In the aftermath of the financial crisis, and against the background of a prolonged economic recession, the first priority for policy makers across the OECD and beyond has been to strengthen the world’s financial system. The next challenge is to support demand and employment creation during the recession in a manner that helps the subsequent recovery to be swift, smooth and durable, as exemplified by the current emphasis on green growth. Regional policies should contribute to this unfolding policy agenda. With this in mind, this report looks at patterns of regional growth across OECD countries, reviews the rationale for regional policies and explores current policy practice. The objective of the report is to identify ways that regional policies can be made more effective in meeting current and future economic, social and environmental challenges.

Regional policies are increasingly tested on their capacity to fuel growth, rather than simply reduce disparities. This is particularly true in the context of the economic crisis. But in order to play such a role, regional policies need to continue an ongoing process of reform.

An understanding of how regional development policy can best support regional growth stems from an understanding of regional economic performance. OECD regions are very heterogeneous; each possesses very different levels of income, rates of employment, mixes of high and low productivity activities, internal and external assets, comparative advantages, stages of development and public policies. This chapter attempts to quantify disparities in regional economic performance, and to analyse why and how regions grow differently.

This chapter explores the current state of regional policies and highlights the key policy issues illustrated by examples of good practice from across the OECD. It discusses the evolution of regional policy in OECD countries and the “new paradigm”. It then looks at the key components of regional policies: infrastructure, human capital development and measures to promote innovation. Finally, it discusses how the new approach to regional policy has influenced shifts in urban and rural development policy.

This chapter discusses the various approaches that national and sub-national governments have adopted to improve co-ordination among levels of government for supplying services and infrastructure tailored to the specific needs and opportunities of sub-national territories. The impact of economic downturn on sub-national governments and the national stimulus packages reflect an accurate illustration of this topic. The crisis is having a large negative impact on most sub-national governments’ finances due a “scissor” effect: tax revenues falling sharply as a consequence of the fall in activity, while welfare expenditure soars. Regional authorities may consequently decide to reduce their investment spending. In order to avoid such a pro-cyclical behaviour, most national stimulus plans have a regional public investment support dimension. For this to be successfully implemented, effective co-ordination between levels of government is necessary. This chapter first examines the basic institutional and financial elements of sub-national authorities’ mandates and resources. It then focuses on the use of specific instruments for co-ordination and capacity building in regional policy: contracts, collaboration between municipalities and the use of performance indicators.