1 Regional Development Policy: Rationale, Multi-level Governance and Evaluation By Fabrizio Barca * Moscow Round Table January 26, 2007 Ministry of Economy

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Regional Development Policy: Regional Development Policy: Rationale, Multi-level GovernanceRationale, Multi-level Governance and and

EvaluationEvaluationBy Fabrizio Barca *By Fabrizio Barca *

MoscowMoscow Round Round TableTableJanuaryJanuary 26, 2007 26, 2007

Ministry of Economy and Finance, Italy

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Regional development policies

“… we face the somewhat paradoxical spectacle of Europe being taken more seriously from outside than from within.”

Roy Jenkins (as President of the Commission of EU),Jean Monnet LectureFlorence, 27 October 1977

Fabrizio Barca

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REGIONAL OR PLACE-BASED DEVELOPMENT POLICY: A DEFINITION

Old policy A policy aimed at compensating for regional gaps in productivity by providing sectorial public goods and / or subsidies to firms or labour

New policy A policy aimed at increasing productivity by providing integrated baskets of local public goods through (mostly) local and regional projects devised and selected according to standards agreed at national and / or super-national level

Fabrizio Barca

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Exogenons push / shock

• national• international

Region’s output at time t2

Effective

Potential

RATIONALE OF REGIONAL DEVELOPMENT POLICIESRATIONALE OF REGIONAL DEVELOPMENT POLICIES

Regional / place-baced policies

• awareness of externalities at local level• capacity/willingness to pool local knowledge• absorption/attraction of external knowledge

• public goods and institutions• market competition for public goods


Effective

Potential:• endowment of:

• potential location externalities:

Region’s output at time t1

among individualsamong firms (agglomeration externalities)of firms/individuals with nat/cult resources

human, natural and cultural resourcesinstitutions (and competition, and image)public goods

Fabrizio Barca

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Local government

Pros• availability of knowledge to pool

local knowledge• incentive to produce results• capacity to tackle unforeseen

contingencies

Cons• renegotiation problem• “local boundary” problem:

underproduction of public goods• overproduction of public goods• “falling behind” problem• the trap of localism

Local government:• pooling knowledge*• developing projects*

*Moved up to the other levels if required by scale/scope

Regional government:• promoting the establishment of

appropriate ”local boundaries”• selecting and/or promoting local projects

according to grant conditionalities • governing coordination among locations

Central / National government:• allocating grants to territories and to main

priorities• establishing, monitoring and sanctioning

grant conditionalities• governing coordination among “regions”• providing technical assistance, capacity

building and links with external knowledge

Federal / Supernational government:• setting general strategic priorities and

some grant conditionalities• enhancing credibility of central government• governing coordination among central

governments and/or promoting forum for exchange of methods and experiences

• providing technical assistance and capacity building

Multilevelgovernance

GOVERNANCE: LOCAL IS NOT ENOUGHGOVERNANCE: LOCAL IS NOT ENOUGH

Regional development policiesFabrizio Barca

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MULTILEVEL GOVERNANCE: MAIN INGREDIENTSMULTILEVEL GOVERNANCE: MAIN INGREDIENTS

I. A unique undivided Fund, with: co-financing additionality multi-year commitment

II. Reshaping of responsibilities:

IV. Knowledge pooling at local level via a mix of:

III. A conditional granting system based on:1. a mix of participatory and evaluation culture

2. an “incomplete contract framework”

V. Macro-evaluation and political sustainability

negotiation evaluation

1. a super-national credibility-enhancing authority2. a unique national gate-keeper, establishing, monitoring and sanctioning conditionalities


3. targeting

3. a capable local government with responsibilities to allocate resources

Fabrizio Barca

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II.1 A SUPER-NATIONAL CREDIBILITY-ENHANCING AUTHORITY: THE CASE OF EUROPEAN UNIONTHE CASE OF EUROPEAN UNION

Pros• promoting a “regional approach”• enhancing central government credibility and providing a leverage for change• promoting economic and social partnership in programming• providing potential cross-countries comparability• promoting across-borders regional policy

Cons• setting top-down hyper-rationalist conditionalities• establishing a “compliance approach” to evaluation

Missed opportunity (until now)• promoting true strategic thinking at high administrative and political level• promoting horizontal coordination among countries


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III.2 INCOMPLETE CONTRACT FRAMEWORKIII.2 INCOMPLETE CONTRACT FRAMEWORK

The problem

Committments are needed: between private and public agents at local level among levels of government (vertical) among sectoral responsibilities (horizontal)

but they cannot be written in a fully verifiable way

Solutions to avoid

• write contracts as if they were complete (hyper-rationalist)• write no contracts and fully rely on “participation” (hyper-participatory)

mix evaluation and participation culture, i.e. …

• a system of “fiduciary duties” to fill the rules ex post• and a mechanism to produce information on the objectives/rules• and a mix of reputation / repeated game / trust

… write incomplete contracts with open-ended objectives/rules plus:

Solution


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Problems

III.3 TARGETING CAPACITY BUILDING WITH A REWARD / SANCTION SYSTEMIII.3 TARGETING CAPACITY BUILDING WITH A REWARD / SANCTION SYSTEM: : HARD USE OF INDICATORS IN THE MEZZOGIORNO CASEHARD USE OF INDICATORS IN THE MEZZOGIORNO CASE

• measurement• responsibility• renegotiation• incomplete contract

Solution

• set open-ended targets• set an evaluation system:

run by a body composed of principal and agents produce periodical Reports and using it as a “Knowledge producing mechanism”

It allows

• measurement to be refined• targets to be “completed” / interpreted• actions to be taken if responsibility is shared• renegotiation risk to be reduced


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III.3 TARGETING IN THE MEZZOGIORNO CASE: RESULTSIII.3 TARGETING IN THE MEZZOGIORNO CASE: RESULTS

Ranking

1 Basilicata 134,9 Puglia 108,62 Campania 98,2 Sicilia 107,63 Puglia 88,9 Campania 103,94 Sicilia 79,5 Basilicata 103,35 Sardegna 40,9 Sardegna 102,86 Calabria 38,6 Calabria 62,5

Ranking

1 Econ. Competitiveness 129,8 Education 157,12 Education 77,0 Research and Dev. 130,03 Research and Dev. 70,6 Fishing 109,54 Law Enforcement 57,8 Econ. Competitiveness 109,55 Fishing 51,4 Technical Assistance 108,96 Trasportation 49,2 Law Enforcement 107,97 - Trasportation 50,0

Resources assigned on the basis of the competitive mechanism(as a share of potential resources)

Public Administrations

6% Performance Reserve 4% Performance Reserve

Regions


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V. MACRO-EVALUATION AND POLITICAL SUSTAINABILITY: V. MACRO-EVALUATION AND POLITICAL SUSTAINABILITY: THE MEZZOGIORNO CASE THE MEZZOGIORNO CASE

Macro-evaluation as a coherence framework to• link micro to macro• give structure to polical debate

EX ANTE Mezzogiorno plan 2000-2006: a supply–side model with “break variables”

INTERIM Yearly Reporting and Interim evaluation Report:

• limiting renegotiation of financial commitments• allowing a fair assessment of policy

EX POST Providing a base for policy changes by basing 2007-2013 Plan on ex post evaluation

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V. CONTEXT INDICATORS: REGIONAL COMPARISON (Italy = 100)V. CONTEXT INDICATORS: REGIONAL COMPARISON (Italy = 100)

Source: Italian Ministry of Economy and Finance, 2005 Annual Report

Fabrizio Barca

Documents

1 Regional Development Policy: Rationale, Multi-level Governance and Evaluation By Fabrizio Barca * Moscow Round Table January 26, 2007 Ministry of Economy