Towards a more dynamic typology of regions for Cohesion Policy
March 2024
Cohesion Policy is the cornerstone of the EU’s efforts to promote economic, social, and territorial cohesion by reducing disparities between regions. Since its start, it has evolved to address the changing dynamics and challenges facing EU regions and citizens. However, as the EU faces new economic, environmental, and social transitions, Cohesion Policy needs to develop more dynamic typologies of regions, going beyond the categorisation of less developed, transition and more developed regions, based on regional GDP per capita.
The report of the group of high-level specialists on the future of Cohesion Policy (Opens in a new window), makes an interesting proposal for a more dynamic typology of regions. This is based on recent research on development traps, and the need to pay more attention to the nature of challenges and the responses needed in every region.
Cohesion Policy regional typologies 1975-2027
Between 1975 and 2006, the emphasis of Cohesion Policy was on investments and growth in less developed areas. This steadily included more focus on areas affected by industrial decline, adapting to industrial change, rural development, sparsely populated areas, etc. Still, for the first 30 years of Cohesion Policy, there were limited areas eligible for support and these did not cover all parts of the Union.
As of 2007, all regions in the EU became eligible for Cohesion Policy. This was reflected by the introduction of the ‘convergence’ and ‘regional competitiveness and employment’ objectives (2007-2013). Since the 2014-2020 period, Cohesion Policy has worked with ‘less developed’, ‘transition’ and ‘more developed’ regions. At the same time the granularity used to define eligible regions was reduced to NUTS2.
The definition of these regions and the financial allocation of EU Cohesion Policy is based on GDP, as visible in the definition of less developed, transitions and more developed regions and their co-financing rates. For the 2021-2027 period, less developed regions are defined as those having less than 75% of the EU-27 average GDP per capita. Transitions regions have between 75% and 100% of the EU-27 average GDP per capita. More developed regions have more than that.
Need to go beyond GDP
GDP is certainly an imperfect indicator and the focus of policy making on GDP has been criticised for many years. This concerns both general economic policies and Cohesion Policy in particular.
At a general level, since the 1970 there have been debates about the need to go beyond GDP as main macroeconomic indicator. As e.g. Terzi highlights in his report ‘Economic Policy Making Beyond GDP (Opens in a new window)’, there is a need to develop indicators complementary to GDP that will enable more effective monitoring of the transformation of society and the economy to be carried out as policies driven by the European Green Deal are implemented.
Focusing on Cohesion Policy the need to go beyond GDP is driven by growing insights that development needs and disparities are no longer viewed just in static terms, but also in terms of productivity, employment dynamics and development opportunities. This can be seen in an analysis of development traps and their associated risks, highlighted in the report ‘The geography of discontent and regional development traps (Opens in a new window)’. Regions facing development traps have on average lower GDP growth, productivity, and employment per capita compared to the EU, the country the region is located in, and the region itself in a previous period. Furthermore, the report uses three criteria to assess the severeness of a development trap:
The risk of a development trap indicates how many times a region scores below others in the country, the EU or itself in the past. The risk of a development trap is low in Baltic countries, Poland, Slovakia, most of Bulgaria, Eastern Czechia, Western Romania, Southern Hungary, Ireland (Cork), Eastern Portugal and Western Spain. By contrast, the risk is high in France, Italy, inland Croatia, much of Greece, parts of Denmark and the cities of Frankfurt, Vienna, and Ljubljana.
The intensity of the development trap shows how much lower growth is in a region compared to the EU, the country it belongs to, and its own performance in the past – in terms of GDP, productivity and employment per head. The trap is less intense in Lithuania, Latvia, Western Romania and parts of Slovakia, but high in Italy, Croatia, and Greece.
Length of a trap captures the number of years a region is considered as trapped. Regions in France, Italy, Greece and Croatia face persistent entrapment.
The analysis of development traps sheds some light on development dynamisms, which are only partially been reflected in Cohesion Policy so far. Traditionally, financial allocation has been based on GDP per capita at NUTS2 level. This is most visible in the definition of less developed, transitional and more developed regions with their co-financing rates. These change, however, between funding periods. The focus is primarily on least developed regions, with a GDP per capita below 75% of the EU average. In addition, Cohesion Policy also provides funding to transition and more developed regions, albeit lesser amounts and with higher co-financing requirements.
In short, the current definition of Cohesion Policy regions does not fully reflect development dynamics and traps related to GDP, productivity and employment growth.
Proposals for a new typology
To move towards a more dynamic approach in Cohesion Policy, the report of the group of high-level specialists on the future of Cohesion Policy (Opens in a new window) promotes the idea to move away from a static GDP based typology towards three new types of regions.
If Cohesion Policy is to utilise all economic potential, it needs to continue supporting dynamic, large agglomerations to boost competitiveness while also supporting lagging places, as well as places and people facing development traps.
This means Cohesion Policy needs to address all places (see also earlier blog post). It can do so by addressing the needs of three types of areas:
Static: Rise above low development. Left behind or lagging behind regions with limited development often require investment in infrastructure, education, upskilling and institutional improvements. Cohesion Policy needs to empower these regions by investing in their growth and fostering thriving ecosystems.
Dynamic: Escape development traps. Falling behind or development trapped regions often lack sufficient economic dynamism. Cohesion Policy needs to liberate such regions by focusing on their unique challenges to overcome disparities in GDP per capita, employment and productivity.
Opportunities: Embrace chances. People and places caught in opportunity traps (including the young, the elderly, women and minorities) need support including early childhood education and care, elderly care, further education, labour market policies, active ageing, lifelong learning, poverty reduction and inclusion.
The different strands of Cohesion Policy may also result in different types of eligible investments. While there is a continued need for investments in infrastructure and human capital in less developed areas, many areas – especially stagnating ones – require different approaches and more complex policies. These should bring together various policy fields to support transformation and help these areas overcome development traps. The focus must be on place-sensitive approaches and thematic orientations with a high social impact. Improving the quality of government and governance is important for places to manage transformations and deal with the impacts of mega trends and transitions.
In conclusion, the shift towards dynamic regional typologies within Cohesion Policy post-2027 would be a critical evolution in the Union’s approach to regional development. This transformation, while challenging, is essential for ensuring that the policy remains effective, relevant, and capable of fostering equitable growth in an increasingly complex global context.
The full report of the group of high-level specialists on the future of Cohesion Policy, and a range of background materials are available at the group’s website (Opens in a new window).
by Kai Böhme
