Competitiveness In Portuguese Regions

Competitiveness In Portuguese Regions

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Introduction:

The aim of this report is to investigate the competitiveness of the ‘poorest’ region, defined as the lowest level of Gross Value Added (GVA) per Capita in 2008, in Portugal.

Using data from 1980 to 2008, this report will compare the tendencies of convergence and divergence amongst the regions in Part I. An analysis of the extent to which prosperity was affected by productivity and employment levels in the poorest region will follow in Part II. Lastly, in Part III, 2 scenarios are developed for the poorest region looking 2 decades into the future.

Below in table 1 is a regional breakdown of levels of GVA per Capita in 2008, including the national GVA level and the GVA level of the Continente (mainland Portugal, excluding the autonomous regions of the Acores and Madeira):

Table 1: National and regional breakdown of GVA per Capita
Country/Region Name GVA per Capita (2008)
PT Portugal 9.30
PT1 Continente 9.33
PT11 Norte 7.16
PT12 Centro 7.59
PT13 Lisboa e V.do Tejo 12.72
PT14 Alentejo 7.83
PT15 Algarve 9.82
PT2 Acores 7.08
PT3 Madeira 10.40

The poorest region for the criteria explained above is Acores (PT2).
Part I
Section A

This section of part one outlines the extent of convergence and divergence of the Portuguese Regions.

Figure 1 below shows overall divergence of Portuguese regions (excluding the Continente) based on average GVA per Capita growth rates from 1980 to 2008.

Figure 1: Divergence of Portuguese Average % Regional Growth Rates (1980 to 2008)


Below in table 2, the average growth rates of the regions, between 1981and 2008 are shown. PT14 has grown the least in the last 27 years, while the autonomous region of PT3 has grown the fastest (in terms of GVA per Capita).

Table 2: Regional breakdown of average growth rates (1980 – 2008) and prosp[erity levels (in terms of GVA per Capita, 2008)

Region Name GVA 1980 Growth 80' - 08' GVA per Capita (2008)
PT11 Norte 12913 2.815953439 7.16
PT12 Centro 6181 2.976264393 7.59
PT13 Lisboa e V.do Tejo 21045 2.832099428 12.72
PT14 Alentejo 2427 1.872330082 7.83
PT15 Algarve 1411 3.964443241 9.82
PT2 Acores 765 3.224902606 7.08
PT3 Madeira 820 4.452186392 10.04

From looking at table 2 we see that the region with the highest level of prosperity, PT13, is the fifth fastest growing region. Regions such as PT15 and PT2, with lower levels of prosperity, are growing at a faster rate showing convergence with PT13.

The fastest growing region, PT3, has overtaken larger (in terms of area) regions in the Continente, such as PT15 (the third most prosperous in 2008), PT11 and PT12 (second and third last in terms of prosperity, respectively).

Section B

In this section three measures are used to illustrate how the Acores region diverged with the (unweighted) National Average:

First, in Figure 2 below, we see how the prosperity levels of the Acores region and the National average compare and show divergence.

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Figure 2: Comparison of Acores and National Average in terms of levels of prosperity.



The directions of the trendlines show an increasing gap between prosperity levels.

In figure 3 below: this gap is exaggerated and it becomes apparent how little the Acores region contributes to the total prosperity of Portugal (and the autonomous regions). Though figure 2is the best indicator of divergence.

Figure 3: Comparison of Acores and National Average in terms of Total GVA



Below, in figure 4, the employment/population ratios of the Acores region and National Average are compared. It shows convergence – employment levels are growing at a faster rate in the Acores region. However, when considering the previous two figures this highlights the issue that GVA per Capita employed (the measure of the level of prosperity) is increasing but at a decreasing rate. Each new worker adds less to GVA than previous.

Figure 4:Comparison of Employment/Population Ratios of Acores and National Average (1980 – 2008)



Part II

Productivity levels in Acores diverged from the country average more so than any of the other regions. Acores displays favourable demography but the region has the lowest per capita GVA in the country compared to Lisboa e Vale do Tejo which not only enjoyed the highest productivity level but also the highest and the most favourable demographic structure. de Freitas et al (2005) highlights some reasons for the regions differences. Acores technological standing, which is similar to that of Norte, lacks the specific infrastructures to effectively support innovation and technology diffusion, and has a low industrialisation level. The autonomous regions of Acores and Madeira received greater funding, with specific priorities defined for these regions according to their needs. Other than this the share of business incentives for this region have been relatively insignificant and the support from the EU agriculture and fisheries policies are not creating the conditions required for sustainable development which results in these sectors suffering from low productivity and declining employment. The region Acores also suffers from a low availability of R&D investment.

The employment-population ratio for Acores in 2008 is 46.04% which is below the average of 47.55% and in contrast with Madeira which has the highest at 49.25%. Total GVA for the region has increased over the years. However, Figure 5, shows that the GVA only increased with an increase in employment, but it also shows that from 2006 to 2008 GVA has decreased with an increase in employment. The fact that the population in Acores is very young, with more than 50,000 students registered at school, representing one third of the current working age population, provides an opportunity for increasing the competitiveness of the economy.
Figure 5: Percentage changes in total employed and productivity

Agglomeration economies exist in Acores resulting in growth being concentrated as universities and training centres are located in the three main urban centres: Ponta Delgada, Angra do Heroismo and Horta. This results in an increase in regional imbalances. Economic policy has tried to offset this tendency, equipping each island with basic infrastructures, such as schools, hospitals, public administration, airports and harbours (Torres et al, 2005). This effort to spread the infrastructures over the entire territory has led to agglomeration diseconomies.

Part III

The following are the scenarios proposed for the Azores region of Portugal between 2008 and 2028.

The Acores region began to converge more on the country average in 2001. While the region enjoys favourable demographics, it is expected that this productivity will be enhanced through the improvement of educational attainment and the growth of alternative business sectors.

The Economic and Social Development Plan for the region (2007 – 2012) aims “to promote the qualification of human resources and the stabilization of the employment market”. The problem of agglomeration economies in the main urban centres of Ponto Delgada, Angra do Heroismo, and Horta will continue. While the regional Government will maintain its current policy of market orientated University Programmes it will focus greater attention on the Foreign Direct Investment into the region which will mean that the Universities will be able to cater for new and expanding business needs.

According to de Freitas (2005: 105), “The region has been designated as ultra – peripheral, which implies that it is eligible for objective one funding, irrespective of its per capita income levels”. Due to this, transport costs will remain relatively high. However, the Government will develop an Airport in the region as a means of “Developing regional infrastructure and equipment networks in the field of intra and inter regional accessibility” (Programme for the Economic and Social Development). The current technological standing of the region is 1.3 which hinders its ability to enhance productivity levels. However, research and development (R&D) will be enhanced through further state funding and through incentives offered to companies to conduct their own research. The industrial level in the region will remain low in comparison to the rest of the country. However, the improvements in infrastructure will allow for a more diverse business sector in the region.

This scenario represents a convergence of Acores on the other regions within Portugal which will be achieved through higher educational levels, improved infrastructure for foreign direct investment and greater research and development.

The following scenario represents a poor convergence outlook for the region. Acores began to converge on the country average in 2001. This convergence will continue, however, the region will remain dependant on non- tradable goods which will keep its productivity levels low. The most important tradable good in the region is milk and this is strongly supported by Common Agricultural Policy (CAP) Funds. The Development Plan for the region will improve the competitiveness of the Agricultural sector. Due to existing milk quotas, “a plan is now being developed involving farmers and the Authorities to promote beef production” (de Freitas, 2005: 108). In order to improve competitiveness, the Government will commit greater amounts of funding to enhance the infrastructure of the sector. While the construction of an airport in the region will allow for tourism to be developed, it will fail to impact significantly on the regions productivity. With productivity levels remaining low, convergence will occur at a very slow rate.

Direct and indirect taxes will remain low in comparison to mainland Portugal. These, in addition to the provision of a regional Airport, will act as an incentive to companies to locate in the region as transport costs will be significantly reduced. University agglomerations will remain in place. However, unemployment in these urban centers will rise as those graduating from the Universities fail to secure appropriate jobs due to the limited amount of FDI in the region. The current technological standing of the region is 1.3. “The lack of specific infrastructures to effectively support innovation and technology diffusion, as well as the low industrialization level, contributes heavily to the poor technological standing of the region” (de Freitas, 2005: 93). This will improve somewhat through the development of specific infrastructures (as outlined in the region’s Development Plan). However, the resources in place will be insufficient to promote large scale Research and Development.

Due to the current diverging trends, it is expected that the second scenario is most likely to occur. The third level educational courses are aimed at the three urban centers of Ponto Delgada, Angra do Heroismo, and Horta. FDI needed to retain students in the region will be insufficient over the next two decades. Therefore, GVA per capita is dependant on the development of the Agricultural sector which will not result in high levels of productivity.
References:

De Freitas, M.L., Torres, F., Amorim, C., Bongardt, A., Dias, M., Silva, R., 2005. Regional Convergence in Portugal: Policy Impacts (1990 – 2001). Cited 12/02/2008.
Available from the internet:
http://www2.egi.ua.pt/wp_economia/WP35-Freitas-Torres-etal-ConvPort.pdf

Azores. 2000. Operational Programme for the Economic and Social Development of the Acores.
Available from the Internet:
http://www.igfse.pt/upload/docs/desdfse_i_prodesa.pdf

Acores. 2007. Cohesion policy 2007-2013. Cited 18/02/2008
Available from the Internet:
http://www.ec.europa.eu/regional_policy/atlas2007/fiche/pt_en.pdf

European Commission. (2002). European Innovation Scoreboard. Technical Paper no.3, EU Regions, Brussels.

ftp://ftpnl.cordis.lu/pub/trendchart/reports/documents/report3.pdf.
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