© 2017 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 15 14 13 12 This work is the product of the staff of the World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Translations – If you create a translation of this work, please add the following disclaimer along with the attribution: This translation is an adaptation of an original work by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptation – If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the authors of the adaptation and are not endorsed by The World Bank. Administration Agreement between the European Commission and the International Bank for Reconstruction and Development concerning the Part II Europe 2020 Programmatic Single-Donor Trust Fund Trust Fund (No.TF072592) (EC Contract No CCI2014) Acknowledgments /6 Executive Summary /7 Introduction: why focus on lagging regions /9 State of Polish Lagging Regions: Podkarpackie and Œwiêtokrzyskie /13 CONTENTS Competitiveness of Podkarpackie and Œwiêtokrzyskie economies /17 How competitive are the lagging regions? /17 How history shaped economies of lagging regions /22 What determines competitiveness of the regions today? /24 What does global experience tell us about lagging regions? /33 Conceptualizing a policy approach to lagging regions /36 EU investment in Podkarpackie and Œwiêtokrzyskie /38 Absorption of EU funds /38 Results of cohesion policy in Podkarpackie and Œwiêtokrzyskie /39 Conclusion and consideration for EU approach to lagging regions /41 Annex 1. Competitive Cities in Lagging Regions /43 Gaziantep, Turkey /43 Changsha, China /44 Annex 2. Largest EU-supported projects in Podkarpackie and Œwiêtokrzyskie /46 Acknowledgments The report was prepared by Dmitry Sivaev, based on the background papers prepared by research teams that consist of: Tomasz Komornicki, Konrad Czapiewski, Grzegorz Gorzelak, Maciej Smêtkowski i Adam P³oszaj, and coordinated by Paul Kriss and Marcel Ionescu-Heroiu. The team would like to thank Commissioner Corina Cret‚ u for initiating the Initiative, Minister Jerzy Kwieciñski from Poland’s Ministry of Economic Development for his invaluable support, and the European Commission’s team for outstanding engagement and support, especially Mr. Patrick Amblard, Mr. Wolfgang Munch, Ms. Justyna Podralska, Ms. Magdalena Horodyñska, and Ms. Karolina Tilman from the DG REGIO. The team would also like to thank Arup Banerji, Marina Wes, David Sislen, Carlos Pinerua and Isfandyar Zaman Khan for the advice and guidance provided throughout the elaboration of this report. The report was completed in March 2017. 6 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Executive Summary The EU has rightfully been dubbed This pilot initiative focuses on Pod- the convergence machine.1 From Spain karpackie and Œwiêtokrzyskie, which to Greece, and from Slovakia to Poland, are representative of less developed it has helped 12 countries overcome regions that, despite achieving stea- the middle-income trap to transition to dy and high economic growth, have high-income – a feat without precedent not been able to close in on the in human history. Virtually every New country’s leading regions. Both re- Member Country has managed to con- gions, located in southeastern Poland, verge to the EU mean after joining. represent “lagging regions”, according to the DG Region’s definition. They have Nonetheless, progress has not been achieved GDP growth of over 6% p.a. uniform and not all countries and in 2003–2014, yet failed to keep pace regions have experienced these ad- with the national economy. Today, com- vancements. Moreover, within coun- pared with national averages, their GDP tries, disparities between leading and per capita in both regions is below 75%, lagging regions have grown wider; incomes are lower, and higher shares it’s a dynamic that is normal according of the population is living in poverty to empirical evidence,2 but a reality (over 10% in extreme poverty). that is nonetheless troublesome to poli- cy makers. In all of the New Member Global evidence indicates that Pod- Countries, national capitals and seve- karpackie and Œwiêtokrzyskie are ty- ral major cities have the highest con- pical cases rather than outliers. Deve- centration of economic activity and lopment does not happen equally across wealth, while some of the peripheral areas, and economic activity tends to regions are falling further behind na- concentrate in the most productive pla- tional leaders. ces. The experiences of countries that went through phases of rapid growth The EU is determined to improve its (like Poland in recent decades) shows approach to addressing the challen- that spatial disparity of development ges faced by less developed and lag- and emergence of lagging regions are ging regions. Less developed regions a common side effect. Arguably, grow- (defined as regions achieving less than ing disparities between leading and 75% of EU average GDP per capita (PPS)) lagging regions can be interpreted as have been the major beneficiaries of a natural result of rapid development. EU cohesion policies in recent decades. Those lagging regions, just like Podkar- For the 2007–2013 Programming Pe- packie and Œwiêtokrzyskie, are typically riod, lagging regions accounted for located in peripheral areas, have poorer 82% of funding allocated through EU access to markets and infrastructure, structural funds. The DG Region launch- and weaker institutions. ed the Lagging Regions Initiative to of- fer targeted assistance to regions that The relatively weak economic per- fall in two categories: 1) have a GDP formance of Podkarpackie and Œwiê- per capita (PPS) that is less than 50% tokrzyskie can largely be explained of the EU average (low-income re- by the lack of a critical mass of gions); 2) have not converged to the EU competitive firms. Both economies mean in the past decade (low-growth are described by low-export intensity, regions). shortage of foreign direct investments, 1 World Bank. 2012. Golden Growth: Restoring the luster of the European economic model. 2 See for example: World Bank. 2009. World Development Report: Reshaping Economic Geography. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 7 reliance on public sector employment, sixth. Main areas of investment in both weak entrepreneurship, and low labor regions included transport, innovation, productivity relative to the national and entrepreneurship. It is hard to accu- average across all industrial sectors. rately evaluate the effect of these in- The economy of Podkarpackie is perfor- vestments, however some lessons les- ming somewhat stronger than Œwiêto- sons on how to support lagging regions krzyskie, largely due to the presence of can be drawn and applied to Cohesion a vibrant manufacturing cluster in the Policy. northwest part of the region. In Poland, the focus of public invest- Cities are the economic epicenters ments priorities should shift focus and the growth engines of Podkar- from hard, national infrastructure to packie and Œwiêtokrzyskie. Despite soft interventions and basic services differences in economic geography, like education, innovation, and lo- stark developmental divides between cal transport. Examples in Podkarpac- major urbanized areas and rural periphe- kie and Œwiêtokrzyskie show that with ries characterize both regions. Cities and the help of EU funding the regions basic their suburbs attract young workers and services have improved (e.g. water sup- investors, and create most of the jobs. ply and sewerage). Similarly, major inter- On the other hand, agriculture in rural -regional transport projects have in- areas of both regions contributes rela- creased the accessibility of the regions. tively little to the economy but is im- Now that both regional capitals are portant for the livelihoods of residents, no more than four hours away from all who often have limited access to other major urban centers in Poland and wa- economic opportunities. ter and sanitation services are available even in most remote areas, further in- Both regions can sustain and stren- vestments in these sectors are likely gthen economic growth by focusing to lead to diminishing economic gains, on improving enabling conditions. and should be subject to thorough In part, the lack of competitiveness prioritization based on their cost effec- in both regions can be explained by pe- tiveness. The urban areas Podkarpackie ripheral locations and historical legacies. and Œwiêtokrzyskie have achieved a le- However, some existing institutional vel of development where further pro- inefficiencies create additional barriers ductivity growth would require not just to local economic growth. While there a transfer of technologies from abroad could be multiple policy approaches (e.g. through foreign direct investments), that can be taken to strengthen regional but also an increased ability to innovate. economies, the pilot focused on identi- This requires a focus on education, hu- fying gaps that can be addressed quickly man capital, and other conditions that and can lead to improvements in pri- create an innovative environment. Con- vate sector competitiveness – the “low necting rural areas to cities is important hanging fruit”. Such measures may in- to provide additional opportunities to clude improving the business climate the poorest residents of the regions. through streamlining business and pro- These principles have been included perty registration procedures, providing in the EU Multiannual Financial Frame- business services that address the de- work for 2014–2020. mands of firms, and bridging skill gaps by establishing closer links between The place-based private sector de- educational institutions and firms. velopment policies should be taken with caution and start with engaging Both regions were major recipients local leaders to build their capacity. of EU funding and their experiences Global evidence of targeted place-based can inform adjustments to the EU support programs is not conclusive. Cohesion Policy. Between 2007–2015, Overall, such efforts rarely pay off, but Podkarpackie received more EU support there are examples of cities and regions per capita than any other region in Po- that manage to turn themselves around. land, while Œwiêtokrzyskie was ranked Such success stories are usually charac- 8 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS terized by the presence of strong multi- it should be reflected in EU policy -actor coalitions and capable govern- targets and priorities. Since within ments that drive the policy effort. This country convergence of regional eco- suggests that EU support for places- nomic outputs is unheard of in global -based policies should start from local practice, the success of lagging regions’ capacity and coalition building, and in- investments should not be judged by volve multiple local actors, which has their ability to spark economic growth been the case in the ongoing pilot that outpaces the rest of the country. in Podkarpackie and Œwiêtokrzyskie. Rather, focus should be shifted to ma- king the most of local circumstances Finally, it is important to accept that and providing more opportunities to re- achieving full convergence and uni- sidents of lagging areas, including focu- formity of development in Poland, sing on improved quality of life, not only or elsewhere, is highly unlikely, and on economic outcomes. Introduction: why focus on lagging regions Spatial disparities in development Across the EU significant progress are a major challenge for the EU, and has been made in addressing chal- the expansion countries specifical- lenges of spatial inequality in econo- ly. While it is mostly inevitable that mic development and social welfare. development is a process that is not The countries that joined the EU in 2004 evenly distributed in space, it is still have consistently been achieving fas- important to understand how policy ter economic growth than the EU, makers can and should respond to this on average. Except Cyprus, all of the ten trend. This report offers an overview of countries that joined the EU in 2004 evidence and policy thinking that has grew faster than the rest of the Union, been developed in the course of the achieving higher average rates of GDP design and implementation of the EU per capita growth. In fact, nine out of the Lagging Regions Initiative pilot in Po- ten fastest growing countries in the EU land. It uses global evidence and best between 2007–2013 all joined in 2004 practices, and discusses their applica- or 2007. Similarly, expansion countries tion to the case of two lagging regions make up eight out of ten countries, with in eastern Poland: Œwiêtokrzyskie and the fastest growing disposable income Podkarpackie. per capita between 2007–2013. (Figure 1) POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 9 Figure 1. Annual Average Growth in GDP per capita in EU member countries (2007–2013) Source: Eurostat But disparities remain significant, At the regional level, substantial EU particularly at the sub-national level. wide convergence has been achieved In 2014, GDP per capita of 78 out of 276 over the last 15 years, but progress EU NUTS level 2 regions was below stopped after the 2008 financial cri- 75% level of EU average. In 21 regions, sis. For most of the 2000s both EU sta- GDP per capita is below the 50% of tes and EU regions have been conver- the EU average. With the exception of ging in terms of GDP per capita, but this French overseas territories, all of these progress reversed after the 2008 finan- poorest regions are in Poland, Hungary, cial crisis. (Figure 2) The crisis itself hit Bulgaria and Romania. The gap in average the leading regions harder than the household income between the richest laggards, resulting in a fast rate of con- region – London West, and the poorest vergence in 2008. But, most economi- region – Severozapaden in Bulgaria, was cally developed parts of the EU expe- 10.6 to one. In 2014 in 36 regions, the rienced a much faster recovery than average disposable income of households the lagging regions in the post-crisis was below 10,000 ppcs,3 while the EU years, which reversed the convergence average was at 22,500 ppcs.4 trend. The convergence of employment rates was much more modest between 2000–2008. And while leading regions 3 Purchasing power consumption standards (PPCS) – an artificial currency unit obtained by the conversion of the income parameters of private households with specific purchasing power standards (PPS) for final consumption expenditure, resulting in purchasing power consumption standards which are comparable. 4 Eurostat (2016) GDP at regional level 10 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Figure 2. Coefficient of variation for GDP per inhabitant Figure 3. Regional employment rates (% of population in PPSS aged 20–64) ‚ ega, I., (2015) Inter-regional Eurostat Source: Postoiu, N., Bus ‚ ega, I., (2015) Inter-regional disparities Source: Postoiu, N., Bus disparities in the European Union, Romanian review of regional in the European Union, Romanian review of regional studies, studies, Volume xi, Number 1 Volume xi, Number 1 returned to pre-2008 employment level EU member countries since early 80s.5 in five years, lagging regions have expe- Today, spatial inequality of development rienced a persistent decline in employ- can be observed in the new member ment rates. As a result, the gap in levels countries. In all of the expansion coun- of employment between leading and tries with multiple regions (Slovakia, lagging regions in 2013 was wider than Czech Republic, Poland, Romania, Bul- in the early 2000s. (Figure 3) garia), the capital regions have much higher average disposable incomes than As predicted by theory, EU-wide the other regions. (Figure 4) This is con- regional convergence happened at sistent with theoretical prediction, accor- the same time as disparities between ding to which development concen- regions within countries grew lar- trates in major urbanized areas, before ger. The trend for growing within re- spilling over into secondary and tertiary gional divergence has persisted in the cities and rural areas.6 5 PUGA, D. (1999), “The rise and fall of regional inequalities”, in: European Economic Review 43(2), February 1999, pp. 303–334. 6 World Bank (2008) World Development Report 2009: Reshaping Economic Geography. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 11 Figure 4. Disposable income inequalities within countries across the EU Source: Eurostat (2016) GDP at regional level Disparities between regions remain This suggests that European regional de- large, despite the majority of EU velopment policies have worked more funding being allocated to lagging as income redistribution policies, than regions. Of the total €347 billion of as policies building foundation for long- EU spending on development programs term sustainable development. Evidence between 2007–2013, 82% was allocated also shows that in 36% of the recipient to ‘Co Objective’ [formerly ‘Objective 1’] regions, the transfer intensity exceeds regions – whose GDP per capita is 75% the aggregate efficiency maximizing below the EU average.7 level, and in 18% of the regions a reduc- tion of transfers would not even reduce The impact of EU investments in lag- their growth.8 This findings have been ging regions is broadly perceived taken on board and reflected in the as mixed. The available evidence sug- funding framework for the 2014–2020 gests that while the EU support has led EU programming period. to faster economic growth in target re- gions, it hasn’t led to significant growth There are multiple explanations for of permanent employment. Most of the the perceived lack of visible success measurable effects were associated with of cohesion policies. Some of the stu- short run economic activity spikes pro- dies suggest that connective infrastruc- duced by infrastructure investments. ture investments (that make up a signifi- 7 European Commission (2016) Ex post evaluation of the ERDF and Cohesion Fund 2007–2013. 8 Becker, Egger & von Ehrlich, (2010) Going NUTS: The effect of EU Structural Funds on regional performance, Journal of Public Economics, Volume 94, Issues 9–10. 12 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS cant part of EU- funded expenditures) holders (regional and local administra- do not lead to economic convergence, tions, education institutions, business sup- and often lead to redistribution of eco- port institutions, SMEs, entrepreneurs, nomic activity to more centralized deve- investors, NGOs, IFIs) to help respond to loped areas, away from laggards. Other their concrete needs and to maximize the evidence suggests that business support impact of regional investments. programs that are often backed by the EU are generally not effective in impro- This report presents the conceptual ving economic outcomes, while invest- thinking and the evidence that infor- ments focusing on human capital don’t med the pilot Lagging Regions Initia- get a high enough priority in EU-funds tive in Poland. The pilot focused on allocation.9 However, it is also possible two regions in eastern Poland: Œwiêto- that since economic development is krzyskie and Podkarpackie. This report a slow process, it is too early to evaluate presents evidence of economic perfor- the effectiveness of cohesion policy mance of these regions, analyses of the investments. factors holding them back. The policy thinking presented here is backed by In order to address the persisting global evidence on patterns of regional challenge of lagging regions, the EU development, which provides a concep- has launched the Lagging Regions tual framework for the proposed policy Initiative. The aim of the Initiative is approach. to identify what holds back growth in less developed regions, and to provide targe- This report was prepared by the World ted support to unlock their growth po- Bank team that is leading the implemen- tential. Thus, these lagging regions will be tation of the Poland pilot of the Lagging assisted to involve a broad range of stake- Regions Initiative. State of Polish Lagging Regions: Podkarpackie and Œwiêtokrzyskie The cases of Podkarpackie and Œwiê- the ever-growing spatial inequality of tokrzyskie are representative of lag- economic and social outcomes in Poland ging regions of eastern Poland10. Pod- and other EU accession countries. Table 1 karpackie and Œwiêtokrzyskie are two shows that between 2000 and 2013, of the five least developed (or lagging) 10 least developed regions in Poland fell regions in eastern Poland. GDP per capita further behind the national average GDP in all five of these regions is between per capita, which is consistent with the 70 and 73% of the national average, which EU-wide trend of within country diver- makes them the least developed regions gence in regional economic performan- in the country. The wide gaps between ce. Podkarpackie and Œwiêtokrzyskie are Podkarpackie and Œwiêtokrzyskie and the also among the regions failing to achieve leading regions like Mazowieckie or Dol- 50% of EU average GDP per capita noœl¹skie, are broadly representative of (48% and 49%, respectively). 9 Andrés Rodríguez-Pose, Ugo Fratesi (2004) Between development and social policies: the impact of European Structural Funds in Objective 1 regions. 10 In this eastern Poland refers to four regions: Podkarpackie, Œwiêtokrzyskie, Lubelskie, Podkarpackie. This should not be confused with Eastern Poland – the officially defined macro-regions, that also includes Warmiñsko-Mazurskie Voivodship. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 13 Table 1. Polish regions GDP per capita (Poland = 100) GDP per capita POLAND = 100 Region 2000 2013 Mazowieckie 152.8 160.5 Dolnoœl¹skie 102.9 111.9 Wielkopolskie 106.8 107.2 Œl¹skie 106.2 104 Pomorskie 98.9 96.3 £ódzkie 88.6 93.3 Ma³opolskie 89.7 88.7 Zachodniopomorskie 99 83.3 Lubuskie 89.4 83.1 Kujawsko-Pomorskie 89.6 82 Opolskie 83.4 80.5 Œwiêtokrzyskie 77.9 73 Podlaskie 73.4 72.9 Warmiñsko-Mazurskie 77.5 71.5 Podkarpackie 72.7 71 . 1 Lubelskie 71.4 70.7 Source: GUS data The gap between Podkarpackie and nally higher.11 In 2015, the registered un- Œwiêtokrzyskie and leading regions of employment rate in Podkarpackie (13.2%) Poland is multidimensional. Both re- and Œwiêtokrzyskie (12.5%) was at least five gions are far behind the national average percentage points higher than nation- in incomes. Average wages in Podkarpac- wide. Poverty rates in both regions also kie are 15% below the national average substantially exceed the national average. and in Œwiêtokrzyskie they are just margi- (Table 2) Table 2. Poverty rates in Polish Podkarpackie and Œwiêtokrzyskie12 Poland Podkarpackie Œwiêtokrzyskie Change Change Change 2014 in 2006–2014 2014 in 2006–2014 2014 in 2006–2014 % p.p. % p.p. % p.p. Extreme poverty 7.4 -0.4 8.7 -1.7 12.2 0.0 Relative poverty 16.2 -1 .5 21.1 -0.8 22.6 -2.4 Statutory poverty 12.2 -2.9 1 5.3 -4.6 17.2 -4.6 Source: GUS 11 Central statistical office of Poland. 12 Extreme poverty threshold (subsistence minimum) means the level of need satisfaction beyond which life, and mental and physical development of an individual are threatened; relative poverty threshold indicated by an amount that is equivalent to 50% of average monthly household expenditures; statutory poverty threshold means the amount of income which, under the applicable law on social welfare, makes an individual eligible for receiving a cash benefit. 14 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Despite gradual convergence to the Simultaneously, at no point between EU average level of economic de- 2004 and 2014 have Podkarpackie and velopment, Polish lagging regions Œwiêtokrzyskie been able to achieve never managed to close in on the na- substantial convergence to the national tional average. In post accession years average. (Figure 5) Before the crisis, (2004–2007), economies of Podkarpac- Œwiêtokrzyskie was growing slightly kie and Œwiêtokrzyskie grew faster than faster than Podkarpackie, but in the the EU economy at-large. However, post-crisis recovery period Podkarpackie both regions were hit hard by the after- managed to keep pace with the national math of the 2008 crisis, and for both economic growth, while Œwiêtokrzyskie the convergence stalled in 2009–2013. started slowing down. (Figure 6) Figure 5. Dynamics of convergence to the Poland Figure 6. Employment creation dynamic average for Podkarpackie and Œwiêtokrzyskie in Œwiêtokrzyskie and Podkarpackie (GDP per capita, PLN, ‘000) in the post-crisis period Source: GUS Source: GUS There is no evidence that wages Economic activity within Podkarpac- in the two lagging regions are con- kie and Œwiêtokrzyskie is not distri- verging to the national average. buted equally. Both Œwiêtokrzyskie Economic theory suggests that while and Podkarpackie have low levels of spatial equalization of total output or urbanization with 45% and 42% of po- regional economies is unlikely, equali- pulation, respectively, residing in urban zation of wages can happen as people areas, which is far below the national migrate to places with higher wages, urbanization rate of 62%. However, data thus redistributing the labor supply clearly shows that urban areas are the across regions to facilitate a spatial drivers of growth, entrepreneurship and equilibrium. However, this has not been job creation. observed in the case of Podkarpackie and Œwiêtokrzyskie. In nominal terms, Intra-regional spatial divergence wages in both regions grew by more of development is growing wider than 70% between 2004 and 2015. in Podkarpackie. The Rzeszów subre- However, the growth rate was similar to gion (the urbanized area around the re- the national average.13 gional capital of Podkarpackie) was among the fastest developing subre- gions in Poland. In 2010–2013, the sub- 13 Based on GUS data. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 15 region improved its GDP per capita the national average over the period `-vis the country’s average by vis-a in consideration, all failing to reach 75% 4.5 percentage points, reaching a level of national average GDP per capita of 87.9% of the national average. In con- in 2013. As a result, the disparities be- trast, the Kroœnieñski, Przemyski and Tar- tween urban and rural parts of Podkar- nobrzeski subregions were among the packie have grown considerably wider. weakest in Poland fell further behind (Table 3) Table 3. Dynamics of economic development of Podkarpackie subregions in 2000–2013 GDP per capita Change in GDP per capita related to the national average relative to the national average 2000 2004 2008 2010* 2013 2000–2004 2004–2008 2008–2010 2010–2013 Kroœnieñski 69.6 65.2 63.6 60.5 60.3 -4.4 -1.6 * -0.2 Przemyski 64.9 62.4 59.6 55.0 53.6 -2.5 -2.8 * -1 .4 Rzeszowski 79.2 80.3 81.7 83.4 87.9 1.1 1 .4 * 4.5 Tarnobrzeski 74.0 78.7 75.9 73.2 73.7 4.7 -2.8 * 0.5 * Changes in the methodology of ESA 2010 accounts (lack of comparability). Both subregions of Œwiêtokrzyskie nomy struggled to recover from the re- are struggling to keep up with the na- cession in 2010, after which its GDP per tional economy. The capital of Œwiêto- capita fell below 80% of the country’s krzyskie, Kielce, is the most developed average. The decline is likely due to the area of the region, but it is not as dynamic difficulties experienced by the struggling as Rzeszov, the capital of Podkarpackie. industrial regions at the northern bound- The economy of the Kielecki subregion ary of the Kielecki subregion. The Sando- was growing faster than the national eco- mierski-Jêdrzejowski subregion followed nomy in the period leading up to the EU a similar trajectory but fell even further accession. However, the subregion eco- behind the national averages. (Table 4) Table 4. Dynamics of economic development by subregion of Œwiêtokrzyskie in the years 2000–2013 GDP per capita Change in GDP per capita related to the national average relative to the national average 2000 2004 2008 2010* 2013 2000–2004 2004–2008 2008–2010 2010–2013 Kielecki 83.3 85.4 85.8 85.0 79.8 2.1 0.4 * -5.2 Sandomiersko- 69.7 69.4 69.8 68.3 62.1 -0.3 0.4 * -6.2 -Jêdrzejowski * Changes in the methodology of ESA 2010 accounts (lack of comparability). Source: own elaboration based on GUS data There are substantial differences vel of spatial dispersion of employment in the economic geography of the and population. The towns of Mielec, two regions. Œwiêtokrzyskie has one Krosno, Dêbica and Stalowa Wola are clearly defined economic pole around important employment centers spe- its capital Kielce. Most of the rest of the cializing in manufacturing. These cities region is agricultural, with an exception are located in the northwestern part of of the northern part of the province Podkarpackie, while the eastern and along the river Kamienna that is a part southern parts of the region are rural of the historic Poland Industrial District. and mostly agricultural. The only excep- Podkarpackie is characterized by a more tions are the southern area of the Biesz- polycentric urban system, and higher le- czady Mountains that specializes in tou- 16 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS rism, and the area along the Ukrainian rural areas with the only major exception border where cross-border trade activi- being the tourist area of the Bieszczady ties are prominent. Mountains. (Figure 8). Urban areas over- all also enjoy lower levels of unemploy- Urban areas of Podkarpackie and ment, with the exception of the urba- Œwiêtokrzyskie have more dynamic nized region in the northern part of private sectors and labor markets Œwiêtokrzyskie, which has been strug- than the rest of the regions. Urban gling to overcome the challenges of areas of both regions have by far larger post-industrial transition for a while. number of businesses per capita than (Figure 7) Figure 7. Spatial distribution of unemployment Figure 8. Spatial distribution of entrepreneurship in Podkarpackie and Œwiêtokrzyskie in Podkarpackie and Œwiêtokrzyskie Source: GUS Source: GUS Competitiveness of Podkarpackie and Œwiêtokrzyskie economies How competitive are ship and growth of local companies, the lagging regions? or as a result of attracting external inves- tors. However, not all businesses are Competitiveness of the region is de- equally beneficial for local economies. fined by the presence of dynamic, Global evidence shows that most com- tradable industries. A competitive re- petitive places rely on businesses in tra- gion creates conditions for the private dable sectors as drivers of growth. sector to generate economic growth, In 10% of the most competitive cities jobs, and raise the incomes of the po- in the world (cities that outperformed pulation. Competitiveness can be en- their countries the most in terms of hanced as a result of local entrepreneur- economic growth), tradable industries POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 17 grow 2.5% points faster per year than Small export volumes from the Pod- in other cities.14 Tradable sectors are di- karpackie and Œwiêtokrzyskie eco- stinguished from the rest of the econo- nomies signal a lack of competitive- my by their ability to sell their products ness. Figure 9 shows that most of or services over long distances. Unlike Poland’s exports originate from the na- local shops or hairdressers (non-tradable tional capital region, or from urban cen- firms), manufacturing producers or soft- ters in the western part of the country. ware developers (tradable firms) can sell Germany is the main trade partner of their products globally. This means that Poland, accounting for 27% of total ex- they can grow and reach a broader ports (a share almost five times larger market, achieving economies of scale. than Great Britain, which is second), By selling their products elsewhere, which benefits cities and areas loca- tradable firms also bring money into ted close to German border. Counties the region, which is then redistributed in southeastern Poland, including those throughout the economy, creating addi- in Œwiêtokrzyskie and Podkarpackie, tional jobs in the local service sector. make a relatively small contribution to Finally, tradable firms face competition the total volume of exports. However, from firms in other areas, which pushes the results can only partially be explained them to be more innovative and produc- by the remote location and poor con- tive and invest more in skills, equipment nectivity of these regions. It is also and research, thus creating positive spil- an indication of the overall lack of com- lovers in areas where they are loca- petitiveness. ted. Exporting firms are the most visible and measurable subset of trading firms, The Podkarpackie economy is more and economic literature has vast eviden- export-oriented than the economy ce showing that exporting firms tend of Œwiêtokrzyskie. Figure 9 and Fi- to be more productive, grow faster and gure 10 clearly show the concentration increase wages.15 of exporting firms in the western and Figure 9. Total volume of exports by county Figure 10. Share of exports in total output by subregion Source: Ministry of Foreign Affairs of Poland Source: Ministry of Foreign Affairs of Poland 14 World Bank (2015) Competitive Cities for Jobs and Growth: What? Who? and How? 15 Bernard, A.B., Wagner J. (1997) Exports and Success in German Manufacturing; Review of World Economics. 18 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS northern parts of Podkarpackie. This ap- is small, compared to other regions, plies in particular to the subregion of Tar- particularly in Central and Western Po- nobrzeg, where the largest of special land. The highest FDI concentration economic zones in the region, Euro Park (in Poland) is in Mazowieckie (the capital Mielec, is located. The subregions of region), and can largely be attributed to Krosno and Rzeszów also show signifi- the international companies that regis- cant export orientation, largely due to tered their headquarters in Warsaw, the presence of the airspace cluster. although they may have branches and Œwiêtokrzyskie, on the other hand, work sites all over the country. Other re- is among the least export-oriented re- gions that attract large volumes of FDI gions in Poland (export makes up less are concentrated in western and south- than 20% of its GDP).16 western Poland, where German invest- ment is prominent. (Figure 11) Lack of foreign investment into local economies indicates perceived limi- FDI data points at relatively higher ted competitiveness and potential of dynamism of the Podkarpackie eco- both regions. The process of decision- nomy. Podkarpackie is the unquestioned -making by investors is complicated but leader in FDI attraction among regions mostly driven by three considerations of eastern Poland. On the other hand, – search for a market, cheap resources, Œwiêtokrzyskie similar to Podlaskie, was and efficiency.17, 18 Given that regions of among the regions that have attracted eastern Poland can’t boast favorable the least foreign investment. A closer market access and do not have vast re- look at locations of projects funded by source endowments, the FDI coming foreign investment clearly reveals that into these regions should look for higher the only significant attraction for inves- efficiency. However, the flow of FDI tors in Œwiêtokrzyskie is its regional capi- into Podkarpackie and Œwiêtokrzyskie tal, Podkarpackie on the other hand of- Figure 11. FDI attraction by region Figure 12. FDI attraction by county (poviat) in Podkarpackie and Œwiêtokrzyskie Source: GUS Source: GUS 16 Data from Ministry of Foreign Affairs of Poland and Central Statistics Office of Poland. 17 Efficiency in this context means ability to increase productivity: e.g. by accessing pull of qualified labor, or locating close to suppliers and service providers, or on an important transport corridor. 18 T. Juni Zhu, Yago Aranda Larrey, Valerie-Joy Santos (2015) What do Multilateral Firms Want from Cities?, World Bank. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 19 fers many attractive locations. Urban tribute 6.5% less to output than in Po- areas such as Rzeszów, Debica and Sta- land on average. Again, Podkarpackie lowa Wola receive a significant amount appears to be in a stronger position due of foreign investment, but the most to the industry sector that contributes enticing place for FDI in Podkarpackie more (in percentage terms) to the out- is the special economic zone of Mielec. put of the region than nationwide. (Figure 12) (Table 5) Both regions have weaker advanced service industries than the Industrial structure of regional eco- national average, which suggests that nomies also points to a lack of com- urban areas in both regions mostly fulfill petitiveness. High share of public servi- the role of production centers and local ces in both regions, even though they do service centers typical for secondary not have seats in the national govern- cities, while most of the business servi- ment, highlights the overall weakness of ce industry tends to concentrate in the the private sector. This is true for Œwiêto- major metro areas of Warsaw, Wroclaw, krzyskie, where tradable industries con- and Krakow. Table 5. The sectoral structure of the economy (gross value added, GVA, in %) and its changes in 201319 Sector* Poland Podkarpackie Œwiêtokrzyskie Agriculture 3.1 1.9 4.4 Industry 26.0 29.3 25.2 Construction 7.6 7.6 9.1 Simple services 29.5 28.1 28.0 Advanced services 16.5 12.1 12.3 Public services 17.4 21.0 21.0 Source: GUS Labor productivity in Œwiêtokrzyskie sectors in Œwiêtokrzyskie and Podkarpac- and Podkarpackie is below the natio- kie is lower than the national average, nal average, across all industrial sec- and in most cases by at least six per cent. tors. Labor productivity is a factor that Additionally, in most sectors productivity defines the ability of local businesses to has been growing slower than nation- compete in external markets. It is striking wide. (Table 6) that labor productivity in all industrial 19 * ‘Agriculture’ (NACE section A: Agriculture, forestry and fishing); ‘Industry’ (NACE section B: Mining and quarrying; C: Manufacturing; D: Electricity, gas, steam and air-conditioning supply; E: Water supply; sewerage, waste management and remediation activities); ‘Construction’ (NACE section F); ‘Simple services (NACE section G: Wholesale and retail trade; repair of motor vehicles and motorcycles; H: Transport and storage; I: Accommodation and food service activities; J: Information and communication); ‘Advanced’ services (NACE section K: Financial and insurance activities; L: Real estate activities; M: Professional, scientific and technical activities; N: Administrative and support service activities); ‘Public’ services (NACE section O: Public administration and defense; compulsory social security; P: Education; Q: Human health and social work activities; R: Arts, entertainment and recreation; S, T, U – the remaining activities). 20 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Table 6. Labor productivity by industrial sector in Podkarpackie and Œwiêtokrzyskie regions Podkarpackie Œwiêtokrzyskie Change in productivity Change in productivity relative to the national relative to the national average 2009–2013 average 2009–2013 (percentage points, (percentage points, <0 indicate that <0 indicate that Productivity as productivity growth Productivity as productivity growth national average was below national average was below Sector* = 100 national average) = 100 national average) Agriculture 21.7 0.4 53.9 -1.6** Industry 82.1 1.8 87.2 -17.1 Construction 84.2 -6.7 96.6 -5.0 Simple services 91.2 -1.8 92.3 -0.5 Business services 91.5 -9.4 99.5 -1.8 Public services 91.3 -1.1 93.2 -1.1 Source: GUS Dynamics of the “industry” sector and according to official data 28% and illustrates the difference in the eco- 33% of total employment in regions, nomic potential of the two regions respectively, is in agriculture. Despite this, and explains observed spatial pat- in both regions agriculture makes a re- terns of development. Statistically, latively small contribution to the total “industry” (including manufacturing, mi- output (particularly in Podkarpackie, ning, and utilities) is the sector of specia- see Table 5). In both regions agricultu- lization for both regions, as it contributes ral productivity is low (in Podkarpackie a larger share of GDP than on average it is 1/5 of the national average). This lar- across the country. At the same time, gely represents the fact that farming the dynamics of these sectors are very in both regions is characterized by small different in each region. In Podkarpackie, acreages of farms (a mere 3.9 hectares the industry sector has achieved the in Œwiêtokrzyskie), dispersion of plots highest rate of labor productivity growth and in most parts of the regions rela- exceeding the national average, while tively infertile soils. Local experts sug- in Œwiêtokrzyskie the industry sector gest that level of commercialization of has dropped to 13% below the natio- agriculture in both regions is low, even nal average labor productivity, despite though commercial farming is more being ahead before – the phenomenon common in Œwiêtokrzyskie than in Pod- that deserves further investigation. One karpackie. possible explanation is that these con- trast in trajectories of manufacturing Small-scale farming by a significant in two industries captures the difference portion of the population is sympto- between the declining manufacturing matic of the lack of access to econo- cluster in the north of Œwiêtokrzyskie mic opportunities. The large number and the up and coming manufacturing of people registered as employed in agri- cluster in the northwest of Podkarpac- culture in both regions indicates pre- kie. sence of hidden unemployment, indica- ting their difficulty in accessing econo- The state of agriculture explains the mic opportunities outside low producti- vast rural-urban disparities in for vity small scale farming. It is confirmed both regions. Seemingly, agriculture by the region’s data about the average should be the dominant industry in both number of people employed in agricul- regions. Both Podkarpackie and Œwiêto- ture per 1 ha of farmland. Large num- krzyskie are less than 50% urbanized, bers of workers per ha signals low labor POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 21 Figure 13. Hidden unemployment in agriculture (number of basic economic institutions was the core employed in agriculture per 100 ha of farmland) in 2013 premise of this transition, the process also had significant spatial implications, and contributed to a divergence between regions in Poland. Three key factors had strong spatial implications: a) collective farms and some manufacturing sectors failed to adjust to the new economic reali- ty; b) economic development continued to be concentrated in urban areas; and c) the opening of the Western borders created new business opportunities. Withdrawal of government support and opening to broader competition had disproportional negative effects on selected sectors and areas where they were concentrated. Agricultural areas in northern Poland were affected by the breaking up of collective farms, which created concentrated areas of Source: GUS deprivation. Similar outcomes were productivity and potential hidden un- faced by the cities and towns that employment. Of the 50 Polish counties depended on manufacturing industries with the highest number of agricultural and failed to adjust to the new compe- workers per ha of land, as many as 17 are titive environment. The breakdown of in Podkarpackie Voivodship. Only four Eastern Bloc supply chains, economic counties in Podkarpackie – those where decline across the primary market of state farms were established following Eastern Europe, and enhanced competi- the forced resettlement of the Ukrainian tion from products imported from the population after World War II, i.e. Luba- West, led to a decline of many manufac- czowski, Bieszczadzki, Leski and Sanocki turing enterprises. This created concen- – have a lower worker per ha ration. trated areas of unemployment. Despite In Œwiêtokrzyskie most counties also fall the fluctuation in the national rate of into one of the bottom two quintiles unemployment over the past 20 years, of Polish counties for the number of even today the highest unemployment agricultural workers per ha. rates are observed in the regions of Pomerania, Warmia, and Masuria (areas, where the state farms dominated until How history shaped 1989), and in some of the industrial zones economies of lagging that did not succeed in modernizing regions their economies (e.g. the area along the border of the provinces of Mazowieckie To fully understand the competitive- and Œwiêtokrzyskie, including the city of ness trends that characterize the eco- Radom and the Old Polish Industrial nomies of Podkarpackie and Œwiêto- District). Figure 14 and Figure 15 show krzyskie today, it is important to that, along with regions in the north- account for the recent history of these west and northeast of Poland, the terri- regions. Economic development trends tories of modern Podkarpackie and in Poland in the last 20 years were largely Œwiêtokrzyskie were amongst the areas defined by the transition from a planned hardest hit by the spike in unemploy- to market economy. While rebuilding ment. 22 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Figure 14. Unemployment in Polish regions in 1991 Figure 15. Unemployment in Polish regions in 1995 (using all administrative divisions) (using all administrative divisions) Source: GUS Source: GUS Market forces that were unleashed over 62% of all internal migrants in the after the transitional reforms led to country. a growing concentration of econo- mic activity in major cities. Market Finally, the opening of the western liberalization has led to a fast structu- border led to a reconfiguration of ral transformation driven by a decline economic geography of the country. in manufacturing industries, often loca- The early period of economic transfor- ted in small single industry towns selec- mation was characterized by the rapid ted by central planners, and the rapid formation of private enterprises. The expansion of the service industry that spatial pattern of this process shows that favors larger cities. The first high concen- the economic opportunities created tration of private enterprises emerged in these areas, proximate to large wes- in Warsaw, which made it the main busi- tern markets, clearly outweighed those ness center of the country. International in the eastern part of the country. While corporations and investors that arrived small business growth was evident in the country at that time established across the country, it was most pro- themselves in Warsaw. This led to a ra- nounced in the vicinity of the large pid expansion of the business services’ agglomerations, as well as in the border sector and office space in Warsaw. Later regions (driven by small scale cross bor- on, similar processes began in other der trade), and in tourist regions. Econo- large cities including Poznan and Wroc- mic activity was distinctly lower in pre- law and only later shifted to seconda- dominantly rural areas, particularly the ry cities. Smaller regional centers and areas where former state farms were towns, including Rzeszow and Kielce, operating before 1989. The provinces of were left behind. However, overall eco- Podkarpackie and Œwiêtokrzyskie were nomic dominance of urban areas became not among the leaders in terms of de- a country-wide phenomenon. Today, velopment of small business. The only the 17 largest cities in Poland amass 20% visible exceptions were the capitals of of the national population, but generate the provinces, some other urban centers 60% of the GDP, and have attracted (like Przemyœl, located close to the bor- POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 23 Figure 16. Number of registered enterprises per 1000 people from technical skills of the labor force, by poviat (2014) to reliability of public bus systems, to quality of public spaces. While all of these are next to impossible to capture, it is important to paint an overall pictu- re of enabling conditions by grouping them into several categories: demogra- phics and human capital, innovation and entrepreneurship, access to markets, ba- sic infrastructure and services, business support, regulatory environment, capa- city of local government. All of these fac- tors have strong, empirically-proven links to levels of productivity and economic development. This chapter will offer a short assessment of these conditions in Œwiêtokrzyskie and Podkarpackie. Demographics and human capital Podkarpackie and Œwiêtokrzyskie are experiencing contrasting demo- graphic trends. Podkarpackie’s de- mographic situation is characterized by Source: GUS high rates of natural population growth der with Ukraine), and the area of Biesz- (births minus deaths) and negative mi- czady Mountains, where the majority gration balance (1‰ per year between of employees of the struggling forestry 2004–2014) with lots of people leaving sector became self-employed. Figu- the region to seek better economic op- re 16 shows that these geographical pat- portunities in large Polish cities or abroad. terns of entrepreneurship are persisting In Œwiêtokrzyskie, the migration balance today. is similar to Podkarpackie, but the overall population decline is more rapid due to lower birthrates and thus an inability What determines to achieve natural reproduction. (for more competitiveness of details, see Figure 17) Because the natural the regions today? growth in Podkarpackie partially com- pensates the outmigration, it is expected While the historical process played that the region will match the Poland- an important role in shaping the -wide trend of gradual population decli- economic landscape of the lagging ne in the foreseeable future, maintaining regions, competitiveness of the re- total population at 88% of its current level gions today is largely defined by exi- in 2050. The population of Œwiêtokrzys- sting enabling conditions. Conditions kie is expected to decline much more that may affect the productivity and sharply and reach 77% of its current level competitiveness of local firms can vary by 2050. 24 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Figure 17. Difference of demographic The spatial patterns of population dynamics of Œwiêtokrzyskie, Podkarpackie growth in both regions are described and Poland as a whole by suburbanization and depopula- tion of rural areas. In Œwiêtokrzys- kie, the overall population decline and a large share of retirees are typical for most of the municipalities, with a not- able exception of the suburban ring around Kielce. This reflects the lack of economic opportunities in the peripheral parts of the region where natural popu- lation decline is combined with rapid outmigration towards the regional cen- ter or further afield. It also shows that the growth of Kielce is largely driven by suburbanization. As young families are choosing to live in suburbs, the munici- palities around Kielce have become the only ones with population growth and a relatively low share of the elderly po- pulation in Œwiêtokrzyskie. In Podkar- packie, the spatial pattern of demo- graphic changes confirms the presence of a much more polycentric urban sys- tem. However, key trends are similar to those observed in Œwiêtokrzyskie: the highest population growth is seen in suburban areas, and the highest de- cline driven by outmigration is typical for the peripheral and rural parts of the region. Suburbanization has led to higher concentration of the elderly population in urban centers of both regions, which poses important challenges with res- pect to the future planning of public infrastructure in cities. This may also indi- cate possible problems with the low quality of urban amenities or structural issues of the housing market in cities, which makes suburban life more attrac- tive to young people. (Figure 18, Figu- re 19) The rapid suburbanization might be aided by rather relaxed land use plan- Source: GUS ning system in Poland. Currently only 20% of the land in the country is cove- red by land use plans. This means that a large share of development decisions are made on a discretionary basis, parti- cularly outside of major urban areas. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 25 Figure 18. Spatial patterns of population changes Figure 19. Share of population in post-productive age in Podkarpackie and Œwiêtokrzyskie Source: GUS Source: GUS Education profiles of Podkarpackie profile of the populations was typical and Œwiêtokrzyskie are similar to the for the focus regions as well as for the rest of Poland. As with the rest of Po- country as a whole. (Figure 20) Geogra- land, fewer than 20% of the populations phy of skills predictably show that the of both regions hold university degrees, largest shares of educated people are and just over 20% have completed only found in cities. Rzeszów and Kielce stand primary education. Data also proves that out as the most educated places in their dramatic improvement of the education regions. (Figure 21) Figure 20. Structure of population by highest level of Figure 21. Share of population with tertiary education education in 1988 and in 2011 by county/poviat in 2011 Source: GUS Source: GUS 26 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Structural skills gaps might persist amounts of high-tech export and good despite improving the educational tertiary education attainment, declining profile of the population. Despite high R&D investments holds its innovation educational levels of the population potential back. In both regions, a lack of in both regions, businesses often can’t innovative entrepreneurs is a constraint find the skilled workers that they require to competitiveness.21 The number of for current market conditions. This is the SMEs with organizational, product and case in areas that have struggled from process innovations has been declining rapid industrial decline, or where the po- in both regions and is below EU average pulation is struggling to transition out of on per capita basis. This is important agricultural activities. The issue is exaspe- because entrepreneurs are an essential rated by the failure of the educational part of the innovation systems that institutions to address them. For instan- take ideas and inventions originating ce, while the VET system in both regions in research institutions or large compa- is well established it is characterized by nies, and bring them to market. Thus, relatively low-quality training. This is par- without entrepreneurship innovation tially because over the course of a four- is unlikely to become a driver of regional -year program, students spend less than economic performance. One of the four weeks in a work-based training components of our work focused on de- that is poorly implemented due to lack velopment of mechanisms for commer- of capacity both of training schools and cializing innovations. firms. This challenge has been one of the focal areas of the Lagging Regions Ini- tiative pilot. Figure 22. Regional Innovation Scoreboard 2016 Innovation and entrepreneurship Innovation potential is higher in Pod- karpackie, but a limited level of entrepreneurship is holding both re- gions back. According to the Regional Innovation Scorecard,20 developed by the European Commission, Podkarpac- kie is defined as a moderate innovator (second lowest out of four categories), while Œwiêtokrzyskie falls into a cate- gory of modest innovators (the lowest category). (Figure 22) Podkarpackie was in the group of European regions that have seen one of the largest increases in the value of this indicator between 2004 and 2010, and after a decline in 2010-12 it has continued improving its innovation performance in the last four years. The main strength of the Pod- karpackie regional innovation system is large volumes of medium and high- -tech exports, growing business R&D, and non-R&D innovation expenditure. While Œwiêtokrzyskie also has significant Source: European Commission 20 The Regional Innovation Scoreboard is a regional extension of the European Innovation Scoreboard, assessing the innovation performance of European regions on a limited number of indicators including R&D expenditure, SME innovation, patent applications, and product and process innovation by businesses ant others. 21 European Commission (2016) Regional innovation Scoreboard: Regional Profiles – Poland. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 27 Connectivity and access to Lviv. Likewise, there is a significant to markets improvement in connectivity that resul- ted from the construction of the new The regions of eastern Poland have bridge over Vistula, linking Podkarpackie been disadvantaged due to poor and Œwiêtokrzyskie, in Po³aniec. These access to markets. The opening of projects benefited from EU funding. western borders challenged Podkar- However, even after these improve- packie and Œwiêtokrzyskie because they ments, Podkarpackie and Œwiêtokrzyskie are a significant distance from the large still can’t match other regions of Po- market of neighboring Germany. Addi- land in terms of access to large internal tionally, relatively poor road and rail markets or the most important foreign infrastructure made travel to major market (Germany) due to their geogra- urban centers within Poland slow, while phic location. (Figure 23 – Figure 26) significant trade links with proximate neighbors, Ukraine and Slovakia, never However, major funding to improve developed. regions’ connectivity should be prio- ritized, as evidenced by their signifi- Despite improvements in recent cant impact. Thanks to large scale in- years, access to markets remains re- vestment program of recent years sup- latively weak for Podkarpackie and ported by the EU, Poland’s transporta- Œwiêtokrzyskie. In recent years, major tion system is rather advanced. Today road and rail investment projects have it takes two hours to drive from Rze- substantially improved connectivity of szów to Krakow, four hours to get to the regions.22 Podkarpackie has signifi- Warsaw or Wroclaw, seven hours to Ber- cantly benefited from construction of lin and around 10 to Hanover and Ham- the national motorway A4 that esta- burg. Further investments are likely blished a much better east-west con- to deliver only marginal reductions in tra- nection to the major urban centers of vel time, and at a high cost. It is also Krakow and Katowice, and from the mo- unclear whether such improvements dernized railway line E-30 from Cracow will improve the competitive potential Figure 23. Municipality accessibility by rail Figure 24. Change in municipality accessibility by rail (2007–2015) 22 The connectivity is evaluated using the accessibility indicator widely applied in academic literature. The index for each of areas is calculated like a sum of populations of all other areas in the country divided by travel time to those areas. For details of the methodology please see Komornicki T., Rosik P., Stêpniak (2014). 28 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Figure 25. Municipality accessibility by road Figure 26. Change in municipality accessibility by road (2007–2015) Source: Komornicki T., Rosik P., Stêpniak, 2015 of businesses in lagging regions. While sewage treatment was one of the most some further investments might be re- important issues in rural areas. That is quired, particularly those related to con- why over the last 10–15 years investment nections between Rzeszow and War- in the technical infrastructure, particu- saw, they should only be considered larly water and sanitation, was seen as if they will significantly reduce travel a major priority. Over the last decade, time. Figure 27. Share of population with access to sewerage system Basic infrastructure Basic infrastructure investments and maintenance remain important, but are not a constraint to growth. Invest- ment in basic infrastructure is a crucial foundation of economic development and competitiveness, and shouldn’t be overlooked. In fact, providing access to basic infrastructure is one of the key policies to drive spatial convergence of welfare in developed countries. How- ever, evidence suggests that even in lag- ging regions of Poland, the basic infra- structure coverage has reached levels where it can no longer be seen as a sub- stantial constraint for economic deve- lopment. The weakness of water supply and sewerage systems in Œwiêtokrzyskie and Podkarpackie has largely been resolved, and only targeted invest- ment are still needed. In the 1990s, the shortage of water supplied and the Source: own elaboration based on GUS data POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 29 the improvements in the sector were takes or spend a lot of time and effort rapid, as shown by growing share of po- overcoming similar challenges. Business pulation serviced by sewerage. Natu- support services can help overcome rally, the coverage of the system remains these issues and increase the overall higher in urban areas, and achieving competitiveness of local enterprises. high coverage in some remote areas remains difficult due to complicated ter- Results of business interviews rain. (Figure 27) Overall after the recent in Œwiêtokrzyskie and Podkarpackie improvements basic infrastructure and suggest that traditional business services can’t be seen as a constraint to support is not addressing the needs economic growth at a national or regio- of businesses. Thirty-eight interviews nal scale, even if improvements are still conducted in the regions of the study required in selected localities largely identified that the constraints impacting to improve the living conditions of the the capacity of businesses to grow often population. stem from an inability to distinguish their product or identify a unique market Business support niche or quality that can help them get ahead of competition. Thus, the gaps While business support is not ne- in knowledge and skills that business cessarily required to improve busi- owners want to address through busi- ness performance, it can help over- ness support require predominantly come specific local constraints. Not strategic services rather than traditional all businesses require business support. operational services, which are most Yet, practice shows that running a busi- easily accessible to businesses today. ness is a difficult skill, and inexperienced The strategic services should include businessmen often repeat the same mis- helping firms change their business mo- Figure 28. Percentage of firms identifying need for different types of business services23 Source: business interviews (the sample is not representative) 23 This survey is not representative of the entire business population of the regions and the results should be verified. 30 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS dels, develop new products, and reach cities in Poland on ease of doing busi- new markets. The Lagging Regions ini- ness. It is particularly bad in terms of diffi- tiative pilot has proposed a new business culty of starting a business (ranked 16) service delivery model, which should and registering property (ranked 15), help regions address this challenge. While Rzeszów is ranked seventh overall, it also has specific issues with regard to Regulatory environment business permitting process (ranked 17). (Figure 29) In both cases, these challen- The “Doing Business” study of the ges are largely related to institutional World Bank identifies that both inefficiencies that can be addressed Podkarpackie and Œwiêtokrzyskie through better use of technologies, and can improve their regulatory envi- better management and coordination, ronments. Kielce (the capital of Œwiêto- which has been attempted as a part of krzyskie) is ranked 15 out of the 18 largest the Lagging Regions Initiative pilot. Figure 29. Variation in ranks of major Polish cities on different measures of ease of Doing Business. Source: World Bank 2015 Local Government Capacity areas and improving the living condi- tions of its inhabitants. However, not all Local governments can play an im- municipalities have the capacity to ma- portant role in promoting economic ke the most of the powers offered to development in Poland, but utilizing them. their power requires capacity. The law on territorial self-government, pas- Urban municipalities are much better sed in 1990, granted additional powers resourced and more self-sufficient, to municipalities, gave them an inde- which suggests higher capacity. In the pendent legal status, as well as economic main urban centers of the selected re- sovereignty through the right to own gions, Rzeszów and Kielce, the revenues municipal assets and generate their of local budgets reach 5 000 PLN per own revenues that are complemented capita, which places them amongst the with transfers from the state budget. richest municipalities in the country. Today, local administrations are obliged The remaining municipalities, on average, to carry out a number of activities, both have budgets of around 3 000 PLN per of operational character and related to capita, which puts them at the other end capital investment, strengthening the of the scale – among the poorest in the economic potential of the respective nation. (Figure 30) Another aspect of POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 31 the urban-rural fiscal capacity gap is the cial self-sufficiency and larger budgets difference in dependence of national of urban municipalities will allow them transfers. While major urban centers of to retain more qualified staff, design both regions raise more than 50% of better policies, and implement them their total revenues, most of the rural at a larger scale and with higher quality, areas get at least 60% of total revenue all of which can be critical conditions for from transfers. (Figure 31) Greater finan- economic development. Figure 30. Budget revenue of municipalities per capita Figure 31. Share of own revenues in total revenues of municipalities Source: GUS data The analysis of the competitiveness by the drop in labor productivity), of Podkarpackie and Œwiêtokrzyskie no new growth drivers are emerging. lead to the following key conclu- This divergence is underpinned by sions. a difference in a number of under- lying conditions: attractiveness to fo- • In recent years, the development reign investors, demographic trends, pathways of the two regions di- and innovation capacity. verged. Podkarpackie has managed to keep up with the national growth • While spatial organization of re- rates and built on its competitive gions is different, cities are their advantages to drive growth in the economic epicenters. Both regions manufacturing cluster in Mielec and have urban cores that drive economic the aerospace industry across the growth: Kielce in Œwiêtokrzyskie, and northwestern part of the region. Rzeszów and other secondary cities At the same time, Œwiêtokrzyskie’s in the northwestern part of Podkar- economy never fully recovered from packie. But the rural areas of both re- the aftermath of the 2008 crisis which gions are lagging with high levels of may be reflective of its reliance on hidden unemployment in rural areas, sectors of the economy that were hit mostly due to the relatively small con- particularly hard (e.g. traditional ma- tribution of agriculture to the regio- nufacturing), however this requires nal economy and lack of access to further investigation. And while the other economic opportunities. While old industrial heartland of the region the growth potential of these areas continues to decline (which is shown is unlikely to change, more can be 32 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS done to provide the rural population rity of the Lagging Regions Initiative with better access to economic op- pilot: portunities like those in urban areas, and increase access to urban markets – Unnecessary regulatory barriers for farmers that will incentivize far- to business and property registra- mers to commercialize and improve tion (often related to the inefficient productivity. procedure for processing requests or limited use of technology) can • Addressing specific gaps in en- be removed. abling conditions may improve economic outcomes for both re- – Business support services can be gions while requiring relatively tailored to the needs of entrepre- little effort and funding. Weakness neurs. For instance, generic busi- of entrepreneurship in both regions ness skills’ development can be re- limits growth potential and creates placed with support in identifying obstacles for innovation, as well as specific market trends relevant to adoption and commercialization of the business’ strategy and deci- technology, which restricts produc- sion-making. tivity growth. While fundamental underlying factors, like culture and – Specific skills gaps can be addres- demographics, cannot be shifted, sed through better coordination a number of enabling conditions can between business and education be improved, which became the prio- institutions. What does global experience tell us about lagging regions? Economic activity is spread unevenly mic activity also tends to concentrate and development leads to concen- in “leading regions” that achieve higher tration of production in cities and levels of economic density. This process leading regions of countries. Urba- happens fast at early stages of develop- nization has a most notable effect at ment, but after countries reach GDP a local level, where it is manifested by per capita of 8,500–13,000 EUR the rapid divergence between rural and disparities between the leading and urban areas. The process of urbanization lagging regions remain stable as deve- is mostly complete by the time countries lopment proceeds. Importantly, the glo- reach middle-income status. When bal evidence suggests that there is no countries reach the level of 3,000 EUR reason to expect spatial equalization of per capita, cities account for a majority of economic development at local or na- consumption, after which further diver- tional levels, even as countries become gence between urban and rural areas rich.24 (Figure 32) slows down. At national level, econo- 24 World Bank (2008) World Development Report 2009: Reshaping Economic Geography. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 33 Figure 32. Global trend of regional concentration of economic output (historical evolution) Source: World Bank, 2008 Convergence in living standards and These increasing costs gradually force welfare of population is possible, but certain types of economic activity to it might take a long time. Local gaps other major cities (until they too reach in consumption and access to services a saturation point in congestion costs), between urban and rural areas shrink and then to second tier cities. Over time, substantially by the time most coun- spatial reallocation of resources (migra- tries reach high-income status. Regio- tion) results in a gradual move towards nal gaps in incomes are also reversible, a spatial equilibrium on labor markets but this process takes much longer. where real incomes of workers are Overall, regional inequality of welfare equalized both between different cities within countries tends to follow a re- and urban and rural areas. The experien- verse U-shaped pattern, growing rapidly ce of countries where welfare conver- at early stages of development, parti- gence between regions and rural and cularly when countries go through fast urban areas was achieved still points growth phases, like China and other East at the important role of public policy Asian countries. But, as countries grow in this process. Urban rural convergence richer, regional inequality in welfare is achieved largely through the equaliza- tends to decrease gradually. (Figure 33) tion of access to basic services, which most countries achieve at the upper- Social welfare convergence at natio- -middle income level of development. nal and local levels should be driven At a regional level, welfare convergence by a combination of market forces policies may include redistribution of and policy interventions. The growing resources focused on providing good concentration of population and eco- social services in lagging regions in order nomic activities in major urban areas gra- to make populations more mobile and dually leads to growing congestion costs thus facilitate equalization of income that can only partially be offset through and welfare outcomes through migra- planning and infrastructure investment. tion, as occurred in Japan.25 25 World Bank (2008) World Development Report 2009: Reshaping Economic Geography. 34 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Figure 33. Reverse U-shaped curves of divergence in regional welfare in the process of economic development Source: World Bank, 2008 Divergence between leading and remote and have poor access to eco- lagging regions, as occurred in Po- nomic density which implies poor integra- land, is typical for countries expe- tion into economies of leading areas, riencing rapid growth. Rapidly grow- their markets for labor, capital, goods, ing countries of East Asia and Eastern services, and ideas. As a result, it is typical Europe have experienced a similar di- for lagging regions to experience lower vergence between regions as Poland growth and productivity, and higher has in recent decades. Economic activity unemployment and poverty rates. From in a number of these countries is still this perspective, the cases of Podkarpac- concentrated in a small number of favo- kie and Œwiêtokrzyskie should be seen red leading areas, with agglomeration as normal instances of countries’ deve- economies increasing their productivity, lopment experiences. wages, and income per capita. Addi- tionally, while Polish regions are still This however doesn’t mean that in- diverging in terms of economic output, dividual lagging regions are doomed overall disparities in wages and incomes to stagnation. While spatial inequality have grown smaller over the last decade is inevitable, particularly during stretches (even though it is not true for Podkar- of rapid growth, this should not be packie and Œwiêtokrzyskie), suggesting seen as a death sentence for regions that Poland might have passed the peak that have found themselves behind. of the inverse U-curve.26 It is also impor- Global experience shows that individual tant to remember that overall the last remote areas, and specifically cities, can 20 years have been a “race to the top” achieve significant growth despite ad- for Polish regions. While according to versity: location, climatic factors and some measures “leading areas” outper- historic legacies. Examples include cities formed the laggards, residents of all like Changsha in China, and Gaziantep regions benefited from growing eco- in Turkey, that, despite unfavorable cir- nomic opportunities and increasing in- cumstances, have become leaders of comes. economic growth in their countries, and even globally. Both cities are in re- Polish lagging regions are not a unique mote locations in their countries. Gazian- case. Development processes in most tep is located in southeastern Turkey, countries left some areas behind. It is in the Anatolia region known for cen- typical for such lagging regions to be turies as a less industrialized and less- 26 Based on analysis of GUS wage data for Polish regions in 2004–2014. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 35 -developed part of the country. Simi- of local economic potential. (see Annex 1) larly, Changsha is a capital of an inland Of course, not every remote city can Chinese province that didn’t enjoy the repeat this achievement, and expecta- benefits of access to foreign markets tions should be set low. However, that drove the development of coastal it is clear that through removing local areas. However, through a combination growth constraints and tapping into of national and local policies, both cities local opportunities, most cities can im- managed to integrate into a broader prove economic outcomes for their economic context, address local growth residents and residents of surrounding barriers, and work on making the most areas. Conceptualizing a policy approach to lagging regions Regional development policy shouldn’t as well as in regional economic deve- aim to achieve equal distribution of lopment.27 Investing in basic infrastruc- economic activity across space. Global ture and services in remote areas is also evidence shows that achieving spatial critical as it improves quality of life and economic uniformity is an unrealistic tar- creates basic conditions for human de- get. Policymakers should accept that velopment. Local governments in lag- economic growth and economic activi- ging regions are often underfinanced, ty will concentrate in more productive which means that providing access to places. This means that policy targets infrastructure and services in lagging for investments into lagging regions areas often requires transfers from shouldn’t be formulated in terms of con- higher levels of government. vergence to the leaders. Instead, deve- lopment and growth achieved by every Improving institutional environments area should be appreciated on its own in lagging regions is critical to ensure merit and targets should be set on the that the regions are not facing addi- basis of economic trends and poten- tional barriers to economic growth, tial of individual regions. On the other which can reinforce divergence. Such hand, in upper-middle income countries institutional handicaps may include inef- it is achievable and important for public ficient land markets that make it difficult policy to aim for spatial convergence for businesses to maximize their pro- in welfare outcomes such as income and ductivity through location selection and access to services. restrict agglomeration effects. Another example is household registration sys- Ensuring access to basic services and tems (like hukou in China), that restrict infrastructure everywhere should be migration of people from less produc- a policy priority for all governments. tive (mostly rural) to more productive This includes human capital investments (usually urban) areas, thus impeding pro- that are proven to benefit the lagging gress of individuals and the economy regions, but most importantly benefit at large.28 Finally, cumbersome business the people by expanding their economic or property registration systems reduce opportunities. In Brazil, the educational the productivity of local businesses that system accounts for a large proportion are already in a disadvantaged position of disparities in individual outcomes due to their location. 27 World Bank (2008) World Development Report 2009: Reshaping Economic Geography. 28 World Bank (2008) World Development Report 2009: Reshaping Economic Geography. 36 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Improving connectivity is critical for A broad diversity of policies can lead integrating remote areas into the na- to positive outcomes at a city level, tional economy. Improved connectivity but cities should keep in mind the provides better access to markets for main principles of the what, who and businesses in the lagging regions, while how of city competitiveness. Since the simultaneously exposing them to greater contexts of individual cities are extremely competition from businesses in leading diverse, there is no “one size fits all” scena- areas, which may be beneficial for some rio for promoting local competitiveness. businesses in the lagging region, but However, the findings of the recent threatening for others. Activities that re- World Bank flagship report “Competitive spond better to improved infrastructure Cities for Jobs and Growth: What? Who? are those that benefit less from agglome- And How?”31 show that there are simila- ration economies: agriculture, agro-pro- rities in the characteristics of most suc- cessing, and labor-intensive manufactu- cessful cities. These cities combine poli- ring. While governments should be cies addressing economy-wide enabling aware of possible negative effects of im- conditions with policies targeting specific proved connectivity for some of the local sectors. If cities choose to target sectors, firms, they should encourage this policy they give priority to tradable industries because it creates incentives for capital and identify sectors that are rooted and R&D investments for local businesses in their economy, rather than aim to build as they face tougher competition and new “Silicon Valleys” or “bio-tech clusters”. gives local residents access to cheaper To overcome the limits of their mandates and better products and services. and capacities, governments of success- ful cities involve broad coalitions, inclu- Cities in the lagging regions are where ding the private sector in policymaking the opportunity for enhanced growth and implementation. They also leverage is concentrated. Examples of Gaziantep partnerships with national authorities and and Changsha (See Annex 1) show that neighboring cities and regions. Finally, even in lagging regions, cities can utilize successful cities focus on effective imple- local endowments and agglomeration mentation of policies, by setting deve- economies to create growth opportuni- lopment priorities and reflecting them ties. This observation doesn’t mean that in the budget allocation and building place-based policies should be given coordination mechanisms that allow priority, particularly at the national level. teams in the government to focus on sol- Rather, they should be taken with ving problems, rather than reporting caution, as many of them have misfired achievements, and helping them colla- in the past. The work of What Works borate across the silos of government Center for Local Economic Develop- departments. A number of these ideas ment29 in the UK and of Newmark and were incorporated into the EU supported Simpson30 shows that few locations- Research and Innovation Strategies for -based initiatives lead to measurable po- Smart Specialization that were rolled out sitive job creation outcomes. But, if space across Europe, but further integration of specific interventions are considered, these principles into funding allocation they should focus on cities, and local go- is required. For instance this approach vernments and other local actors should should be used in the implementation of be granted greater authority to lead Integrated Territorial Investments, that economic development, as long as they were introduced in the 2014–2020 EU have sufficient capacity and resources. programming period. 29 http://www.whatworksgrowth.org/policy-reviews/ 30 Newmark, D., & Simpson, H. (2014). Place-based policies; Said School of Business, University of Oxford. 31 World Bank (2015) Competitive Cities for Jobs and Growth: What? Who? And How? POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 37 EU investment in Podkarpackie and Œwiêtokrzyskie Absorption of EU funds ceived a larger proportion of total EU funding allocation to Poland than their Both Podkarpackie and Œwiêtokrzys- share of population or GDP. kie were major recipients of EU cohe- sion policy support in recent years. Spatial allocation of funding within Within their Regional Operational Pro- the regions was not even. The more grams (ROP) (which doesn’t include na- urbanized and developed municipalities tional and macro regional programs) be- and counties received a larger share of tween 2007–2015, Podkarpackie received EU funds than the rest. The provincial €1.2 billion in EU funds, while Œwiêtokrzy- capitals and their functional areas ab- skie received €0.8 billion. Additionally sorbed an especially large share of funds. a €2.4 billion Operational Program “De- Amongst all of the Polish regions, the velopment of Eastern Poland” (PORPW) biggest funding gap between a capital covered Podkarpackie and Œwiêtokrzy- and the rest of its territory was observed skie, along with three other regions in Podkarpackie. (Figure 35) The agglo- in Eastern Poland32. On a per capita basis, meration of Rzeszów received 1 753 PLN Podkarpackie received the second largest more funding per capita than the rest amount of EU support among Polish of the province. Œwiêtokrzyskie was regions between 2007–2015, while Œwiê- fourth among the regions in terms of tokrzyskie was ranked seventh out of 16, the size of this gap (the difference receiving almost 2,000 PLN per capita between the capital and the rest less. (Figure 34) However, both regions re- reached 1 410 PLN per capita). Figure 34. Distribution of EU funding per capita Figure 35. EU Cohesion policy funds 2007–2013 in 2007–2013 funding period per capita (PLN), NUTS333 Source: GUS Source: GUS 32 Here Eastern Poland refers to the macro region that includes 5 voivodships. 33 These maps do not account for 100% of EU funding as a large proportion of it cannot be disaggregated spatially, for instance large transport infrastructure projects. 38 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS The focus of EU support is best revie- than one third of the funds were wed by individual program. devoted to the “modern economy” axis that focuses on providing inno- • In the Podkarpackie ROP, the largest vation support services and expan- share of funds was assigned to the ding university infrastructure. The in- priority axis II (technical infrastructure) formation society infrastructure axis – 1.6 billion PLN, closely followed by included one large project, the broad- priority axis I (innovative economy) band web network, spanning all of – 1.3 billion PLN. The largest projects eastern Poland. Additionally, signifi- included in the ROP were transport- cant funding was devoted to trans- -related projects: modernization of port-related investments as a part the provincial road Zagórz – Komañ- of axis III (public transport in the ca- cza (162 million PLN, of which 129 mil- pitals of the provinces) and axis IV lion PLN were contributed by the EU), (road projects). The projects from the and modernization of the railroad sustainable tourism axis primarily fo- Rzeszów – Jas³o. In fact, nine out of cused on the development of biking 10 of the largest EU supported pro- routes. jects in the region were in the trans- port sector. (See Annex 2, Table 7) The University of Rzeszów was a be- Results of cohesion policy neficiary of several other large pro- in Podkarpackie jects (University Centre of Innovation and Œwiêtokrzyskie and Technical and Naturalist Know- ledge Transfer and Bio-Medical Scien- There is hardly a robust way to evalu- ces Centre of Innovative Research). ate the impact of cohesion policies on Podkarpackie and Œwiêtokrzys- • In Œwiêtokrzyskie ROP, the biggest kie. Lack of economic convergence chunk of funding was designated to might be interpreted as a failure of the the priority axis III – transport – close cohesion policies. But, as mentioned to €200 million, followed by the earlier, according to global evidence this axes I (development of entrepreneur- is hardly a fair way to judge the policy. ship) and axis II (support for innova- In reality, it is next to impossible to se- tion) – roughly €125 million. Transport parate the effects of EU investors from accounted for seven out of 10 largest other factors at a regional level. Thus, EU funded projects. (see Annex 2, only evaluations of individual interven- Table 8) Transport investment largely tions or of perceptions of overall effects went into improving connectivity of are available. peripheral areas of the region to the capital, this included upgrades to Survey of municipalities reveals that, regional highways, secondary roads according to local governments, EU and enhancing the capacity of the investments have had limited im- railways. The list of other large pro- pacts on the local economies. In both jects includes the recapitalization of Œwiêtokrzyskie and Podkarpackie, only the Loan Fund of the province, revi- a fifth of the municipalities have repor- talization of the historical downtown ted a strong impact of EU funds on eco- of Kielce, as well as upgrading the nomic growth. A similar share of muni- IT infrastructure of the local govern- cipalities reported improved business ments. competitiveness, even though this share was higher in Podkarpackie. Finally, only • In the macro-regional program “Deve- around one in 10 municipalities thought lopment of Eastern Poland” (PORPW), that EU support helped to attract inves- close to half of the projects and more tors or create jobs. (Figure 36) POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 39 Figure 36. Municipal government perception of impacts of EU funds Source: EUROREG (2013) municipality’s survey Figure 37. Changes in accessibility as a result of EU support In terms of individual interventions, (2007–2015) EU investments can be credited with improving accessibility of lagging regions, but its potential effect on economic performance is unknown. The connectivity improvements are most visible in northern and central parts of Podkarpackie along the A4 motor- way, and in the majority of the area of Œwiêtokrzyskie along the express- way S7. The most significant improve- ment has been on the eastern edges of Podkarpackie, where economic perfor- mance remained rather weak. (Figure 37) Again, this emphasizes that the connec- tivity improvements might not have significant impacts on local economic outcomes, either because they lead to displacement of local business from markets through greater competition, or simply because in Polish scale the achieved gains in access to markets are too modest to lead to major economic shifts. Source: Oszacowanie… 2015 40 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Conclusion and consideration for EU approach to lagging regions Investment effectiveness evaluation is likely to be limited going forward, and fund allocation shouldn’t be dri- because de facto travel time gains are ven by economic convergence tar- going to be marginal. Instead, greater gets. For now, the significance of the attention should be given to invest- effects of EU investment on the long- ments focusing on improving connecti- term economic potential of the regions vity within regions, and offering resi- is unclear. However, it is clear that the dents of rural areas better access to target of achieving long-term conver- urban markets and employment oppor- gence in terms of GDP per capita is mis- tunities through multimodal transport construed. Instead of comparing eco- options. This is of particular importance nomic growth rates, the evaluation of to Podkarpackie and Œwiêtokrzyskie, cohesion investments should focus on where hidden unemployment in agricul- absolute growth targets that reflect ture are prominent. Additionally, better conditions of individual regions. Additio- links between rural areas and urban nally greater emphasis should be given markets may support further commer- to the role of cohesion policy in im- cialization of agriculture. Local trans- proving quality of life in lagging regions. port investments are likely to be much This will encourage more investments cheaper than major national corridors in urban upgrading, protection of natural and are likely to have a more direct effect habitat and environmental sustainability on economic outcomes of people and projects. communities. The focus on investment in urban Focus of investments in lagging areas and improving access to urban areas should shift from basic infra- services and markets for rural areas structure to education and health. In- should be officially recognized by ternational development experiences the EU. Though not official, the current show that basic infrastructure and servi- allocation of funds heavily prioritizes ces (along with basic institutional condi- urban areas. This is largely a result of tions) have the most significant impact greater absorptive capacity of the urban at low-levels of development, while governments. But, according to theory, at latter stages of development, human global evidence, and patterns of eco- capital plays a critical role. Recent World nomic growth in lagging regions of Po- Bank analysis of growth patterns in land, investments in urban areas are 750 of the world’s largest cities showed more likely to lead to growth and im- that human capital and innovation are proved outcomes for beneficiaries. important determinants of growth for cities of upper-middle and high-income, Interregional connectivity invest- but not at low-income level.34 This is ments have been beneficial for Po- especially true for countries and regions land in the past, but local connec- aiming to transition from a middle-in- tivity and transport sustainability come economic model, which achieves should be prioritized in the future. productivity growth through technolo- The fact that the largest EU supported gy adoption, to a high-income economic projects of recent years focused on con- model, where innovation is the source of nectivity is consistent with the conclu- productivity gains. In Polish lagging re- sions from theory and global evidence. gions, access to basic services and infra- However, at a regional level the addi- structure is already at a sufficient level tional effect of these projects in Poland largely due to EU investments of the 34 World Bank (2015) Competitive Cities for Jobs and Growth: What? Who? And How? POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 41 last decade. Additionally, at current le- governments.35 This suggests that to po- vels of development of lagging regions, tentially succeed, place-based policies further growth and transition to high should be driven by local actors and income status will require innovation. implemented through coordination of Thus, greater attention should be given multiple actors and joint prioritization to investments into education, health- of investments. But first, the investments care, and other forms of human capital should focus on building capacity of lo- development and innovation infrastruc- cal actors for designing and implemen- ture, rather than basic service provisions. ting economic development initiatives in an inclusive manner. This may include Place-based private sector develop- supporting development of formal ment policies should start with enga- public private dialog structures, tech- ging local actors and building their nical trainings, improving planning and capacity. Generally, place-based poli- budgeting practices, increasing transpa- cies do not work, though there are cases rency and accountability of governing when they do. Cities that have managed bodies and optimizing organizational to turn themselves around, despite ad- structures to promote focus on imple- versity, were characterized by an inclu- mentation. Integrated Territorial Invest- sive and well-informed approach to poli- ments in traduced in the 2014–2020 cy making at a local level. They often programming period of the EU Cohe- had broad based coalitions of actors, sion Policy creates a great opportunity and rather sophisticated and capable for this approach to be implemented. 35 Doner, R. F., & Schneider, B. R. (2016). The Middle-Income Trap. World Politics. 42 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Annex 1. Competitive Cities in Lagging Regions Gaziantep, Turkey Local leaders have prioritized ensuring a business environment conducive to 30 years ago, Gaziantep was a medium- company growth, which includes a di- -sized city in a lagging region of Turkey. verse package of initiatives. In addition It was poorly integrated into the grow- to lobbying the central government for ing economy of the coastal west, and national investment in climate improve- didn’t have natural resources or arable ments, successive mayors have worked lands to kick start its economy. Migra- together to streamline bureaucracy, re- tion to the coast was seen as the big- duce the administrative burden on com- gest life goal by most of the residents of panies, and provide adequate infrastruc- the city. ture for production and market access. Being in southeastern Anatolia, Gazian- Today, Gaziantep is one of the fastest tep also benefits from comparatively growing metropolitan economies in the low business costs, including land and world. It is a city that has exported its labor. way to prosperity. Its economic success story is dominated by indigenous light Gaziantep’s Organized Industrial Zones manufacturing firms, which now sell (OIZs) have been an important, and likely their products in some 175 countries vital, ingredient in the metropolitan around the globe. Some top-level num- economy’s export-driven success. Loca- bers are impressive: Gaziantep’s popu- ted 15 kilometers northwest of the city, lation has grown from 600,000 as re- the OIZs host more than a thousand cently as 1990, to about 2 million inha- companies employing over 100,000 bitants today; merchandise exports in- workers. Bringing together businesses creased tenfold in just 11 years, from previously scattered geographically, the $620 million in 2002 to $6.2 billion OIZs offer: quality infrastructure (ener- in 2013. Prosperity is evident in the city’s gy, wastewater treatment); expedited streets, and Gaziantep remains a mag- permitting/one-stop service centers; the net for tens of thousands of newcomers clustering of similar firms; and an effi- each year. This once quiet corner of cient, less bureaucratic private-sector Turkey has emerged as an international regime. Four OIZs are currently in opera- manufacturing hub, and increasingly tion, one is under construction, and a tourist destination. a sixth one (larger in size than the pre- vious five combined) is planned for a lo- The road to prosperity for Gaziantep cation southwest of the city, and thus wasn’t straight-forward and its success closer to Mediterranean ports. Based on story has flaws. The city benefited from a national law, OIZs exist all over Turkey, a positive national policy context, parti- but have been much more successful cularly trade liberalization, and from na- in Gaziantep than the government-run tional government investments in infra- ones in Adana or Mersin, primarily be- structure. The light manufacturing ex- cause of their private-sector characteri- port driven growth model also wouldn’t stics: they were initiated by the Chamber have been possible without the city’s of Industry (GSO), forming a new legal favorable geographic location on esta- entity which acquires land, allocates it blished trade routes. However, the key to firms, and can withdraw it again if actors in the city played a major role land is not used productively. Firms con- in making the most of these encourag- tributed to the OIZs’ construction, and ing conditions. later become shareholders. The OIZs POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 43 are run by five-member management ment, and capital access and export boards. While some of Gaziantep firms’ assistance for SMEs. In fact, in Turkey, growth might have happened anyway Gaziantep is known as a city that re- without the OIZs, it is clear that by pro- gularly punches above its weight politi- viding critical infrastructure and a con- cally. ducive regulatory regime not available elsewhere in the city, the OIZs have played a key role in helping Gaziantep Changsha, China companies to expand, export, collabo- rate with similar adjacent businesses, Changsha is a mid-size (for China), se- and benefit from other effects usually condary city that has grown its economy associated with geographic agglome- by nurturing and diversifying its core ration (knowledge spillovers, the de- industries, and systematically building velopment of a specialized labor pool, human capital. Changsha lacked the etc.). advantages of other Chinese cities in the coastal provinces, whose promotion of But most impressively, Gaziantep provi- higher value-added manufacturing be- des a stellar example of effective stake- nefited from strong transportation link- holder engagement (or public-private ages and external connectivity, as well as dialogue – PPD) and collective action for high levels of human capital. However economic development. The city’s pri- Changsha has managed to expand its vate sector is well developed, with signi- manufacturing base, both attracting and ficant institutional capacity and funding, fostering the growth of firms that have but also a keen interest in shaping the become globally competitive. Outside city’s development. Since at least the manufacturing, the city is home to one late 1980s, Gaziantep’s business leaders of China’s most dynamic media compa- have had the ear of the city government, nies, albeit largely as a result of provincial and particularly the Mayor of the Metro- actions. The city’s success is partly due to politan Area, who instituted a series of endowments and national and provin- pro-business initiatives and greatly en- cial factors. Yet, the city’s own govern- hanced the city’s functionality and livabi- ment has been an important catalyst for lity during his 15 years in office. Although growth, effectively addressing perennial informal relationships remain important, problems such as inter-agency coope- the institutional framework for this en- ration, government support for local bu- gagement is provided by the City Coun- sinesses, and improvements to human cil, a sort of metropolitan parliament capital levels. in which government and stakeholders come together to discuss issues and Above all, the municipal government formulate recommendations, including strategically intervened to capitalize on on economic development. Its greatest these national trends and location ad- accomplishment is facilitating dialogue vantages. The municipal government between business leaders, universities made deliberate investments to improve and communities, which otherwise the city’s competitiveness, prioritizing might not happen. On the whole, local the growth of existing firms as well as government in Gaziantep has been the attraction of new firms. Changsha a valuable partner to business, without is an example of a city that simulta- seeking to dominate economic deve- neously utilized all of the key levers that lopment, nor does it directly benefit cities can use to promote economic de- from business growth through increa- velopment as defined by the World sed fiscal receipts, for example. Collecti- Bank flagship report “Competitive Cities vely, Gaziantep’s business and elected for Jobs and Growth: What? Who? And leaders have also been able to leverage How?”. They are: improvement of regu- their political influence in Ankara, acting latory environment, development of as champions for the city and securing skills and fostering innovation, focusing central government support for such on providing infrastructure and access economic development priorities as to lend and providing support to busi- transport, OIZs, technology develop- nesses and entrepreneurs.) 44 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS The municipal government actively sup- and promotion of vocational degree ported the growth of primary industries, programs and increased employment and in particular, the construction machi- through the development of specialized nery industry. The most unique govern- “in-demand” skill sets. Both strategies ment initiatives were intended to pro- have been successful, with vocational mote firms that could be globally com- schools teaching applicable skills and ta- petitive by providing market information lent programs attracting thousands of to firms, promoting sourcing from top high-level “talents” to the city. global input suppliers in lieu of local pro- curement requirements, and support for These initiatives were successful largely R&D and attraction of top talent to the due to Changsha’s extremely effective city. Through promoting individual firms’ governance model. The government uti- competitiveness, the government has lized effective inter-agency coordination consciously and unconsciously cultiva- mechanisms, called “Leading Groups” ted a fierce competition between local to coordinate investment attraction and firms. The construction machinery indu- investor aftercare across various depart- stry in Changsha has accounted for over ments and levels of government. Many 100,000 direct jobs, generated worker cities find investment attraction hard training programs and contributed signi- to execute in practice, with investments ficantly to municipal tax revenues and frequently getting stuck due to govern- increased incomes that have improved ment departments working in silos. welfare as well as competitiveness. However, the Leading Groups helped the city to avoid these silos by providing The city placed a high and sustained a framework with clear roles, and repor- priority on human capital and developed ting requirements and accountability a two-pronged approach to improve mechanisms. For instance, one of the upon existing levels of human capital key rules of Leading Groups is that only in the city. First, the city attracted high- unresolved problems are elevated to -level talent both domestically and the next level, not reporting of achieve- abroad: leveraged national talent attrac- ments, and employees are encouraged tion programs; and initiated municipal to resolve issues at the lowest level pos- programs of their own to effectively tar- sible. At the same time, the city was disci- get, recruit and compensate new ta- plined in letting go of industries that lent willing to relocate to the city. Simul- were not competitive, or competitive taneously, the city addressed existing only in the presence of permanent sub- pools of talent through the regulation sidies. POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 45 Annex 2. Largest EU-supported projects in Podkarpackie and Œwiêtokrzyskie Table 7. Biggest EU supported projects – Podkarpackie region Value in PLN No Project Total project EU support Sector Construction of the motorway A-4 sections Tarnów – Rzeszów, Krzy¿ – Rzeszów Wschód, 1 5 295 490 060 2 969 050 618 transport and the section of the expressway S-19 Rzeszów Zachód – Œwilcza. Construction of the motorway A4 Rzeszów 2 4 754 825 500 2 890 243 729 transport – Korczowa Modernization of the rail line E30/C-E30, section 3 3 440 923 905 2 054 842 573 transport Kraków – Rzeszów Improvment of the rail traffic safety, construction of 4 582 924 050 445 362 086 transport the new, high standard rail interchanges Modernization of the national road No 4, section 5 590 494 386 439 068 566 transport Machowa – £añcut Organization of the integrated public transport 6 333 110 069 250 555 783 transport in Rzeszów and vicinity Modernization of the rolling stock PKP Intercity S.A. 7 421 530 697 239 447 059 transport for the rail line Przemyœl – Szczecin – Etap II Broadband Internet network for eastern Poland Telecommunication 8 322 011 631 222 845 377 – Podkarpackie voivodeship and e-services Construction of the expressway S19, section 9 259 552 913 201 224 582 transport Stobierna – Rzeszów New rail rolling stock for the connection between 10 voivodeships, operated by regions Ma³opolskie, 273 957 691 188 977 859 transport Podkarpackie, Œl¹skie i Œwiêtokrzyskie 46 | POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS Table 8. Biggest EU supported projects – Œwiêtokrzyskie County Value in PLN No Project Total project EU support Sector New rolling stock for PKP Intercity S.A. passenger 1 1 156 610 820 658 050 400 transport rail transport – 20 electric trains Construction of the expressway S7 Radom Jedlinsk 2 837 326 440 629 254 375 transport – Jedrzejów, including Kielce ring road Construction of the expressway S7 sections 3 Radom Jedlinsk – Jedrzejów and Skar¿ysko-Kamienna 7 19 147 927 504 927 129 transport – Wystêpa Improvement of the rail traffic safety, upgrading of 4 582 924 050 445 362 086 transport railway crossings Construction of the expressway S12/S74, section 5 354 652 501 266 618 634 transport Kielce – Cedzyna Public transport development in Kielce 6 341 568 102 227 753 837 transport Metropolitan Area New rail rolling stock for the connection between 7 regions Ma³opolskie, Podkarpackie, Œl¹skie 273 957 691 188 977 859 transport and Œwiêtokrzyskie Environmental 8 Construction of the waste utilization plant in Kielce 306 003 585 165 076 182 protection Telecommunication 9 Broadband Internet network development 200 728 909 139 420 589 and e-services Development of the infrastructure of Science and 10 Jan Kochanowski Kielce University – of the University 161 737 852 135 506 669 education Campus construction POLAND CATCHING-UP REGIONS – KEY REGIONAL DEVELOPMENT DYNAMICS | 47