionals
• 231 College, university and higher education teaching
professionals
• 241 Business professionals
• 245 Writers and creative or performing artists
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Ugo Fratesi
High-value added in Southern
European Regions are less diffused
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ISCO
denominations
Legislator
s and
senior
officials
Corporate
managers
Managers
of small
enterprise
s
Physical,
mathemati
cal and
engineerin
g science
profession
als
College,
university
and higher
education
teaching
profession
als
Business
profession
als
Writers
and
creative or
performin
g artists
ISCO codes 11 12 13 21 231 241 245
Old North 0.51 5.77 3.31 3.37 0.52 1.40 0.63
Old South non
obj1 0.69 2.50 3.58 1.65 0.39 0.66 0.61
Old South obj1 0.46 1.44 7.47 1.27 0.34 0.60 0.27
New 12 0.47 3.32 2.98 1.94 0.36 1.59 0.41
EU mean 0.51 4.42 3.86 2.66 0.45 1.25 0.54
sig *** *** *** *** *** *** ***
F 25.1625 188.5864 75.5542 39.1205 32.5722 64.3482 49.9712
Source of data: Eurostat
Ugo Fratesi
Functions affect regional growth
Panel regressions of regional growth in southern European
Regions, Nuts2 level, years 1996-2010 (3-years
averages), time and country dummies included
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Dependent variable: (1) (2) (3) (4) (5) (6)
Regional real GDP growth
Income per capita -345.5*** -344.8***
-365.2*** -606.3*** -593.8***
(99.22) (94.28)
(117.1) (119.6) (122.9)
High value functions
61.55*** 61.87** 47.65** 48.43**
(20.23) (23.35) (20.10) (19.81)
Human resources in science and technology (core definition)
0.248* 0.339** 0.332**
(0.148) (0.153) (0.165)
Education
0.108* 0.0971
(0.0609) (0.0620)
Constant 9.134*** 8.025*** 1.224*** 5.716*** 6.188** 7.295**
(1.911) (1.773) (0.413) (2.072) (2.733) (2.760)
Time and country dummies significant significant significant significant significant significant
Observations 290 290 290 277 199 199
R-squared 0.682 0.691 0.664 0.700 0.810 0.805
Number of groups 58 58 58 58 58 58
Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1
Ugo Fratesi
The upgrading process and its
catalysts
Source: Fonseca and Fratesi (2017)
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Ugo Fratesi
What regional characteristics?
A definition of territorial capital
Source: Camagni (2009)
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Riv
alry
(lo
w)
(h
igh
) Private
goods
c i f
Private fixed capital stock
Pecuniary externalities
Toll goods
Relational private services operating on:
- External linkages for firms
- Transfer of R&D results
Human capital
Pecuniary externalities
Club goods,
impure
public goods
b h e
Proprietary networks
Collective goods:
-landscape
- cultural heritage
Cooperation networks
Governance on land and cultural resources
Relational capital
Public goods
a g d
Resources:
- Natural
- Cultural (punctual)
Social overhead capital:
infrastructure
Agglomeration and district economies
Agencies for R&D transcoding
Receptivity enhancing tools
Connectivity
Social capital:
- institutions
- behavioural modes, values
trust, reputation
Tangible goods (hard) Mixed goods (hard + soft) Intangible goods
(soft) Materiality
(high) (low)
Ugo Fratesi
Territorial capital in Southern
European Regions
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-2
-1.5
-1
-0.5
0
0.5
Relational private services
Human capital
Relational capital (missing data)
Behavioural modes
Population density
Accessibility
Collective goods
Private capital
South EU15 Obj1
South EU15 not obj1
Rest of EU15
hard
soft
intangibletangible
hard
soft
intangibletangible
Ugo Fratesi
Conclusions
Macroeconomic issues are very relevant for Southern
European Regions, and sometimes a burden
(e.g. real effective exchange rates, public finances, etc.)
Yet, regional supply-side aspects are also very important,
and long standing.
Among them the inability to grow in productivity as the rest of
advanced countries
Well before the crisis, economic growth in southern
European regions was led by employment growth
(with scarce productivity increases)
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Ugo Fratesi
Conclusions (2)
A weak economic structure is more vulnerable to external
competition, and Southern European Regions are weak
because they are specialized in low-value added
functions and did not upgrade them
Among Southern European regions, those with relatively
higher functions have outperformed the others.
The economic structure of regions is a catalyst of upgrading
processes
But in terms of territorial capital, Southern European Regions
are less endowed in almost all assets
(and this is worth especially for the poorest ones)
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Ugo Fratesi
Implications for policies
Ongoing research is showing that territorial capital also acts
as catalyst of policy effectiveness:
• regional growth benefits more from policies when there
are complementary territorial capital assets in place;
• regional policies which invest in complementary
territorial capital assets are more effective than policies
concentrating on assets already present (where there are
decreasing returns)
--> The system of territorial capital has to be balanced
Can we relinquish structural policies in Southern European
Regions?
• No, even if they pay off only in the long run
• and attention has to be paid to complementary assets
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Ugo Fratesi
Thank you for your attention
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