Annexes to COM(2008)371 - Fifth progress Report on economic and social cohesion - Growing regions, growing Europe - Main contents
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| dossier | COM(2008)371 - Fifth progress Report on economic and social cohesion - Growing regions, growing Europe. |
|---|---|
| document | COM(2008)371  |
| date | June 19, 2008 |
The three types of regions differ in terms of economic structure, growth trends and productivity. For example, productivity in Convergence regions is half that in RCE regions or less (see Table 3) and employment shrank in Convergence regions while it grew in the other two types of regions.
Convergence regions
The three growth sectors are less important in Convergence regions, where they account for only 40% of employment compared to 50% in the other regions. The share of Financial and business services is especially low. Growth of GVA and especially of employment in this sector, however, is much higher than in other sectors. Trade, transport and communication also experienced a strong increase in both employment and GVA, while the growth rates in Construction are similar to the EU averages.
Industry is more important in Convergence regions than in the others and recorded the highest GVA growth rate. Employment in industry declined but less than in the other regions. Nevertheless, industrial productivity is still a third of that in RCE regions. Employment in high and medium-high tech manufacturing, however, grew by 1% between 2000 and 2005.
Agriculture remains an important sector in Convergence regions accounting for more than 15% of employment, five times the share in RCE regions. This happens in a context of falling employment in this sector accompanied by productivity increases[7]. This means that despite strong employment increases in the growth sectors, total employment declined in the Convergence regions.
Transition regions
Transition regions have the same share of employment and GVA in the three growth sectors as RCE regions, but their share of Financial and business services is much smaller. With annual growth rates of 4% this sector has grown faster than any other, but the difference remains large.
The two other growth sectors, Trade, transport and communication and Construction, also grew above average. In Transition regions, especially the share of the Construction sector is much higher than in the other regions. This can be partly explained by the strong economic growth, rising incomes and continuing need to upgrade some of the physical infrastructure. In some regions, the growth of construction is also partially due to demand for second homes and tourist accommodation. The highly cyclical nature of this sector, however, leaves these economies vulnerable.
The share of Industry is less important in Transition regions than in the other two types of regions.
Regional competitiveness and employment regions
In RCE regions, Financial and business services experienced the highest growth in employment and GVA showing a growing specialisation. The two other growth sectors have a lower share of GVA and employment than in the other two regions and experienced growth rates close to the EU average.
The GVA share of Industry in RCE regions is comparable to that of Convergence regions but employment in this sector is significantly lower in RCE regions, reflecting the results of a successful shift towards higher value added activities in this sector. Employment in this sector and in high and medium high-tech manufacturing declined.
R&D expenditure as a share of GDP is almost three times higher in RCE regions than in Convergence. However, competition in innovation is becoming global which means that the EU has to compete globally. RCE regions spend 2.1% of their GDP on R&D, but the US spends 2.5%. Also the share of GDP going to R&D in the top 10% US States is a quarter higher than in the equivalent EU regions.
RCE is the largest of the three groups and as a result also more diverse. The economic structure varies considerably. Some are specialised in Financial and business services, such as Luxembourg and Île de France with at least 40% of their GVA in this sector. Other regions rely heavily on Trade, transport and communication such as for example Tirol, Praha and Illes Balears with at least 30% of their GVA in this sector. Economic performance also varies. Between 2000 and 2005, 17 RCE regions experienced a decline in employment and 22 had a GDP growth rate below 0.5%.
The contribution of high growth sectors to convergence
The analysis above shows that the growth sectors have made an important contribution to convergence both in Convergence and Transition regions, but the pattern varies.
In Convergence regions, the three growth sectors have contributed to substantial employment creation, but not enough to offset the significant employment reductions in agriculture. GVA growth was also strong in the growth sectors especially in Financial and business services and Trade, transport and communication.
GVA growth, however, was higher in Industry, leading to a high and growing share in this sector. Combined with a high share of employment, this trend may present a risk as several industrial sectors have been in decline at the EU level (see figure 2). Within industry, the share of employment in high and medium-high tech manufacturing, the sector where the EU has the strongest competitive advantage, is only 24% in Convergence regions as compared to almost 40% in RCE. Since 2000, Convergence regions have only reduced this gap by 1 percentage point.
National data shows that GVA is growing faster in high and medium-high tech than other manufacturing sectors in most Member States. Yet some still have a low share of manufacturing GVA in high and medium-high tech, in particular in Romania, Bulgaria, the Baltic States, Greece and Portugal. This and their low productivity in the sector may leave them vulnerable to increased global competition.
Transition regions are catching up rapidly with RCE regions thanks to the strong performance of the three growth sectors and high and medium-high tech manufacturing. As a result, the economic structure of Transition regions is becoming more and more like that of RCE regions.
Education, skills and knowledge workers
Skills and qualifications are an important determinant of individual income and employability and a substantial contributor to labour productivity. They also indicate to what degree regional economies have shifted towards a more intensive use of knowledge. Yet, the EU invests only 1.2% of GDP in higher education where the US invests almost 2.9%.
The share of highly educated people aged 25-64 is considerably lower in Convergence regions than in RCE regions, 17% and 25% respectively. Still, the share has increased equally between 2000 and 2006, with a slightly higher increase in Transition regions, which have now almost reached the same share as RCE regions.
The share of human resources in Science and Technology (HRST core)[8] also lags in Convergence regions as compared to RCE regions, 12% compared to 17%. But Convergence regions have been able to reduce that gap since 2000 by one percentage point. The use of HRST core is particularly high in knowledge intensive services such as health and education and high and medium-high tech manufacturing.
The overall share in the Convergence regions in 2006 was still 10 percentage points lower than in the RCE regions. Growth in the share of knowledge workers is nevertheless high. It increased by 3.4 percentage points between 2000 and 2006 and the increase was the same in Convergence and RCE regions.
The share of knowledge workers[9] is particularly high in capital regions and other major metropolitan regions which host major headquarters and specialised services. The share of knowledge workers tends to be low in Portugal, Spain, Greece and Bulgaria even in their capital region. The share increased particularly in many regions in Spain, France, Greece, Austria and Slovenia, indicating that the shift to the knowledge economy is not an exclusive affaire of large metropolitan regions.
Conclusions
Th is brief analysis has shown that European growth sectors have largely contributed to convergence. However, important differences in the economic structure of the three groups of regions remain and the pattern of catching-up differs between Convergence and Transition regions. This has several implications from a policy point of view.
Efforts to foster European high growth sectors, i.e. those with above average employment or GVA growth, seem justified. Not only are these sectors the ones in which the European economy has its clearest global growth perspective, they can also be powerful motors for the EU convergence process.
Moreover, the analysis shows that Convergence regions are undergoing a major economic restructuring. Substantial employment is being created in the service sector, while agriculture is shedding even more employment. GVA growth is high especially in industry and services and productivity growth is three times higher than in RCE regions. Such restructuring requires a tailored policy response.
Convergence regions should facilitate the shift of employment to services, especially to sectors which do not require high education levels, and continue to modernise their agriculture sector. As industry is and will remain an important sector in Convergence regions, policy should facilitate a progressive reorientation of the industry towards high productivity and high value added activities to avoid specialisation in industrial sectors particularly exposed to international competition and offering poor growth prospects.
Convergence regions should also aim to improve the education level of the labour force as shifting to higher value added activities will increase the demand for such labour. This will also influence the speed at which they adopt new technologies and help to reduce the productivity gap.
Finally, the high productivity levels in RCE regions give these regions an edge not only in Europe but also in the world. In part, this high productivity is due to strong investments in R&D, which are much higher than in Convergence regions. Yet to maintain a global edge, these regions have to be able to compete with other world competitors, which invest even higher shares in R&D and higher education. This clearly underlines the benefit of the increasing orientation of cohesion policy in RCE towards more investments in innovation and human capital.
[1] A6-9999/2008 [REF] adopted on 21 February 2008.
[2] COTER IV-011 [REF] adopted on 29 November 2007.
[3] ECO/209 [REF] adopted on 13 December 2007.
[4] See http://ec.europa.eu/regional_policy/conferences/4thcohesionforum/all_contrib_en.cfm?nmenu=6
[5] http://ec.europa.eu/public_opinion/flash/fl_234_en.pdf
[6] Phasing in and Phasing out regions were grouped together as Transition regions since both receive transitional support.
[7] See Commission Communication: Employment in rural areas, SEC(2006)1772.
[8] See SEC(2008) […] for definition.
[9] Idem.