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Pre-Congress Symposium XIIth EAAE Congress Gent, 26-29 August, 2008 EU PROJECT TERA     

FINAL CONFERENCE Territory and rural development in six European countries. Pre-Congress Symposium XIIth EAAE Congress Gent, 26-29 August, 2008 EU PROJECT TERA     . Main Findings of the TERA Project Demetris Psaltopoulos University of Patras.

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Pre-Congress Symposium XIIth EAAE Congress Gent, 26-29 August, 2008 EU PROJECT TERA     

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  1. FINAL CONFERENCE Territory and rural development in six European countries Pre-Congress Symposium XIIth EAAE CongressGent, 26-29 August, 2008EU PROJECTTERA     

  2. Main Findings of the TERA Project Demetris Psaltopoulos University of Patras EU PROJECTTERA (CT 2005-006469) [T]erritorial aspects of [E]nterprise developmentin [R]emote Rural [A]reas     

  3. Introduction • Afternoon Session of the Symposium: • model design, • data collection • model construction • Next presentation by Prof. Kola: • interpretation of results • link to territorial factors • policy implications and recommendations

  4. Introduction • Aim of this presentation: To present an overview of the main findings of the TERA modeling work. • Results of the three modeling approaches: • CGE Models (bi-regional; rural/urban) • NEG model (“No Taxation without Infrastructure” paper by Marattin) • New-NEG model (multi-region multi-sector model of inter-regional trade by Mion) • Comparison of these results

  5. Common CGE Simulation Scenarios • Labour and Migration: +/- 10% in labour supply; +20% unskilled labour; -20% skilled labour • Changes in Trade: +1% in the price of all exports/imports; +10% in the export price of agriculture; +10% in the price of hotels and restaurants; +10% in the export price of most important manufactured commodities • Agricultural Policy: -30% of coupled subsidies; full decoupling; 100% transfer of Pillar 1 subsidies into Pillar 2 (Axis 3); 20% modulation – 80% SFP • Transport Infrastructure: +20% in the productivity of the transport sector; -20% in transportation costs

  6. Labour and Migration • Basic Analysis • +10% in labour supply: increase in GDP (4.6% Greece to 8% Italy) • -10% in labour supply: similar negative GDP effects • Rural GDP effects: +2% (Greek area) to +9% (Italian area) • Urban GDP effects: +5% to + 8% • Increase in labour supply: wage reduction (2-15% skilled labour; 2-13% unskilled labour)

  7. Labour and Migration • -20% skilled labour • Considerable losses in output (-5% Greece/Finland to –13% Czech area) • Reduction in tax revenue • Urban areas and secondary sectors worst hit • Increase in skilled labour wages • +20% unskilled labour • Income gains (+1% Czech area to +5.8% Finland) • Decrease in unskilled labour wages • Very small effects on producer and consumer prices • Change in skilled labour results into higher GDP effects compared to changes in unskilled labour

  8. Changes in Trade • Basic Analysis • +1% in world export prices: small effect on GDP (-0.4% Finland to +1.7% Czech area); increase in regional exports (+1% Greece to +11% Scotland) • +1% in world import prices: small negative effects on regional income; reduction of private consumption (-0.34% Italy to -6.55% Czech area) and imports (-0.8% Greece to -21% Scotland) • Wages: Increase when export prices rise – decrease when import prices rise

  9. Changes in Trade • +10% in world export price of “agriculture” • Considerable rural/urban differences (much larger rural GDP effects) • Positive GDP effects (except Finland), especially for the primary sector • Large shift in factor incomes/rents towards agricultural sectors of the study areas • +10% in the world export price of “hotels and restaurants” • Very small GDP impacts • Possibly explained by the “Dutch-disease” literature

  10. Agricultural Policy • -30% in coupled agricultural support • Marginal negative effects on GDP (-0.004% Italy to -0.8% Latvia) with the exception of the Finnish area (slight gains) • GDP losses concentrate in rural areas • Marginally positive effects on urban GDP: increases in allocative efficiency • Losses in rural unskilled jobs (mostly primary sector) • Very marginal effects on consumer prices; agricultural products prices increase much higher than changes in non-farm products prices • Decline in household consumption (especially agricultural households)

  11. Agricultural Policy • Full Decoupling • Higher negative GDP impacts compared to SC1, due to significant negative projections for the primary sector (-1% Greek area to -28.6% Czech area) • Rural economies affected more negatively and urban economies more positively compared to SC1 • Pillar 2 • Mixed impacts: Higher negative impacts (compared to SC1 and SC2) for Italian, Scottish and Greek areas; more positive impacts for the Latvian, Italian and Czech areas • Main loser is the rural primary sector but rural manufacturing and services rather gain • Positive urban impacts, especially for the secondary sector

  12. Transport Infrastructure • Increase in the productivity of the transport sector • Short-run: gains in (especially urban) GDP (+1% Italy to +3.6% Latvia); tertiary sector benefits most • Long-run: Higher (compared to S-R) total impacts in the Italian, Scottish and Latvian areas, lower (still positive) in the rest • Long-run benefits directed towards rural parts of the study areas • Increase in both indirect taxes and income tax earnings • S-R: Marginal increase in the prices of all commodities; decrease in the price of transport (-3.5% Scotland to -20.2% Greece). Notably higher price increases in the L-R

  13. Transport Infrastructure • Decrease in transportation costs • Short-run: Very marginal re-distribution of economic activity; losses for secondary sectors • Long-run: Marginal gains for Scotland and Greece; marginal gains elsewhere • Benefits for unskilled rural labour and skilled urban labour • Marginal increase in commodity prices; decrease in the price of transport • Short-run: Increase in household consumption; higher long-run effects • Benefits directed towards urban parts of the study areas

  14. Some Additional Region-Specific CGE Simulations Aim: To explore region-specific issues raised in the context of interviews with local stakeholders and policy makers (WP7: TF and structural policies; policy implications and recommendations) Here we (indicatively) present the results of the following 4 region-specific simulations: • Investment (Italian area): +10% investment in innovative sectors + 10% skilled labour demand for urban manufacturing • Soft Modulation (Scottish area): Pillar 2 spending not only in Construction (as in SC4), but split between Construction, Education, Business Services and Public Administration • -10% on employers social security payments (Finnish area) • +30% in land prices and rents of the rural part of the study region (Greek area)

  15. Investment Simulation (Italy) • + 10% in innovative investment • Very slight decline in domestic activity (-0.02%), household consumption (-0.20%) and imports (-0.04%) • Very marginal increase in exports • + 10% in skilled labour demand • Notable positive effects: +1.7% GDP; +1.5% HHS Consumption; +2.4% Exports; +0.72% Imports • Important to note here that an equivalent increase in investment in Construction generates positive impacts for the Italian area

  16. Soft Modulation Simulation (Scotland) • GDP losses marginally lower than “Hard Modulation” (-0.15% compared to -0.19%); losses remain for the rural area (-0.63% to -0.64%), but the urban area gains (+0.17% to -0.11%) • Further decline in private consumption (-1% to -0.2%) and exports (-0.41% to -0.34%) • Gain in investment (+3.39% to -0.39%) • Wages of skilled workers fall by less than in HM, but the decrease in the wages of unskilled workers almost doubles • The decline in urban rents is reversed • The large fall in the value of agricultural land persists

  17. Cut in Employers’ SSP Simulation (Finland) • Small increase in investment, private consumption, exports and imports • Very marginal decline of GDP, but benefits for the secondary sector • Positive impact on demand for blue-collar workers; negative for demand for white-collar workers • Marginal decrease of factor incomes • Increase in the income of working households – decrease for other households

  18. Rural Land Prices Simulation (Greece) • Notable GDP decline (-0.36%), especially for rural area (-5.3%), rural primary (-9.4%) and secondary (-4.2%) sectors • Slight decline in urban GDP (-0.13%) • Decline in private consumption and exports • Highly negative effects for rural skilled and unskilled employment: Indicatively unskilled rural jobs in the primary & secondary sectors decrease by 8%; rural skilled jobs by almost 6% • Marginal gains for urban jobs • Significant increase in the price of primary goods (+6.25%) • Household income declines, especially for rural and (mostly) agricultural households

  19. NEG model (Marattin) • Tax rate simulation • +2% / +4% in the urban region tax rate • +2% / +4% in the rural region tax rate • Main findings • Increase in urban tax rates decreases production differentials especially in Latvia, Greece and Italy • The economy is less hit if the initial tax rate is high • Real wage differentials increase (taxes finance infrastructure development which in turn, promotes economic activity concentration) • Increasing rural tax rates increases production differential (i.e. the periphery is hit) • Real wage differentials decrease very marginally

  20. NEG model (Marattin) • Labour force simulation • +5%/+15% in the urban area labour force (third region / rural region) • +5% / +15% in the rural area labour force (third region) • Main findings • Increase in urban LF increases production differentials • In the case of outside-migration, effects are higher where the rural region is large in size (IT, SC, FI) • The bigger the periphery, the greater the increase of production differentials in favour of the urban region • Production differentials decrease if the labour force of the rural region increases (especially if the periphery is bigger) • Real wage differentials increase if the urban labour force increases and vice-versa

  21. New-NEG model (Mion) • Inter-regional trade simulation (rural area + 5 adjacent areas) • Inter-regional trade barriers reduced by 5% (further trade integration) • Main findings • Notable gains in average productivity (4.8% Greece – 0.5% UK) • Significant gains for rural areas in Czech Republic, Scotland, Finland; smaller gains for Greece, none for Italian and Latvian areas • Adjacent urban areas have little to gain • Gains vary substantially across sectors

  22. New-NEG model (Mion) • Population increase simulation (rural area + 5 adjacent areas) • Population increases by 5% in the area where the study area is located • Main findings • Remote rural record sizeable gains if population and market size increase. • Impacts do not display a significant industry heterogeneity • For East Highlands, Plain Po and Latgale an increase in local market size is more beneficial than market integration

  23. Last, but not least…. • Three different approaches have been used to analyse rural development and the role of policy in remote rural regions of Europe • Our findings would be clearer and more robust if results from different approaches lead to the same direction • Labour Simulations • An increase in labour supply clearly benefits the study regions (according to results from all 3 approaches); there are considerable positive effects on economic growth • The direction of immigration is a key issue • Also, the New-NEG approach shows considerable gains in productivity

  24. Last, but not least…. • Infrastructure Simulations • CGE (increase in transport sector productivity; decline in transportation costs); NEG (impact of taxation utilized to build infrastructure); New-NEG (reduction in trade costs) • Results are mixed and much less univocal than those related to the migration simulations • In some cases (e.g. Italy), the New-NEG approach indicates no gains from trade integration; this rather contradicts the direction of the CGE and NEG findings • In other cases (e.g. Scotland, Greece), results suggest regional benefits in terms of productivity (New-NEG) or GDP (CGE); on the other hand, NEG results show a significantly positive correlation between urban-tax increase and real wage differentials

  25. THANK YOU FOR YOUR ATTENTION!

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