Tailored policies and institutional frameworks are needed to address persistent disparities between regions
Over the last two decades, levels of gross domestic product (GDP) per capita have converged across OECD economies, driven in large part by higher growth in lower income economies. At the same time, however, disparities in average incomes across regions have grown in over half of 27 OECD countries with available data, according to the OECD’s Regional Outlook 2023: The Longstanding Geography of Inequalities.
On average, metropolitan regions had around 32% higher GDP per capita than rural, remote and metropolitan adjacent regions, and the gap between large metropolitan regions and these other regions accounts for the largest share of regional income inequality in most countries with large metropolitan regions.
While the largest metropolitan regions have benefited from stronger growth than other regions, they are facing major challenges linked to their success – including in housing affordability, and congestion inside the regions. This emphasises the need to not only narrow gaps between the most and least successful regions but also for targeted spatial policies inside large metropolitan areas to overcome diseconomies of agglomeration, which can undermine performance.
As successful cities continue to grow and attract skilled workers, other areas are grappling with an ageing and shrinking population. Nearly 40% of remote regions and 22% of functional urban areas in the OECD shrank between 2001 and 2021, undermining local public revenues while pushing up the costs of maintaining public services and infrastructure, and creating additional challenges such as dereliction and blight, which can be costly to fix.
In many OECD Eastern European countries, regional inequalities grew as the country converged towards the OECD average. This was also the case in many countries with above average GDP per capita, such as Belgium, Denmark, France, Sweden, the United Kingdom and the United States.
On the other hand, regional income inequalities decreased in Greece, Spain and Portugal, in a context of weak overall economic performance. This was also the case in some countries with above average GDP per capita, including Finland, Norway, Germany, the Netherlands and New Zealand.
“Our sixth edition of the Regional Outlook shows the evolution of regional outcomes across a wide range of areas, from employment to climate change, over the past twenty years. Fifteen out of 27 OECD countries with available data saw the income gap between regions widen, which is largely explained by access to fewer opportunities for workers and businesses,” OECD Secretary-General Mathias Cormann said. “To help stimulate growth in lagging regions, policy frameworks must address persistent disparities – improve access to public services and infrastructure, boost productivity and competitiveness, including by better seizing digital transformation opportunities for the regions and improve governance and government capacity.”
Regional disparities are reflected in several key drivers of economic opportunity. Students in city schools achieve higher scores in reading scores than their peers in schools located elsewhere, in all but two OECD countries with available data. Travel times to healthcare facilities are five times longer in remote rural areas than in cities. And there are significant gaps in access to high-speed internet. In the first quarter of 2022, people living in metropolitan areas experienced, on average, 40% faster fixed Internet connections than those in regions far from metropolitan areas. This has an impact not only on the potential of digital services to plug public services gaps, but also the ability of firms to drive growth.
The OECD Regional Outlook 2023 sets out a policy roadmap to help stimulate growth in lagging regions while sustaining prosperity in the most dynamic regions. It focuses on:
- Ensuring access to key public services and infrastructure, e.g. by improving access to services close to where people live, including through digitalised services, and attracting and retaining skilled public service professionals.
- Boosting productivity and competitiveness, e.g. by supporting regions’ integration in global value chains, investing in transport and digital infrastructure and supporting small and medium-sized towns.
- Providing the right skills and job opportunities in regional labour markets, e.g. by providing flexible training, education and employment services, building regional entrepreneurial ecosystems and building up the social economy.
- Improving the quality of multi-level governance systems, e.g. by clarifying the responsibilities assigned to subnational governments and delivering policies and services at the “right” scales.
- Strengthening capacity at the national and subnational levels, e.g. by investing in subnational fiscal capacity and building strategic and administrative capacity.
The OECD’s recent Recommendation on Regional Development Policy adopted by the OECD Council at the Ministerial level on 8 June 2023, is articulated around ten pillars that are well-aligned with and can serve to reinforce the five priorities of the policy roadmap, providing additional guidance to governments at different levels to boost regional performance.