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Journal ArticleDOI

Beyond Brexit: Reshaping policies for regional development in Europe

01 Mar 2018-Papers in Regional Science (John Wiley & Sons, Ltd)-Vol. 97, Iss: 1, pp 151-170

Abstract: Regional development is one of the main EU spending priorities through its Cohesion Policy. Brexit is one of several influences on the future of the policy, whose evolution is part of a wider reshaping of the principles and practice of regional policy in Europe. In the context of emerging policy challenges and recent contributions to the regional policy literature, the article highlights innovation, human capital and effective institutions as three crucial dimensions of future policy. It argues that a shift in regional policy priorities, governance and territorial focus is underway – partly influenced by place-based policy thinking - at EU level under Cohesion Policy as well as under national regional policies in the EU27 and the UK.
Topics: Regional policy (60%), Brexit (51%)

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John Bachtler and Iain Begg
Beyond Brexit: reshaping policies for
regional development in Europe
Article (Accepted version)
(Refereed)
Original citation:
Bachtler, John and Begg, Iain (2018) Beyond Brexit: reshaping policies for regional development
in Europe. Papers in Regional Science, 97 (1). pp. 151-170. ISSN 1056-8190
DOI: 10.1111/pirs.12351
© 2018 The Authors
This version available at: http://eprints.lse.ac.uk/86438/
Available in LSE Research Online: January 2018
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1
BEYOND BREXIT: RESHAPING POLICIES FOR REGIONAL DEVELOPMENT IN
EUROPE
AUTHORS
John Bachtler
European Policies Research Centre
University of Strathclyde
40 George Street
Glasgow G1 1QE
Tel: 0141 548 3339
Email: john.bachtler@strath.ac.uk
Iain Begg
European Institute
London School of Economics and Political Science
Tel: 0207 955 6813
Email: iain.begg@lse.ac.uk
John Bachtler is Professor of European Studies and a Director of the European Policies Research
Centre, University of Strathclyde in Glasgow, and of EPRC Delft based at Delft University of
Technology.
Iain Begg is a Professorial Research Fellow at the European Institute of the London School of
Economics and Political Science.
Abstract
Regional development is one of the main EU spending priorities through its Cohesion Policy. Brexit is
one of several influences on the future of the policy, whose evolution is part of a wider reshaping of
the principles and practice of regional policy in Europe. In the context of emerging policy challenges
and recent contributions to the regional policy literature, the article highlights innovation, human
capital and effective institutions as three crucial dimensions of future policy. It argues that a shift in
regional policy priorities, governance and territorial focus is underway partly influenced by place-
based policy thinking - at EU level under Cohesion Policy as well as under national regional policies in
the EU27 and the UK.
JEL Codes
F15; H77; L52; R11; R58

2
1. INTRODUCTION
The United Kingdom’s decision to leave the European Union (EU) is one of a number of strategic
challenges confronting the EU, along with the still simmering sovereign debt crisis, varying levels of
growth and job creation across Member States, the need for a comprehensive approach to
migration, and adaptation to climate change. With relatively low levels of confidence and trust in EU
institutions, these challenges are driving a debate on the future policy priorities of the Union.
Launched by European Commission President Juncker with a White Paper (European Commission
2017a), the Commission has produced a series of ‘reflections papers’ exploring different options for
policy change that will be formalised in mid-2018 with proposals for budget and policy reform
(European Commission 2017b-f).
As the reflection papers acknowledge, there is a strong territorial dimension to the major EU
challenges. The EU’s growth objectives depend on narrowing the differences in innovation and
productivity between frontier and lagging regions (European Commission 2017c). Adapting to the
effects of climate change and managing the transition to clean energy will affect some regions more
than others (European Commission 2017f). The impact of migration, and the need to integrate
migrants, also varies between regions and cities, part of the wider regional and urban policy
challenge of social inclusion in marginalised communities (European Commission 2017b).
For decades, the EU has been one of the most enthusiastic proponents of regional policy through its
Cohesion Policy, one of the most substantial expenditure programmes in the EU budget. In fact, the
adoption of regional policy in 1975, with the establishment of the European Fund for Regional
Development (ERDF), was a direct consequence of UK accession to the then European Economic
Community. The objectives of the policy have evolved over the years, but its underlying aims include
spreading the gains from economic integration, boosting the productive potential of the EU, and
fostering a distinctive model of social, economic and territorial development. It complements the
single market, ironically in view of the current discourse around Brexit, a dimension of European
integration long regarded as most congenial to the United Kingdom. All Member States, and all
regions within countries, obtain some support from a policy with resources of €352 billion over the
2014-20 period, much of which are concentrated on less-developed regions in central, eastern and
southern Europe.
However, the future scale and scope of Cohesion Policy is now in question (Bachtler et al 2017, Begg
2017). The UK contributes in excess of 12 percent of the EU’s gross revenue and, unless net
contributor countries are willing to pay more, there will be significant cuts in the next EU
Multiannual Financial Framework (MFF) from 2021 onwards. Notwithstanding the importance of the
above regional development challenges, resources may be switched to increase funding for other
internal EU policies (such as research, SME development, environment, transport, border security)
as well as more support for ‘external actions’ financing development aid to reduce the flow of
migrants from outside the EU.
Policy responses to these challenges in the EU are not restricted to Cohesion Policy. While European
Structural and Investment Funds (ESIF) account for most regional policy intervention in the poorer
EU Member States, many of the more developed European countries have their own domestic
regional policies which are also subject to reflection and debate about their post-crisis role in
addressing regional imbalance (Davies et al 2015, 2016).
For the UK, Brexit presents the challenge of redesigning policy frameworks outside the scope of EU
regulation, in a country where deep-seated regional differences in productivity and living standards

3
may be compounded by the differential regional impacts of Brexit (McCann 2017). EU Structural
Funds have influenced economic development in the UK for over 40 years, but the UK Government
and Devolved Administrations (DAs) now have to work out what sort of domestic spatial policies
they want to adopt (Bachtler 2017, Bachtler and Begg 2017). An Industrial Strategy published in
November 2017 focusing on productivity has provided orientations for a UK-level sectoral policy
approach, at least in England, while recognising the importance of place and the role of regional and
local institutions (HMSO 2017), and a new UK-wide Shared Prosperity Fund is currently being
developed as a direct successor to Structural Funds.
This paper examines the debates underway at EU and UK levels on the future of regional policy. Of
particular interest are the questions of whether and how the conceptual basis for regional policy in
Europe is evolving, the rationale for policy intervention and the evidence for how this is being
translated into practice. The paper begins with a review of the latest data and research on regional
disparities and development challenges in Europe, as well as academic and policy research on
appropriate policy responses. Drawing on comparative studies of EU and national regional policies,
1
the paper then assesses recent trends in the design and implementation of regional policy at
different levels. It argues that there is an important reshaping of policy objectives and practice
underway - influenced by place-based policy thinking (Barca 2007, Farole et al 2009, Iammarino et al
2017) which has significant implications for government responses to territorial inequality.
The paper begins by reviewing regional disparities and development challenges in Europe and
discusses the main influences on economic development: innovation; the integration of regional and
sectoral policies; and the role of governance and institutions. It then considers the new thinking on
regional development and examines how policy is responding in practice at EU level, among the
EU27 Member States and in the United Kingdom. The final section draws together the main
conclusions to emerge.
2. REGIONAL DISPARITIES AND DEVELOPMENT CHALLENGES IN EUROPE
2.1 Patterns and trends
After several years of recession or stagnation, economic growth in Europe is edging upwards.
Unemployment has either stabilised or declined but is still higher than its pre-crisis levels. The years
of crisis have left a legacy of accentuated disparities in macroeconomic performance and, perhaps
more alarmingly, underlying growth potential. Ireland and Spain have seen a return to robust GDP
growth, despite the intensity of their economic downturns, but Italy has languished, with is economy
no larger today than it was in 1999 a trajectory unparalleled in post-war Europe.
Analysis of the regional effects of the crisis by Crescenzi et al (2016) reveal a complex core-periphery
pattern; relatively low regional impacts in the core of the EU (Germany, most of Poland, Slovakia,
Czech Republic) compared to much more severe effects on the peripheries (Ireland, Spain, southern
Italy, Greece, Cyprus, Lithuania, Latvia and Estonia). In the worst affected regions, GDP per head
declined sharply, falling by some 25% in Greece, while social exclusion and poverty levels grew by
more than 15% in Ireland, Greece and Spain (Cuadrado Roura et al 2016).
1
The policy research draws on a comparative and longitudinal dataset of regional policies in 30 European
countries constructed under the European Regional Policy Research Consortium (EoRPA) research and
knowledge exchange programme managed by the European Policies Research Centre, University of
Strathclyde, Glasgow. For details, see: http://www.eprc-strath.eu/eorpa

4
Recovery has been slow and patchy among Europe’s regions (European Commission 2017). The
latest EU data show that regional disparities in employment and GDP per head began to narrow in
2014-15, and the European Commission asserts “there are signs that the long-run process of
regional convergence, which was interrupted by the economic crisis, has resumed” (Ibid: 4).
However, the long-term economic convergence of almost all regions in Central and Eastern Europe
contrasts with the major divergence of regions in southern Europe, notably Spain and Portugal. Also,
regional disparities in unemployment are substantial, especially for young people in many southern
European regions.
2.2 Explaining regional differences
Productivity growth has declined in many European countries and is becoming a worrying problem in
several Member States, not least in the UK where it has stagnated for the last decade. Data on
productivity change and employment reveal marked cleavages at both national and regional levels.
OECD research argues that this productivity slowdown is due less to a lack of innovation by the most
advanced firms, sectors or regions, than to a problem of the diffusion of innovation (OECD 2015).
Only a minority of regions in many countries have productivity levels and trends that can be
considered favourable (OECD 2015). EU innovation is concentrated in a relatively small number of
regions, mainly in northern and western Europe (European Commission 2017). As Bachtler et al
(2017) note: “At regional level, there is an increasing productivity gap between leading ‘frontier’
regions and lagging regions, a gap that has grown by 56 percent between 1995 and 2014. while EU
market and economic integration has been a successful convergence machine for countries, these
gains have not been distributed equally inside each country.
An implication is that policy has to focus more sharply on diffusion, and not exclusively on the
leading-edge regions. The problems are exacerbated where the country, too, has a weak
productivity performance as is the case notably in the UK. Indicators of regional competitiveness
highlight the growing regional gaps in potential for innovation-based growth. Although some of the
data are less up to date than would be desirable, they tend to evolve only slowly. Some of these
indicators are reasonable proxies for the potential to prosper in knowledge-intensive activities. An
example is the proportion of the working age population with tertiary education. In nearly all
countries there is a large gap between the highest and the lowest (see Figure 1) and in nearly all
cases the highest region is the national capital. What is also striking is the extent of the differences
between Member States, with Italy and Croatia recording rates barely 40% of those countries with
the best qualified workforces. The gap between the highest and lowest region is three to one in
Romania, but relatively narrow in both Finland and Germany.
In the UK, although unemployment is low relative to the EU average, GDP growth has slowed
markedly after a brief period of resilience following the Brexit decision. Along with France, the UK is
characterised by the biggest differences in regional economic performance over the 2008-15 period.
According to Eurostat data, almost every UK region (apart from Inner London West, North East
Scotland and Cumbria) had a lower regional GDP head (PPS) as a percentage of the EU28 average in
2015 than in 2004. In Figure 1, the UK has the third largest regional difference in the proportion of
working age population with tertiary education (after Spain and Romania). The regional effects of
Brexit in the UK are still unclear, depending significantly on the future UK-EU relationship. However,
research to date projects differential impacts on regions and cities at least during the short term -
with respect to foreign investment and trade, depending on sectoral specialisation and the
importance of trade barriers (Dhingra et al 2017, Los et al 2017).

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