Zavod 14 is pleased to present a publication titled “European Regional Development: Fate, Fortune or Good Policies?”, supported by European Liberal Forum (ELF). The origins of the wealth and poverty of nations is an intensely debated issue in development economics. Scholars agree the institutional framework emphasising low transaction costs and secure property rights, broad-based and inclusive de jure and de facto political institutions, a culture of cooperation, a high rate of return on human capital, and perhaps even physical geography account for the wide-standing and persistent gaps seen in the levels of per capita income across countries. The evidence on the root causes of economic growth at the subnational level is much less certain. Can regions achieve sustained development in response to good and prudently designed policies, a broad-based institutional framework, a culture of trust and cooperation, and substantial human capital investment? Is regional development determined by luck or by fate? Disentangling the determinants of regional development and their contribution to the long-run growth of regions may provide the necessary insights into the ‘black box’ of subnational development. To this end, We examine the contributions made by regional EU policy support, regional institutional quality and regional intelligence to the per capita income and growth rates of European regions at the NUTS-2 level subject to the previously identified growth and development shifts. For a sample of 365 regions at the NUTS-2 level for the period 1990–2015 containing roughly 4,000 sample-matched observations in a combined and partly novel dataset, we estimate the responses of per capita income and growth rates to regional policy support schemes, institutional quality, and average intelligence.
Publication results suggest that the influence of regional policy support, institutional quality, and average intelligence depends on the level of development. The regions under Objective 1 tend to benefit strongly from higher rates of infrastructure-related investment, health-related investments, basic educational support and technology investment. Once regions attain higher income levels in response to these investments, policies that strengthen labour market efficiency and innovation appear to be the key drivers of sustainable development. Our findings corroborate the notion that any ‘one-size-fits-all’ regional policy support is doomed to fail.
Place-based economics has been shown to work much better than rigid centralism and naïve localism. But place-based economics need to be enforced by a plural and interconnected institutional framework on the basis of the contributions of authors in the literature of the economics of development. Several circumstances of our current era suggest that this complex machinery must be extended to a supranational level, and that a pure intergovernmental structure cannot play the important role that economic theory and institutional practice demonstrate is necessary in a modern economy and society.
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