Regional Development Policy: Rationale, Multi-level Governance, and Evaluation

1. Regional Development Policy: Rationale, Multi-level Governance and Evaluation By Fabrizio Barca * Moscow Round Table January 26, 2007 Ministry of Economy and Finance, Italy

2. Regional development policies Fabrizio Barca “… we face the somewhat paradoxical spectacle of Europe being taken more seriously from outside than from within.” Roy Jenkins (as President of the Commission of EU), Jean Monnet Lecture Florence, 27 October 1977

3. Fabrizio Barca Regional development policies REGIONAL OR PLACE-BASED DEVELOPMENT POLICY: A DEFINITION Old policy A policy aimed at compensating for regional gaps in productivity by providing sectorial public goods and / or subsidies to firms or labour New policy  A policy aimed at increasing productivity by providing integrated baskets of local public goods through (mostly) local and regional projects devised and selected according to standards agreed at national and / or super-national level

4. Region’s output at time t2 Region’s output at time t1 Effective Potential Effective Potential: • endowment of: • potential location externalities: • human, natural and cultural resources • institutions (and competition, and image) • public goods • among individuals • among firms (agglomeration externalities) • of firms/individuals with nat/cult resources Regional / place-baced policies awareness of externalities at local level capacity/willingness to pool local knowledge absorption/attraction of external knowledge public goods and institutions market competition for public goods Regional development policies Fabrizio Barca RATIONALE OF REGIONAL DEVELOPMENT POLICIES Exogenons push / shock • national • international

5. Multilevel governance Regional development policies Fabrizio Barca GOVERNANCE: LOCAL IS NOT ENOUGH Local government: • pooling knowledge* • developing projects* *Moved up to the other levels if required by scale/scope Regional government: • promoting the establishment of appropriate ”local boundaries” • selecting and/or promoting local projects according to grant conditionalities • governing coordination among locations Central / National government: • allocating grants to territories and to main priorities • establishing, monitoring and sanctioning grant conditionalities • governing coordination among “regions” • providing technical assistance, capacity building and links with external knowledge Federal / Supernational government: • setting general strategic priorities and some grant conditionalities • enhancing credibility of central government • governing coordination among central governments and/or promoting forum for exchange of methods and experiences • providing technical assistance and capacity building Local government Pros • availability of knowledge to pool local knowledge • incentive to produce results • capacity to tackle unforeseen contingencies Cons • renegotiation problem • “local boundary” problem: underproduction of public goods • overproduction of public goods • “falling behind” problem • the trap of localism

6. Regional development policies Fabrizio Barca MULTILEVEL GOVERNANCE: MAIN INGREDIENTS • A unique undivided Fund, with: • co-financing • additionality • multi-year commitment • Reshaping of responsibilities: a super-national credibility-enhancing authority a unique national gate-keeper, establishing, monitoring and sanctioning conditionalities a capable local government with responsibilities to allocate resources • A conditional granting system based on: a mix of participatory and evaluation culture an “incomplete contract framework” targeting • Knowledge pooling at local level via a mix of: • negotiation • evaluation • Macro-evaluation and political sustainability

7. Regional development policies Fabrizio Barca II.1 A SUPER-NATIONAL CREDIBILITY-ENHANCING AUTHORITY: THE CASE OF EUROPEAN UNION Pros • promoting a “regional approach” • enhancing central government credibility and providing a leverage for change • promoting economic and social partnership in programming • providing potential cross-countries comparability • promoting across-borders regional policy Cons • setting top-down hyper-rationalist conditionalities • establishing a “compliance approach” to evaluation Missed opportunity (until now) • promoting true strategic thinking at high administrative and political level • promoting horizontal coordination among countries

8. Regional development policies Fabrizio Barca III.2 INCOMPLETE CONTRACT FRAMEWORK The problem Committments are needed: • between private and public agents at local level • among levels of government (vertical) • among sectoral responsibilities (horizontal) but they cannot be written in a fully verifiable way Solutions to avoid • write contracts as if they were complete (hyper-rationalist) • write no contracts and fully rely on “participation” (hyper-participatory) Solution • mix evaluation and participation culture, i.e. … • … write incomplete contracts with open-ended objectives/rules plus: • a system of “fiduciary duties” to fill the rules ex post • and a mechanism to produce information on the objectives/rules • and a mix of reputation / repeated game / trust

9. Regional development policies Fabrizio Barca III.3 TARGETING CAPACITY BUILDING WITH A REWARD / SANCTION SYSTEM: HARD USE OF INDICATORS IN THE MEZZOGIORNO CASE Problems • measurement • responsibility • renegotiation • incomplete contract Solution • set open-ended targets • set an evaluation system: • run by a body composed of principal and agents • produce periodical Reports • and using it as a “Knowledge producing mechanism” It allows • measurement to be refined • targets to be “completed” / interpreted • actions to be taken if responsibility is shared • renegotiation risk to be reduced

10. Regional development policies Fabrizio Barca III.3 TARGETING IN THE MEZZOGIORNO CASE: RESULTS

11. Regional development policies Fabrizio Barca V. MACRO-EVALUATION AND POLITICAL SUSTAINABILITY: THE MEZZOGIORNO CASE Macro-evaluation as a coherence framework to link micro to macro give structure to polical debate EX ANTE  Mezzogiorno plan 2000-2006: a supply–side model with “break variables” INTERIM  Yearly Reporting and Interim evaluation Report: limiting renegotiation of financial commitments allowing a fair assessment of policy EX POST  Providing a base for policy changes by basing 2007-2013 Plan on ex post evaluation

12. Fabrizio Barca Regional development policies V. CONTEXT INDICATORS: REGIONAL COMPARISON (Italy = 100) Source: Italian Ministry of Economy and Finance, 2005 Annual Report