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ECONOMIC INTEGRATION, GROWTH CYCLES AND THE BEHAVIOUR OF REGIONAL DISPARITIES ACROSS EUROPE. S. Brettell*, B. Gardiner*, R. Martin** and P. Tyler*** *Cambridge Econometrics **Department of Geography, University of Cambridge *** Department of Land Economy, University of Cambridge
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ECONOMIC INTEGRATION, GROWTH CYCLES AND THE BEHAVIOUR OF REGIONAL DISPARITIES ACROSS EUROPE S. Brettell*, B. Gardiner*, R. Martin** and P. Tyler*** *Cambridge Econometrics **Department of Geography, University of Cambridge *** Department of Land Economy, University of Cambridge Presentation, RSA Conference, Lisbon April 2007
Introduction • Europe is at historical cross roads • Challenges of globalisation, intensifying international competition and new knowledge economy • Enlargement to include several low income, old economy states • The reconfiguration of the Structural Funds in favour of new enlargement states • Key imperative of improving the competitive position of the EU
Introduction • Three key spatial aims: • Spatial-economic integration - major advances over past 25 years (single market, monetary union, etc) • Regional cohesion - promoting regional convergence in per capita GDP • Improving regional competitiveness throughout the Union
Structural Funds: Convergence and Competitiveness Objectives in EU25 European Commission, 2006
Introduction • Within this context, focus here is on the implications of economic integration for regional cohesion (regional disparities) • Will economic integration in EU promote regional convergence or divergence? • Some 15 years ago Krugman (1993) broached this question by drawing inferences from USA experience • USA has long been the sort of economic and monetary union that EU aspires to • So it might hold clues as to what expect in EU as it becomes increasingly integrated
Krugman’s Thesis • Krugman uses experience of Massachusetts, and other US regions (and cities) to theorise about combined impact of 1992 and EMU on EU regions: • Integration leads to increased trade which leads to increased regional economic specialisation • Specialisation means instability of regional exports and idiosyncratic regional shocks • Regional instability reinforced by procyclical capital movements (export booms reinforced by investment booms, and vice versa in slumps) • Factor mobility leads to divergent long-run regional growth
Krugman’s Thesis • Argument is that EU economic integration will make American-style regional fluctuations more pronounced • Evidence adduced to support this contention: • Broad US regions more specialised than European countries • Industries far more localised in US than in Europe • Employment growth much less stable (more cyclical) in US regions and cities than in EU countries • Disparities in long-run growth rate of GDP per capita far greater amongst US regions than amongst EU countries
Krugman’s Thesis • Problems with Krugman’s argument: • Comparison of US regions and cities with European countries misplaced (different sizes, different types of economic unit) • Level of spatial disaggregation in general too coarse to pick up localisation effects of increased economic integration in EU • Analysis only up to late-1980s, and hence not in period of main EU economic integration • Fails to compare regional convergence/divergence over time (trends and cycles)
Questions • Given Krugman’s argument, how do regional disparities in the USA (a long-established economic and monetary union) behave over growth cycles (convergence or divergence)? • Has behaviour of regional disparities (convergence or divergence) in Europe changed as integration has progressed? • Has Europe’s pattern become more like that of the US? • How do different types of European region behave over the economic cycle? Has this pattern changed with increasing integration?
The Evidence • Look at NUTS 3 data for EU15 ‘established’ union areas • ..and compare with the CSA (metro/micropolitan) ‘FUR’ data for US (covering 93% of US population) • 1980-2005, in five year growth zones to capture cyclical content
Personal income, 2000 $ 30,000 to 62,000 26,000 to 29,999 22,000 to 25,999 0 to 21,999 No data Income per capita US Metropolitan and Micropolitan FUR Areas, 2005* Metropolitan: at least one urbanized area (county) has a population of at least 50,000. Micropolitan: 10,000-50,000, NB non-CSA=6.6% population, 4.8% personal income in 2005. *CE projection from 2004 base
.. In spite of sustained differences in US real GDP growth rates Source: BEA Oct 2006: http://bea.gov/newsreleases/regional/gdp_state/2006/xls/gsp1006.xls
..and income per capita for CBSAs shows just random shocks over time
Migration is the reason:Population versus income change US states
So GDP/capita convergence/divergence oscillates as ‘catch up’ in US states
US CSA Growth and convergence by growth phases 1980-2005 gy = c – (1-e-βt)ln(y0) + Xδ + γWgy + ε λ = -ln(1+β)/t
..but a rising trend sigma plot for US CSAs as incomes grow over time
..but disparate contributions from the richest and poorest regions
Phase residual correlations from US CSA Beta convergence plots
Enlargement phases of the EU –EU15 a test bed for Krugman? (GDP/cap relative EU=100 in 2004)
EU15 regional cumulative GVA distribution 967 EU15 NUTS3* regions
Phase residual correlations from EU15 NUTS3 convergence plots
What does the Evidence show? • Convergence in GVA per caput in US and EU is mainly down to the contribution of productivity • Adjustment processes in the US are complex but strongly mediated by migration, with ‘escape’ of the high income regions generating ‘catch up’ by the poorest • EU regions remain very unresponsive by US standards but some small evidence of a transition for the ‘established’ union regions in the last decade
Questions raised by the Evidence? • What explains the apparent cessation of regional convergence in the EU from the mid-1990’s onwards? • How accurate is Krugman’s depiction of the US regional growth pattern and how relevant is the Thesis in EU case? • Is sectoral competition in the EU15 becoming more important than spatial competition?
