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REGIONAL PRODUCTIVITY CATCHING-
UP AND TRADABLE SECTORS IN
SOUTHERN EUROPE
CONFERENCE ON ECONOMIC DEVELOPMENT IN
SOUTHERN EUROPEAN REGIONS: POLICIES AND HIGHER
EDUCATION
25-26 MAY 2017, PORTO
Joaquim Oliveira Martins, OECD/CFE
OECD productivity
trends and regional
productivity
performance
3
Labour productivity growth has decreased
in most OECD countries
GDP per hour worked, percentage change at annual rate
Source: OECD Compendium of Productivity Indicators 2017, forthcoming.
4
Lower TFP growth and slower capital
deepening in most OECD countries
Source: OECD Compendium of Productivity Indicators 2017, forthcoming.
A majority of regions have a flat or
declining labour productivity catching-up
Type of regions
Employment
share in 2000
GDP share in
2000
Annual avg. GDP growth,
2000-13
GDP growth contribution
Frontier 16.1% 20.1% 1.7% 21.9%
Catching up 20.3% 18.2% 2.2% 25.3%
Keeping pace 38.9% 39.1% 1.3% 30.4%
Diverging
24.6%
22.6%
1.6%
22.4%
OECD average 1.6% Note: Frontier regions are fixed for the 2000-13 period. In four countries the values for 2000 or 2013 were extrapolated from growth rates over a shorter time period as data for 2000 or 2013 were not available. The countries are FIN (2000-12), HUN (2000-12), NLD (2001-13) and KOR (2004-13).
62% of OECD GDP is generated in regions were productivity is Keeping pace or Diverging. They contributed to 53% of GDP growth
Geography of
productivity
convergence
relative to
national
frontiers in
European
regions
Good or bad productivity performance can
be found all types of regions
0
10
20
30
40
50
60
70
80
90
100
Frontier (41) Catching-up (65) Diverging (76) Keeping pace (107)
%
Mostly Urban (127) Intermediate (62) Mostly Rural (100)
In which: 70% of mostly urban frontier
regions contain very large cities
in which: 75% of diverging mostly urban
regions contain very large cities
# regions in ( )
Region’s contributions to national growth vs.
labour productivity growth: Spain
Notes: The contribution of a region is defined
as the difference between the national annual
average labour productivity growth rate and the
same rate excluding the indicated region.
Notes: Percentage contribution shows the share of
total GDP growth that was due to growth in the
indicated region. Total contribution sums to 100%.
Contribution to labour productivity growth, 2000-13 Percentage contribution to national GDP growth, 2000-13
0
5
10
15
20
25
30
%
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
0.04
%-points
Region’s contributions to national growth vs.
labour productivity growth: Portugal
Notes: The contribution of a region is defined
as the difference between the national annual
average labour productivity growth rate and the
same rate excluding the indicated region.
Notes: Percentage contribution shows the share of
total GDP growth that was due to growth in the
indicated region. Total contribution sums to 100%.
-1500
-1000
-500
0
500
1000
%
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
%-points
Contribution to labour productivity growth, 2000-13 Percentage contribution to national GDP growth, 2000-13
The drivers of regional
productivity catching-up
(1) Rural regions close to cities display
stronger productivity catching-up
11
Rural remote regions present a higher variation in productivity growth rates than other types of regions
Annual average labour productivity
growth, 2000-12 Standard deviation
Coefficient of variation
Predominantly urban
1.01% 1.02% 1.019
Intermediate 1.07% 1.09% 1.024
Predominantly rural close to
cities 1.36% 1.32%
0.972
Predominantly rural remote
0.70% 1.15% 1.641
Note: Labour productivity is defined as real GDP per employee. GDP is measured at PPP constant 2010 US Dollars, using SNA2008 classification; employment is measured at place of work. The coefficient of variation represents the ratio of the standard deviation over the mean.
Source: OECD Regional Outlook 2016
(2) Stronger intensity of tradable sectors is
associated with productivity catching-up
All tradable sectors, TL2 regions
Notes: Tradable sectors are defined by a selection of the 10 industries defined in the SNA 2008. They include: agriculture (A), industry (BCDE), information and communication (J), financial and insurance activities (K), and other services (R to U). Non tradable sectors are composed of construction, distributive trade, repairs, transport, accommodation, food services activities (GHI), real estate activities (L), business services (MN), and public administration (OPQ).
20
25
30
35
40
45
50
Frontier Catching-up Diverging Frontier Catching-up Diverging
Tradable GVA share Tradable employment share
2013 2000
%
13
Productivity gains in tradables are
mainly within sectors
-1
0
1
2
3
4
5
ROU SVK EST KOR CZE HUN SVN SWE GBR AUS PRT ESP IRL NLD BEL USA AUT GRC DNK CAN NZL FIN ITA
%
Tradable sectors - contribution to productivity growth
Employment shifts to faster growing sectors Employment shifts to initially more productive sectors
Sectoral productivity growth Productivity growth in tradable sectors
14
Productivity gains in non tradables are
associated with sectoral shifts
Only in Eastern Europe does the non-tradable sector contribute by improving productivity significantly; in some countries non-tradable productivity is even declining
-1
0
1
2
3
4
5
ROU SVK EST KOR CZE HUN SVN SWE GBR AUS PRT ESP IRL NLD BEL USA AUT GRC DNK CAN NZL FIN ITA
%
Non-tradable sectors - contribution to productivity growth
Employment shifts to faster growing sectors Employment shifts to initially more productive sectors
Sectoral productivity growth Productivity growth in non-tradable sectors
15
Most of productivity adjustment in Portugal
was done within sectors
Drivers of labour productivity growth, 2000-13
Structural change creates productivity
growth, but the adjustment is painful
Productivity and employment growth in the Norte region (Portugal), 2000-13
Bubble size indicates percentage
contribution to total GVA -177 000 jobs
+20 000 jobs
16
Tradable sectors have promoted
aggregate growth in some EU regions
17
Low-income regions Low-growth regions Other EU regions
-30
-20
-10
0
10
20
30
40
50
60
70
80
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
Tradableservices
Manufacturing Agriculture Non-tradableservices
%%
-30
-20
-10
0
10
20
30
40
50
60
70
80
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
Tradableservices
Manufacturing Agriculture Non-tradableservices
%%
-30
-20
-10
0
10
20
30
40
50
60
70
80
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
Tradableservices
Manufacturing Agriculture Non-tradableservices
%%
Territorial aspects
of the tradable sectors
Share of total
employment in
clusters by type
of TL2 region
Mostly urban
regions are those
with at least 70% of
its population living
in Functional Urban
Areas or part of its
population living in a
large metro area
with at least 1.5
million inhabitants.
Mostly rural regions
have less than 50%
of their population
living in FUAs
Source: OECD
Regional Statistics
and Ketels and
Protsiv (2016)
0 10 20 30 40 50 60 70 80 90 100
Footwear
Forestry
Leather and Related Products
Fishing and Fishing Products
Apparel
Agricultural Inputs and Services
Nonmetal Mining
Appliances
Livestock Processing
Coal Mining
Furniture
Water Transportation
Jewelry and Precious Metals
Wood Products
Textile Manufacturing
Electric Power Generation and Transmission
Automotive
Lighting and Electrical Equipment
Food Processing and Manufacturing
Vulcanized and Fired Materials
Downstream Metal Products
Paper and Packaging
Metalworking Technology
Plastics
Metal Mining
Construction Products and Services
Production Technology and Heavy Machinery
Upstream Metal Manufacturing
Transportation and Logistics
Medical Devices
Upstream Chemical Products
Environmental Services
Hospitality and Tourism
Local clusters (non-traded)
TOTAL
Printing Services
Education and Knowledge Creation
Recreational and Small Electric Goods
Distribution and Electronic Commerce
Downstream Chemical Products
Oil and Gas Production and Transportation
Performing Arts
Information Technology and Analytical Instruments
Tobacco
Aerospace Vehicles and Defense
Business Services
Marketing, Design, and Publishing
Insurance Services
Financial Services
Biopharmaceuticals
Video Production and Distribution
Communications Equipment and Services
Music and Sound Recording
Share of FTE employment in the cluster, %
Mostly urban Mostly intermediate Mostly rural
Urban areas attract more knowledge-
intensive firms
20
Birth shares by sector (births by sector/total regional births)
TL3 regions (15 OECD countries) 2014
Policies & Tradable
sectors
Macro conditions: relative prices of non-
tradable goods in Portugal, 2000-2013
Labour costs
Intermediate inputs from
non-tradable sectorsIntermediate
inputs from tradable sectors
A. Simplified cost breakdown in tradable sectorsPer cent of cost of goods sold, mid-2000s
19
16
65
95
100
105
110
115
120
125
130
135
140
2001 2003 2005 2007 2009 2011 2013
B. Prices of non-tradables relative to tradablesPer cent1
Portugal Euro Area
Ratio of harmonised index of consumer prices (HJune2014ICP) (2001=100) of non-tradable
sectors to HICP (2001=100) of tradable sectors; OECD (2014), "STAN Input-Output: Input Output
Database", STAN: OECD Structural Analysis Statistics (database), June and Eurostat (2014),
Harmonised Indices of Consumer Prices (HICP) (database), May.
Source: OECD Economic Survey of Portugal, 2014.
23
Unit Labour costs have increased in
the non-tradable sectors
80
90
100
110
120
130
140
Tradable sectors in low-growth regionsNon-tradable sectors in low-growth regionsTradable sectors in other regionsNon-tradable sectors in other regions
Unit labour costs in Portugal
Economy-wide structural policies (or ex-ante
conditions) also play a role
24
25
Improvement of Human Capital
Northern region Portugal
Educational attainment (labour force) - The share of
workers with low levels of education has declined in last few years
- Partly driven by: – generational
change
– decrease in opportunities for workers with low levels of formal education
There is scope to coordinate better SME
and regional policy
26
• Uneven recovery in SME access to finance, with persistent differences in real cost of credit and diversification of SME financing sources
• Large differences in investments in knowledge assets, training and lifelong learning
Pilot country: Portugal Top/bottom 25% OECD Median Mid-range values (25%-75%) Country performance
Strategies for developing tradable
sectors
To remain competitive in Tradable sectors there are mainly three
main options:
1. Continued specialisation in Natural resources. This is typically
an option for remote rural regions
2. Be integrated in Global Value Chains. Integration between
manufacturing and service sectors is needed. Connectivity and
proximity may favour low-density areas close to cities. Without a
territorial strategy it may be difficult to benefit from GVCs for
regional development. Forward and backward linkages (re-
bundling) are critical to maximize value-added of FDI and
creation of a network of local suppliers.
3. Develop Territorially differentiated products & services
through mobilisation of local assets. Consumers may express
preferences for local or traceable products, without subsidies or
some form of protection.
Portugal remains a relatively centralised country compared with OECD average
Share of general government (in %)
Obrigado Thank you