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East Central European mosaic ‘Reasons and consequences of regional divergence in East Central Europe in the

transition process’

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East Central European mosaic ‘Reasons and consequences of regional divergence in East

Central Europe under transition’

KUTTOR, Dániel

University of Miskolc, Department of Regional Economics

Institute of World and Regional Economics

21st November 2012

Glasgow, CRCEES

‘West Coast Seminars’ on Economic and Social Change in Russia and Eastern Europe



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Introduction

Theoretical background

Spatial polarisation

Dimensions of polarisation

Reasons of polarisation

Development gaps

Clustering regions

Conclusion and recommendations

Content



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Divergence Convergence

Which is first?

Competitiveness versus cohesion;

Efficiency versus equation.

Overall goal during the transition period:

Macroeconomic convergence;

Welfare but not for everyone (not for every region)?

Integration into the euroatlantic defence and political systems;

BUT what about the integration into the EU and global production systems?

Dilemma of development: efficiency or equation?



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Main socio-economic priority: macroeconomic convergence!



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Classical economics Location theories

Neo-classical theory

Endogenous growth theory

Keynesean theory

Convergence theories

Post- and neo-Keynesean theories

Export base theory

Theory of growth poles

New economic geography theory

Theoretical background • Large number and valuable preliminaries • Contradictory experinces and theories

17th 18th 19th 20th 21th



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Spatial economic theories (Location theories): • German contribution:

• J. H. v Thünen (1826) • A. Weber (1909) • W. Christaller (1933) • A. Lösch (1940)

• American(-British) contribution: • A. Marshall (1925) • E. M. Hoover (1948) • W. Isard (1956), founder of regional economics

• Other European contribution: • F. Perroux (1949) • K. G. Myrdal (1957) • J-R. Boudeville (1964)



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Spatial economic theories (Growth and development theories):

• Neocalssical economics - R. M. Solow (1956) • Endogenous growth theory - R. E. Lucas (1988), •R. J. Barro (1994), X. Sala-i-Martin (1995) • Post-Keynesian economics - N. Kaldor (1981) • New Economic Geography - P. Krugman (1998, 2003, 2005), M. Fujita and A. Venables (2001)



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Other concepts on economic growth and spatial differentiation

• J. G. Williamson (1965) ‘Inverted U’ hypothesis



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Other concepts on economic growth and spatial differentiation

• D. Meyer and J. Lackenbauer (2006) Trade off between interregional inequalities and agglomeration



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Major territorial tendency: polarization But three sections with different characters!

0,3

0,32

0,34

0,36

0,38

0,4

0,42

0,44

0,46

0,48

0,5

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Mean Std. Deviation

%

€ (P

PP

)

Mean and standard deviation of regional GDP per capita figures

Source: EUROSTAT data, own compilation .



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Why these three intervals of polarisation?

Source: UNCTAD STAT data, own compilation .

Export volumes by countries

Mill

ion

s $



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Source: UNCTAD STAT data, own compilation .

Mill

ion

s $

Why these three intervals of polarisation?

FDI volumes, inflow, by countries



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Significant differences among V4 countries, both aspects (speed and degree)!

(%)

Standard deviation of regional GDP per capita figures, by countries




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Testing the Williamson ‘Inverted U’ hypothes

Std

. D

ev.

Standard deviation of regional GDP per capita figures, by countries

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

6000 8000 10000 12000 14000 16000 18000 20000 22000

Sorozatok1 Sorozatok2 Sorozatok4 Sorozatok6

GDP pc (EUR, PPP)

CZ SK PL HU




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y = 0,3957x - 2,418

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

8,6 8,8 9,0 9,2 9,4 9,6 9,8 10,0 10,2 10,4

ln G

DP

nö

v (2

00

0-2

00

6)

ln GDP/fő (2000)

Limited adaptability of convergence, only ‘convergence clubs’ can be identified!

tii YY 0lnln

ln G

DP

gro

wth

(2

00

0-2

00

7)

ln GDPpc (2000)




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Reason of polarization: size of regional markets!

Categories

GDP annual growth,

2000-2007, %

GDPpc in percent

of EU average

(PPS, 1995)

GDPpc in percent

of EU average

(PPS, 2007)

Population density more than 150 persons/km2 4,25 75,92 97,00



Population density less than 90 persons/km2 3,01 43,01 46,97




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Reason of polarization: economic structures!

Categories

GDP annual growth,

2000-2007, %

GDPpc in percent

of EU average

(PPS, 1995)

GDPpc in percent

of EU average

(PPS, 2007)

Significant primary sector 3,17 39,41 45,95

Significant secondary sector 3,60 52,51 57,96

Significant tertiary sector 4,09 65,28 85,58




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y = -547,84x + 16897 R² = 0,6277

y = -805,84x + 26927 R² = 0,6184

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

20 000

12 14 16 18 20 22 24

GD

P/f

ő (

PP

S)

Hosszúsági fok

1995

2007

Lineáris (1995)

Lineáris (2007) GD

Pp

c (

€,

PP

P)

Longitude

Reason of polarization: Reorinetation, changed geopolitical situation!

Phenomenon of west-east incline!

W E




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Reason of polarization: Considerable spatial concentration of growth factors!



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Geographical distribution of settled FDI

Name of the regions Percent

cz01 Praha 49,30%

cz02 Strední Cechy 10,70%

Rest of Czech Republic 40,00%

Total CZ 100,00%

hu10 Közép-Magyarország 67,70%

Rest of Hungary 32,30%

Total HU 100,00%

pl12 Mazowieckie 24,30%

pl22 Slaskie 13,50%

pl41 Wielkopolskie 11,60%

pl51 Dolnoslaskie 8,40%

Rest of Poland 42,20%

Total PL 100,00%

sk01 Bratislavský kraj 63,20%

sk02 Západné Slovensko 10,30%

Rest of Slovakia 26,50%

Total SK 100,00%




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Limits of creation of knowledge economy: Population with tertiary education!


Name of the regions Value Percent

cz01 Praha 239,9 25,13%

cz02 Strední Cechy 83,7 8,77%

Rest of Czech Republic 630,9 66,10%

Total CZ 954,5 100,00%

hu10 Közép-Magyarország 508,1 45,25%

Rest of Hungary 614,8 54,75%

Total HU 1122,9 100,00%

pl12 Mazowieckie 837,8 20,00%

pl22 Slaskie 490 11,70%

pl41 Wielkopolskie 331,9 7,92%

pl51 Dolnoslaskie 333,2 7,95%

Rest of Poland 2195,8 52,42%

Total PL 4188,7 100,00%

sk01 Bratislavský kraj 118,2 23,51%

sk02 Západné Slovensko 148,6 29,55%

Rest of Slovakia 236 46,94%

Total SK 502,8 100,00% Source: EUROSTAT data, own compilation .



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Limits of creation of knowledge economy: HRST (Human resource in Science and

Technology)!


cz01 Praha 397,4 20,75%



Total CZ 1915,7 100,00%



Total HU 1573,4 100,00%


pl22 Slaskie 702,6 12,37%




Total PL 5678,1 100,00%



Rest of Slovakia 416,5 47,08%




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Limits of creation of knowledge economy: GERD (Gross Expenditure on R&D)!


cz01 Praha 531,7 37,53%



Total CZ 1416,9 100,00%



Total HU 806,8 100,00%


pl22 Slaskie 109,0 7,87%




Total PL 1385,7 100,00%



Rest of Slovakia 45,0 23,15%




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The market forces creating agglomerations (centripetal forces) strengthened during the pre-crisis period!

n

i

isH1

2

With the help of Herfindhal-Hirschman index the spatial agglomeration of production and employees has been tested.



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Development gaps in V4 countries

Changing relationship of neighbouring regions!

Case in 1995

Case in 2007

Largest development gaps around the cores! Weakening the spread effects (+) and fostering the backwash effects (-)!



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Development gaps in V4 countries

Development gaps around the cores!

Development gaps along the borders!




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• Absolute winners

• Potential followers

• Threatened losers

Benefitting regions <> loosing regions

Cluster analysis

Endogenous Exogenous

Human resource Export volumen Infrastructure FDI inflow

Industrial structure EU economic growth

Income level World economic

growth Knowledge (R+D, HRST)



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Benefitting regions <> loosing regions • Regions can be considered as winners or beneficiaries of the transition:

The group of the primary beneficiaries, or ‘absolute winners’: regions around the capitals displaying dynamic growth, with flexible, active and trained labour force, an extensive services sector, well-developed infrastructure and good accessibility. This category includes two clusters (Prague and Bratislava, as well as Central Hungary). The group of secondary beneficiaries, or ‘potential followers’: regions with favourable geopolitical locations (western), which are urbanised, with considerable and modernised industrial traditions and capacities as well as developed services sectors, and have been successfully integrated into the European division of labour and value creation (cluster 3).

•Regions can be considered as losers of the transition: The group of losers, or ‘threatened losers’: regions with unfavourable geographical, i.e. peripheral locations (internal or external), where the process of economic re-structuring is slow or blocked. It can be seen in the disadvantageous sectoral structure of the economy and the unfavourable labour market conditions (cluster 4).



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Is there nothing new under the Sun?

Source: Grzegorz Gorzelak, 1996

‘Industrial core or triangle’ from 19th century

(Budapest – Cracow/Katowice - Leipzig)

‘East European Boomerang’ from the mid-20 century

(Budapest – Prague - Gdansk)



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Concluding remarks • Significant polarisation (due to the export oriented economic structure, high geo-concentration of industrial activities and knowledge economy).

• Growing development gaps with many aspects: Inter- and intraregional; Sectoral (primary-secondary-tertiary), key role of manufacturing; Urban-rural (growth poles), Core-periphery (cases of border regions), Western-Eastern incline (especially in SK and HU, and not really in Poland), Concentration of economic activities (agglomerations).

• Both endogenous and exogenous factors contributed to this differentiation!

• Positive consequence of the polarisation: a few developed, competitive cities, regions in East Central Europe exist (Bratislava and Prague among the TOP 20 regions of EU in 2009 by GDPpc; Budapest and Warsawa are close to the EU average). Growth poles!

• On the other hand a high number of regions is in inferior, exposed situation. An active, structure-oriented sectoral and regional policies are needed to foster them in a sustainable way!



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Concluding remarks • The main effects of the current crisis:

First to be stated that not homogenous on V4 countries’ economy (PL >< SK, CZ >< HU), depending on the financial status of the country and the market size.

The main negative mechanisms vulnerating the economies are the falling volumes of export and direct investment (reduced consumption both local and foreign; reduced budget for fixed capital formation).

The improvements (decreasing development gaps) are just apparent and illusive. Mainly thanks to the slowed down growth of cores and NOT the accelerated growth of peripheries.

EU regional policy (with national contributions) is chance for a accelerate the catching up process in ECE.



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Recommandations For the core regions (‘absolute winners’) the main priority is to help the further integration into European and global networks.

This requires that as many as possible multinational and trans-national companies and international organisations be established in the cities and their catchment areas. In terms of income generating capacity and competitiveness, further expansion of the research and development profile and the innovation capacities are to be fostered (both the infrastructure and human resources). For this purpose, the establishment and subsequently improvement of the international prestige of the education and training (primarily vocational and higher education) institutions are to be promoted. The infrastructure of the core regions are relatively good, but the depreciation of the railway network and the lack of rapid rail system may later cause a bottleneck in transport and transportation. Access to the West European markets is provided by the motorways and airports, however, the network needs to be developed towards the internal peripheries and the East European markets. These developments are indispensable for strengthening the beneficiary (spread) impact of the central regions.



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Recommandations

For the secondary beneficiary (potential followers) regions the main priority is the dynamisation of the already existing key industries and locations (particularly in the current crisis situation).

Therefore there is a primary demand for developing the human capital and for investment in the knowledge- and capital-intensive manufacturing and production industries, particularly in the processing industry. These measures will contribute to an improvement of regional competitiveness and capital-attracting capacity, and maintaining and re-gaining the foreign trade potential and exports volume. It is a cardinal issue for the future whether it will be possible to strengthen the income- and labour-absorption capacity. Developing the weak, underdeveloped R&D infrastructure and human resource background as well as organising the local economic players and enterprises into clusters and operating them may efficiently assist in achieving the above objectives.



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Recommandations

In order to ease and abolish the negative consequences of the differentiation of the past two decades, the main priorities are for threatened loser the followings:

Improving the labour market conditions and entrepreneurial conditions. For this purpose it is essential to establish labour-intensive industries and to boost the income-generating capacity of the agriculture and the rural areas. The access to the larger markets is not solved for these regions (‘Eastern wall’), thus there is a realistic threat of economic-social marginalisation and isolation. In order to avoid this, and to play a kind of hub (bridge-head) role towards Eastern Europe or rather Asia, the transportation and telecommunication infrastructure needs to be developed. Since several of these threatened regions do not have any growth poles, improvement of accessibility towards the further national centres is also of importance. For the modernisation and restructuring of the local economies and improving the quality of services it is essential that R+D activities and funds as well as working capital are oriented into the regions.



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Thank you for your attention!

Contact me:

[email protected]

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