Local development and Local development and territorial disparities in territorial disparities in

transformation countriestransformation countriesKeynote address

Prof. Bruno DallagoSchool on Local Development

University of Trento

Conference on

Facilitating an area-based development approach in rural cross-border areas of the Western Balkans

Belgrade, 5 May 2011

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Local development

• Necessary for managing disparities and capturing opportunities, rebuilding the social fabric, integrate institutional transformation

• Formal institutional decentralisation

• Uneasy central/local relation

• Sectoral vs. holistic approach

Transformation and disparities

Transformation has generated disparities and inequalities due to:

• End of socialist allocation and distribution policies

• Different endowments of territories, social groups and individuals

• Agglomeration effects of domestic and international resources

New member countries as path breakers for accession countries?

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Opposite trends in transformation countries

• Decreasing inequality among countries convergence and integration

• Increasing inequality within countries economic, social and territorial inequality and segmentation

• Need to consider population dynamics

• Territorial disparities as one of the reasons for income wealth, and opportunity inequalities

Regional inequality in transformation countries (Theil indices)

Regional inequalities within countries (Theil indices)

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Divergence from “old” Europe:Dispersion of regional GDP at Nuts level 2 (%)

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Czech Rep. (14) Hungary (20) Poland Slovakia

1990 2000 2006

Concentration of production in capital cities

Source: OECD

1. Growth of post-transformation regional disparities and stability of general territorial patterns. Flow of opportunities, human and financial resources towards capital cities and impoverishment of periphery areas

2. Polarization and territorial segmentation due to faster development of regions with big urban centers and stagnation – or even decline – of less developed regions of eastern (external) and central (internal) peripheries.

3. Rapid restructuring vs. delayed restructuring of sectors/branches. Immediate impact on regional trajectories.

Regional patterns of transformation

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Regional patterns of transformation

4. Metropolisation replacing traditional urban-rural divide.

5. East-West divide due to new opportunities of transborder co-operation and return of the „modernisation from the West” pattern.

6. Decentralisation, local democracy. The competencies of the regional tier still uncertain in some countries.

7. Social disparities, divided polities

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The territorial patterns of transformation

Reaction to transformation

positive negative

Posi-tion in

the socia-

list eco-

nomy

good

LEADERS

Positive continuity

Motropolitan areas and capitals

Diversified economy, skilled labour, good infrastructure and rich institutions, international activities

LOSERS

Negative continuity

Traditional industrial regions

Specialised industry, neglected land,

biased/low qualifications

bad

WINNERS

Positive Discontinuity

Regions with endogenous potential

Diversified economy, external demand

LAGGARDS

Negative continuity

Rural, peripheral

Nonaccessible, obsolete structure, low qualifications

Degree of tax sharing vs. own financing of subnational governments, early-mid 2000s

Own taxes

as % oftotal SNG

Reve-nue

Own nontax

revenueas % of

total SNG

revenue

Total ownrevenue

as %of total

SNGrevenue

(ex grants)

Totalsubnationaltax revenuein percent

oftotal

subnationalrevenues

Distribution of total

subnational tax revenues

Degree of Autonomy

Tax sharing

Own-finan-cing

To set tax

base

To set tax rate

Albania 0.0 1.6 1.6 35.7 100.0 0.0 None NoneBulgaria -- 11.9 -- 72.9 90.0 10.0 None NoneCroatia 55.8 85.0 15.0 Very

limited Very limited

Macedonia, FYROM

86.4 -- -- None Local govt financingis currently underdiscussion

Romania -- 12.6 73.7 75.0 25.0 Somed Someg

SCG 71.5 8.0 92.0 None None

Transfers (grants) from central to subnational governments

Size Type of grant

Percentof GDP

Percent oftotal revenue

General Specific

Albania (1998) 5.4 96 100 0

Bulgaria (2000) 3.3 43 80 20

Croatia (2000) 0.2 5 Small Most

Romania (1999) 0.7 17 Yes Yes

Sources: Government Finance Statistics (IMF), IMF country economists; Wetzel and Dunn (2001)

The case for cross-border cooperation

• Cross-border cooperation (CBC) as a way to:boost local developmentsoften (territorial, industrial, social, political)

segmentation, disparities, and tensionsattract resources and create opportunities

• Institutional framework to facilitate cross-border cooperation

• Policies for CBC

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Evaluating and strengthening the effects of CBC

• Evidence: limited economic impulses, important social and political influence

• Need for:– comparison of evidence against context, policies,

and experiences in the field;– proper time frame;– comparison against counterfactual

• How can we improve and strengthen CBC implementation, outcomes, and spillovers?

• Is CBC in former Yugoslavia different? Is there a positive path-dependence?