Presentation made by Joaquim Oliveira Martins, Head Regional Development Policy, OECD, at the Global Forum on Productivity, held in Lisbon Portugal on 7-8 July 2016. www.oecd.org/gov/regional-policy/

1. PRODUCTIVITY, AGGLOMERATION
AND METRO GOVERNANCE
2016 CONFERENCE OF THE GLOBAL FORUM ON
PRODUCTIVITY
Structural Reforms for Productivity Growth
Lisbon, 7-8 July 2016
Joaquim Oliveira Martins
OECD Public Governance Directorate

2. The presentation draws from:
OECD (forthcoming), OECD Regional Outlook 2016
OECD (2015) The Metropolitan Century: Understanding Urbanisation and its
Consequences
OECD (2015) Governing the City
OECD (2012) Redefining Urban: a new way to measure metropolitan areas
References used in this presentation
2

3. Urbanisation and
development

4. 4
Urbanisation goes along with development, but
it is only a necessary condition
0
0.2
0.4
0.6
0.8
1
0 0.2 0.4 0.6 0.8 1
RealGDPperCapita(as%ofUSGDP/Capita)
Level of Urbanization
Brazil
China
Colombia
Japan
Peru
Thailand
Korea
Rest of
the World

5. 5
Urbanisation and income convergence fit
approximately an exponential relation…

6. 6
… but this relation is much less pronounced for
Latin America than for Asian countries
y = 4.4701x - 0.5571
R² = 0.8369
y = 2.5795x - 0.1196
R² = 0.4867
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
0 0.2 0.4 0.6 0.8 1
LogoftherealGDPperCapita(as%ofUSGDP/Capita)
Level of Urbanization
Log of the real GDP per Capita (as % of US GDP/Capita) and Level of
Urbanization
Latin America & Caribbean, East Asia
East Asia
Latin America and
the Carribeans
Linear (East Asia)
Linear (Latin
America and the
Carribeans )

7. How to define cities?

8. Administrative boundaries miss the realities of
metropolitan areas
8

9. • Definition of Functional Urban Areas based on population density
in 1km2 cells that are matched to municipal boundaries and
connected via commuting patterns.
• Urban centres are identified by aggregating densely populated
1km2 cells. Urban centres with at least 50,000 inhabitants are kept.
• They are matched with the boundaries of the lowest administrative
level for which statistical data is typically available (NUTS5/LAU2)
• Urban centres and the less densely populated municipalities in the
commuting zone are combined into Functional Urban Areas based
on commuting flows (>15%).
• More info: OECD (2012) Redefining Urban, OECD Publishing.
http://measuringurban.oecd.org
The OECD and the EU agreed on a functional
definition for cities
9 9

10. What makes cities
more productive?

11. Reviews by Rosenthal and Strange (2004), Duranton and Puga (2004) and
Puga (2010); concepts already present in Marshall (1890):
I. Sharing facilities, inputs, gains from specialisation
firms may face lower costs for specialised non-traded inputs that are
shared locally in a geographical cluster.
II. Thicker labour markets: labour market pooling; better matching
gain from reduced labour acquisition and training costs in thick local
labour markets with abundant specialised labour force
III. Knowledge spillovers: learning about and spreading new ideas
face-to-face contact can enable tacit knowledge spillovers through
increases in the intensity of the interactions with other firms or
individuals
Sources of agglomeration economies
11 11

12. City productivity increases with city size
even after controlling for sorting
12
Doubling the size of a city ≈ 3-5%
productivity increase
Cityproductivity(normalised)

13. 13
The size of cities is positively related to
productivity levels: USA, 2010
Source: Ahrend et al, 2014

14. 14
But some system of cities may not follow this
size-productivity relationship: UK, 2010
Source: Ahrend et al, 2014

15. • Rising prices may offset agglomeration
benefits, but people are willing to pay higher
prices for local amenities:
– Proximity to large bodies of water (coast or
lake), cultural goods (theatres/operas/etc.) and
UNESCO World heritage sites make cities more
expensive
– Share of highly educated workers might have a
consumption externality (creative class)
– Dis-amenities require compensation: PM10 air
pollution increases local costs relative to
productivity benefits
What are the “net” benefits of
agglomeration?
15

16. How cities affect
other regions?

17. Productivity growth of frontier regions
outpaces that of most regions
Notes: Average of top 10% and bottom 10% TL2 regions, selected for each year. Top and bottom regions are the aggregation of
regions with the highest and lowest GDP per worker and representing 10% of national employment. 19 countries with data included.
Averages
of top
10%
(frontier),
bottom
75%, and
bottom
10%
(lagging)
regional
GDP per
worker,
TL2
regions
50 000
60 000
70 000
80 000
90 000
100 000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
USD PPP per employee
Frontier regions Lagging regions 75% of regions
1.6% per year
1.3% per year
1.3% per year

18. Regions with very large cities tend to be in
the frontier, OECD TL2, 2000-2013
0
10
20
30
40
50
60
70
80
Mostly Urban (127) Intermediate (62) Mostly Rural (100)
%
Frontier (41) Catching-up (65) Keeping pace (107) Diverging (76)
70% of mostly urbanfrontier
regionscontain very large cities
75% of divergingmostly urban
regionscontain very large cities

19. Proximity & connectedness to cities
benefits surrounding regions
19

20. Regional catching-up plays an important
role for aggregate productivity growth
Annual average growth in real per worker GDP between 2000-2013 (or
closest year available).
20

21. Good governance can
improve the
performance of
metropolitan areas

22. Horizontal administrative fragmentation is common as cities
outgrow their historic boundaries (more than 10 local governments
in 75% of OECD Metropolitan Areas; more than 100 in 22%)
A larger number of local governments may be positive:
• Provide more choice in the provision of public services, more tailored
solutions and better accountability (Tiebout, 1956).
• Large literature that finds no scale effects for specific public services
(Ostrom, 2010) or governmental expenditure (Kalb, 2010).
But it may also have a potential negative impact:
• Policies, investment and services require city-wide coordination (e.g.
Cheshire and Gordon, 1996): e.g. transport; land use; ease of doing business;
economic promotion; environmental regulation, etc.
The system of metropolitan governance may
affect the productivity & inclusion of cities
22 22

23. Administrative fragmentation is correlated
with lower city productivity
23 23

24. Administrative fragmentation is correlated
with higher segregation of people
24
Hypothesis: Fragmented metropolitan governance can allow for
segregation at the level of local units.
-.05
0
.05
.1
.15
0 .2 .4 .6 .8 1
Administrative fragmentation
Controlling for
country fixed effects
and other city
characteristics (i.e.
income , population,
spatial structure),
higher administrative
fragmentation is
associated to higher
spatial segregation by
income in different
municipalities

25. • Urban sprawl creates
negative externalities in
Metropolitan areas (MAs)
• Cooperation is a way to
internalize the externalities
when making policy
decisions
• Sprawl decreased in MAs
with a governance body,
while increased in those
without
Governance bodies can reduce urban
sprawl
Difference significant at the 99%-level after
controlling for log-population levels and
country specific trends.
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
With Governance
Body
Without Governance
Body
Change in Urban Sprawl
25

26. Governance bodies can increase the well-
being of citizens
55%
60%
65%
70%
75%
80%
With Transport
Authorities
Without Transport
Authorities
Share of Citizens Satisfied with Public
Transport
• Public Transport
projects usually cut
through many
jurisdictions
• Cooperation is
required for effective
implementation and
coordination of
services
• Citizens are more
satisfied in MAs
that have metro
authorities for
public transport
Based on European Urban Audit perception survey.
Difference significant at 95% level. 26

27. joaquim.oliveira@oecd.org
Thank you!
Obrigado!