New Methods for Cohesion Policy Evaluation: Promoting Accountability and Learning

1. New Methods for Cohesion Policy Evaluation: Promoting Accountability and Learning GDP per head as an indicator of regional performance – the need for a change? Terry Ward, Applica sprl Warsaw, 30 November & 1st December 2009

2. GDP per head currently used as an indicator for determining eligibility for ERDF assistance in Convergence regions and assessing performance across regions generally – convergence of GDP per head objective of cohesion policy • questionmark over whether realistic or meaningful objective • Equally is GDP suitable indicator at all, given environmental issues? • Issue considered here – is it desirable to have GDP per head as primary indicator of need for policy intervention and means of assessing performance in NUTS 2 regions? • NUTS 2 regions not meaningful economic regions - range from Ile de France with population of 11.5 million to Åland with one of 27 thousand • Nor do regional borders correspond with administrative boundaries in many countries (exceptions – ES, IT, AT) • Mismatch between economic and statistical regions illustrated by extent of commuting

3. Commuting artificially increases GDP per head in regions where net inward commuting, and reduces it where net outward commuting – commuters add to GDP in region without adding to ‘heads’ • Commuting serves to transfer income from one region to another in same way as ‘normal’ income transfers • GDP per head misleading measure of prosperity (income) and economic strength – labour contributing to GDP not all resident in region – changes in GDP per head can reflect regional migration flows as well as GDP growth • EU Labour Force Survey enables commuting effect to be estimated – (Er+Eo)/(Er+Or) • In EU25 in 2006, 22 NUTS 2 regions where number employed in region over 5% higher than number resident and in work; 15 regions where number employed over 10% higher. • 53 NUTS 2 regions where net outward commuting over 5% of residents in work and 23 where over 10%. - over 30% of regions where effect is over 5% of GDP

5. Scale of commuting dependent on where regional boundaries drawn – whether narrowly around city, eg Brussels, Hamburg, Prague and Inner London, or widely to include surrounding area dependent on city for much of employment and income, eg Ile de France or Közép-Magyarország (Budapest) • Convergence eligibility criterion of 75% of EU average GDP per head affected by extent of commuting – Flevoland, Burgenland and Hainaut received Objective 1 funding 1994-2006, Brandenburg-Nordost and Stredni Cechy from 2004

6. Scale of commuting dependent on where regional boundaries drawn – whether narrowly around city, eg Brussels, Hamburg, Prague and Inner London, or widely to include surrounding area dependent on city for much of employment and income, eg Ile de France or Közép-Magyarország (Budapest) • Convergence eligibility criterion of 75% of EU average GDP per head affected by extent of commuting – Flevoland, Burgenland and Hainaut received Objective 1 funding 1994-2006, Brandenburg-Nordost and Stredni Cechy from 2004 • Both last 2 regions not eligible for funding if commuting taken into account – funding might still have been given, but given consciously • In case of Flevoland, doubtful – largely residential region

7. Examples illustrate 2 points: • regions cannot be isolated from regions surrounding them; • economic development not sole objective of cohesion policy • Social cohesion and regional balance also important aims, as well as quality of life – GDP per head not suitable indicator to measure these • Quality of life, and preserving natural features of a region to ensure region remains pleasant place to live and visit may be incompatible with any significant economic development • Maintaining territorial balance within as well as between regions as important as economic development aims – two need to proceed in parallel • Maximising overall growth of NUTS 2 regions, even on sustainable basis, not necessarily main objective – distribution of growth and internal balance may be more important, especially in large NUTS 2 regions (e.g. Baltic States)

8. What alternative indicators are there? • Despite widely recognised deficiencies, GDP generally accepted as key indicator to focus on – reflects lack of other suitable indicators with same statistical robustness – though measuring GDP at regional level entails estimation, other measures involve more • One option – to use commuter-adjusted measure of GDP alongside unadjusted measure to identify effect of commuting so can take it explicitly into account when deciding policy • But does not deal with social cohesion, or territorial balance, issues • Regional balance abstract concept - difficult to capture in single indicator or set of indicators • Likewise quality of life and social cohesion.

9. Suggested additional indicator – average household disposable income • This bears directly on social cohesion and key aspect of living standards, but not necessarily on quality of life • Income per head – closer to ultimate objective than GDP per head • Would focus attention on regional disparities in this – but does not mean shift in policy away from structural intervention to income transfers – structural intervention is means of reducing disparities • Not affected by distorting effect of commuting of GDP per head – and could be allied to indicator of disparities in household income within regions between individuals to give wider measure of social cohesion (and disparities) • Would show effect of government redistribution policies (through fiscal system and otherwise) • Still need ideally to develop set of indicators to measure quality of life – and sustainability of development

10. What do indicators suggested show in respect of regional disparities and change 2000-2006? And how do they compare with the GDP per head measure normally used? • Measuring disparities by the mean log deviation index (which has a value of zero if no differences in values between regions and increases as differences widen) shows the following …

12. Much smaller degree of regional disparity if GDP per head is adjusted for commuting, especially in Belgium and the UK - disparity in EU15, widest in Greece and Italy • Disparities wider across EU10 than across EU15 • Extent of dispersion in household income per head in EU15 also widest in Italy and Greece - country ranking similar to commuting-adjusted GDP per head • Much less disparity in income per head in EU10 countries than in GDP per head - no wider than in EU15 • In Belgium, UK and EU10, difference in change shown by adjusted and unadjusted GDP per head figures – reflects increased commuting (reduction in BE) • Indices of adjusted GDP per head and household income per head show similar changes in disparities in EU15 countries but not in EU10 – disparity in adjusted GDP per head rose, disparity in income per head diminished.

13. Use of three indices together gives a useful insight into disparities revealed by the unadjusted figures for GDP per head • But even more useful for examining differences between particular regions within countries and the way that these are changing over time • And for assessing regional developments and policy performance • But still need for a set of indicators to assess quality of life and the effect of GDP growth on the environment in order to assess the sustainability of development.

14. THANK YOU FOR YOUR ATTENTION

15. THANK YOU FOR YOUR ATTENTION