12 years of European economic growth, in just two maps

Economic growth has been markedly different across EU regions. The fastest-growing regions of the EU between 2003 and 2015 were in Bulgaria, Poland, Romania, Slovakia the three Baltic countries and in the southern part of Ireland (Map 1). On the other end, Greece experienced a particularly dramatic recession, while most regions of Italy and many regions in France, Spain and the United Kingdom are also among the slowest growing regions.

Map 1: GDP per capita growth in EU regions, 2003-2015

Note: colours refer to different deciles in terms of GDP growth per capita measured at purchasing power standards (PPS). Regions in dark green grew the most, whereas regions in dark red grew the least or even suffered from a decline.

While per-capita GDP growth is a useful indicator of economic development, we need a benchmark to assess whether growth was relatively ‘fast’ or ‘slow’ compared to the potential of the particular region. To take an example from sport, running 100 metres in 15 seconds would be a poor result for the eight-time Olympic gold medallist Usain Bolt, but would be a fantastic result for a 70-year old grandma.

In a recent research paper we prepared for the European Parliament (see its summary here), we establish a benchmark growth rate for each of 1,337 European regions in 2003-2015, by econometric estimates. We consider the period of 2003-2015 for data availability reasons, but also with a view to having several years both before and after the most acute phases of the 2008 global and European financial and economic crisis.

By drawing on economic theory we consider numerous determinants of economic growth. Our strategy is to quantify the impacts of region-specific growth drivers to obtain the benchmark rate of growth, which we then compare to actual growth. We interpret the gap between these two indicators as ‘unexplained economic growth’, which is a better measure for assessing the economic success of a region than actual growth.

Our estimates confirmed the importance of the following region-specific characteristics:

It is reassuring that these variables, which have a theoretical rationale, are found to have a statistically significant influence on economic developments. We did not control for factors contemporaneous to the period of growth analysed – from 2003 to 2015 – to avoid certain econometric problems, with only two exceptions. First, the earliest regional institutional quality data available is for 2010. Second, the growth of the tertiary sector from 2003 to 2015 is a powerful driver of economic growth and it is important to include it in the regression.

Map 2 shows 1,337 EU regions according to their degree of unexplained economic growth.

Map 2: Unexplained economic growth in EU regions, 2003-2015

Note: Map based on deciles of the residuals of our conditional convergence model. Regions in dark green had the fastest unexplained economic growth, while regions in dark red the slowest.

There are some noticeable differences between Map 1 and Map 2. While on Map 1 the three Baltic countries, Bulgaria, Poland and Romania were dominated by the dark-green regions (indicating fast actual GDP growth), on Map 2 there are some yellow- or even red-coloured regions, suggesting poor performance relative to the benchmark. Finnish regions also rank poorer on Map 2 (with more red colours) than on Map 1. Italy, on the other hand, was rather red on Map 1, but there are some light-green spots on Map 2, indicating that – conditional on regional characteristics – there were a few successful regions within Italy.

In fact, among the 1,337 regions we considered, the top 10% of 133 regions comes from 21 countries, highlighting that there are rather successful regions, in terms of unexplained economic growth, in many EU countries. There are only seven EU countries that do not have a single region in the league of top 10% conditional-growth performers: Belgium, Cyprus, Finland, Greece, Hungary, Slovenia and Spain.

The unlucky group of the bottom 10%, the 133 regions with the worst economic performance, is from 14 countries, suggesting greater concentration. In particular, 36 of the 52 Greek regions (i.e. 69% of Greek regions) are in the bottom decile. Eight more sit in the second-worst decile and a further four in the third-worst decile, highlighting that Greece as a country suffered massively after 2008. There are some other countries too in which a very large share of regions belongs to the bottom 10% of EU regions: Croatia (48%), Slovenia (42%), Bulgaria (32%), Finland (32%), Hungary (30%) and Ireland (25%), suggesting a high-level of concentration of poor economic development and major differences within countries.

We therefore have three key messages.

How did EU cohesion policy contribute to regional growth and how should the policy be improved? Please check it out in our new policy contribution.