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