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Divergent regional economies in Europe

Helsinki and Baltic Sea metropolises in the network of European regions

Population and production have been concentrated in urban areas, which have a crucial role in the economy nationally and globally. Approximately half of the total output of the world is produced in regions covering only 1.5% of the land area of the globe (World Bank 2009). In Finland the Helsinki Metropolitan Area – covering 0.25% of Finland’s land area and 19% of the population – produces 30% of the GDP of the country. This article analyses the regional differentiation in Europe by using economic and social indicators and places the Helsinki region and other major cities of the Baltic Sea area in the framework of the regional network of urban Europe.

Introduction

Concentration and urbanisation are closely connected with economic developments. In general, the more advanced and productive the economy, the more urbanised the country. Europe is one of the most urbanised and economically advanced areas in the world. In spite of its modern economic structures Finland is still among the less urbanised countries in Europe because of geographical and historical reasons. However, since a late start in the mid-20th century, Finland’s urbanisation has proceeded fast and this trend is expected to continue in the future. In Finland, like earlier in Western and Central Europe, the change from an agricultural to an industrialised and finally service oriented country has been connected with improved productivity, increased income level, concentration of production and rapid urbanisation.

Large urban regions – metropolises – are attractive locations for high productive industries and competitive enterprises. Urban concentrations provide enterprises with benefits of agglomeration: the clustering of firms and workers together increases productivity because density supports the efficiency of trade, communication and the distribution of knowledge and innovations. Consequently, GDP per capita in large urban regions is usually significantly higher than the national average. It is 40 % higher in the Helsinki Region than in Finland as a whole. Large urban regions are also attractive from the point of view of consumers: they provide superior diversification in terms of job opportunities, services and consumption but also good possibilities for social networks. Accessibility is an important factor connected with agglomeration: good transport connections for goods and personal transport are almost a necessary condition for a large, growing urban area. Improved accessibility has made it possible for many metropolises to expand and many of them have become large geographical networks with several sub-centres and many independent municipalities connected with a transport system.

Regions in Europe

The regional divisions used in this study are based mainly on the NUTS 2 and NUTS 3 divisions defined by the EU. From the point of view of large urban regions, the NUTS 3 division corresponds in most countries reasonably well with functional regions in terms of united regional labour and housing markets. In Finland the five NUTS 2 regions consist of large areas of the country while NUTS 3 regions are the same as the 20 regional council regions (maakunta). From the point of view of international comparisons, the Uusimaa region represents reasonably well the functional region of Helsinki. In the case of the largest metropolises of Europe, NUTS 2 is usually the best division for representing functional urban regions (e.g. Paris, Rome and Warsaw) while London is divided to two NUTS 2 regions.

According to Table 1, there are 270 NUTS 2 regions and 1,294 NUTS 3 regions in EU. The average population is 1.9 million for NUTS 2 and 385,000 for NUTS 3. The Finnish NUTS 2 and NUTS 3 regions are smaller with respect to population but remarkably larger with respect to land area than the average in the EU. The Helsinki-Uusimaa Metropolitan Region is close to the average of NUTS 2 regions in EU with respect to population (81 % of the EU average) while its land area is slightly over half of the EU’s average and population density is 40 % higher than the average (table 1). When compared with the average of the NUTS 3 regions Helsinki-Uusimaa has 4-fold population and 3-fold land area.

Regionally differentiated Europe

Strong concentration of population and production is a striking feature of the economic geography in Europe. A quarter of the population of the EU (and Norway and Switzerland) lives in the 23 most populous regions out of the 293 NUTS 2 regions. Helsinki-Uusimaa, with a population of 1.5 million, is 129th in the ranking and is situated among the medium sized European regions.

Production is even more concentrated: the top ten regions produce a quarter of the total output of the entire area. The largest concentrations are located in the economic core of Europe covering Western Central Europe, South-Eastern England, Northern Italy, and in the largest urbanised regions of France and Spain. The smallest regions in terms of population and output – many of them covering large areas – are located in the fringe of Eastern and Northern Europe, in islands, and in the mountainous areas of Central and Southern Europe. The differences are even more striking when we consider the variation of population density between NUTS 2 regions. The density in the top regions is tens of times higher than in the median region. However, it must be noted that the way the borders of the NUTS 2 regions are defined affects the results but still, it does not influence the big picture.

Another prominent observation is the vast income difference between regions measured by GDP per capita (adapted to purchasing power standard). In the top regions GDP per capita is more than ten times higher than in the poorest regions. The richest regions are the leading metropolises in the Western Central Europe (plus London and Paris) and Nordic countries. The poorest regions are rural and ex-industrial regions in the fringes of Eastern Europe. Consequently, the East-West division is still strong in Europe. The top regions in terms of GDP per capita are major concentrations of high productivity industries and specialised services, locations of top universities and R&D activities, as well as sites of global corporations, and they function as international transport hubs. They have well-educated labour force and high employment rates. The rich regions are also target areas for national and international migration. Most of the richest regions are ranked high in the international comparisons of quality of life and attractiveness.

The poorest regions are dominated by the opposite factors: traditional agriculture and other low productivity production, low educational level of the population and poor accessibility. Their age structures are skewed towards the elderly and they suffer from out-migration and high mortality rates.

Nordic capitals and other Baltic Sea metropolises

Among the European regions Nordic capital regions – Copenhagen, Helsinki, Oslo and Stockholm – form a group which has a lot in common. They are all middle-sized regions with respect to population. However, they are significantly larger in terms of the volume of production output: all are located in the first quartile in the size ranking of NUTS 2 regions: Stockholm highest as 32nd and Helsinki 58th. Nordic capitals are also rich and productive metropolises: all belong to the top twenty in the ranking of GPD per capita of NUTS 2 regions. They score high in rankings of innovativeness, for example in terms of R&D inputs relative to GDP. Employment rates are also high; Stockholm and Oslo are near the top but Helsinki and Copenhagen are also located in the first quartile. High housing prices are also a common feature of the Nordic capitals while there is a difference with respect to density (population relative to land area): land use in Copenhagen and Stockholm is much denser than in Helsinki. Finally, all Nordic capitals are ranked high in international comparisons of living conditions and liveability. For example, all of them were among the top twelve in the Economist Intelligence Unit’s Liveability Ranking 2012 among the European cities.

When we look at the wider group of the Baltic Sea metropolises the picture becomes much more heterogeneous. Hamburg is one of the richest regions in Europe and is close to the Nordic capitals on most of the criteria of this study. Berlin belongs to the large metropolises in Europe but in terms of GDP per capita it is close to the mean of the NUTS 2 regions. It differs from Nordic and other leading large metropolises with respect to housing prises which are exceptionally low in Berlin. Warsaw is also one of the largest metropolises and, like Berlin, its GDP per capita does not differ much from the mean of the Europe. Warsaw has grown in a stable manner even during the years of the financial crisis and approached gradually the GDP per capita level of the leading metropolises of Northern Europe. In Warsaw housing prises are higher than in Berlin but lower than in Nordic capitals. Of the capital cities of the Baltic countries Riga and Vilnius are mid-sized regions in terms of population while Tallinn is smaller than the others. In terms of GDP per capita the Baltic capitals are located quite low in the ranking of the regions of Europe. Their economies suffered much in the financial crisis of 2008–2009 causing a collapse in GDP and employment followed by out-migration and population decline. However, the Baltic capitals, especially Tallinn, have revived relatively well after the depression and are catching up with the other regions of the Baltic Sea Area.

The financial and debt crisis in Europe since 2011 has affected European countries and cities differently. The acute debt crisis and the most serious effects have concentrated in Mediterranean countries and Ireland while Northern Europe – including Germany, Poland, Baltic countries and Nordic countries – has mainly been affected indirectly, especially via declining export demand and pressure for public-sector budget cuts. In this framework the Baltic Sea metropolises have coped relatively well compared with the metropolises in Southern Europe, even as the production growth has halted and unemployment started to increase also in the Baltic Sea area. Taking into account the strong position of the leading city regions in their national economies, one can say that the Baltic Sea metropolises have represented a stabilising force in the economy of Europe.

A striking feature in the development is the accelerating population growth in all Baltic Sea metropolises. In all capital regions of the Nordic countries, as well as in Berlin and Hamburg, immigration has increased, speeding up the population growth during the last few years. This is at least partly a consequence of the European economic crisis which has redirected migration flows both within Europe and from other continents towards the north. Warsaw and the Baltic capitals have seen a lively migration back to the home country from Great Britain and Ireland since the start of the economic depression in those countries. At the same time there have been an increasing number of migrants from Estonia – mainly from outside Tallinn – to the Helsinki region. While there may be frictions connected with immigration the population growth caused by migration has had positive effects on regional economies via increasing demand for trade, local services and housing, and for the supply of labour (Laakso & al 2013).

Concluding remarks

The pull of the most successful metropolises is maintained by their ability to create and accumulate human capital based on knowledge, expertise and social skills. This cannot be created simply by investing in physical capital while it is also necessary. However, diversified communication possibilities have become a key factor of accessibility, together with transport systems. An important feature of the urbanisation of the last few years is growing international interaction in terms of travelling, immigration and trade. These international flows have grown fast due to integration, the lowering of borders and improved transport and communication, and are also strongly concentrated in metropolises.

Table 1. Statistics of NUTS 2 and NUTS 3 of EU and Finland in 2010. Data source: Eurostat and Statistics Finland.

Figure 1. The population of metropolises (NUTS 2) in 2010, millions. Source: Eurostat Regional Statistics Database & Uusimaa Regional Council Database.

Figure 2. GDP in European regions (NUTS 2) in 2009, millions of Euro. Source: Eurostat, Regional Statistics Database & Statistics Finland, Regional Account.

Figure 3. GDP Purchasing Power Standard per inhabitant in European regions (NUTS 2) IN 2009, % of the EU average. Source: Eurostat, Regional Statistics Database & Metropolitan Regions Database.

Figure 4. R&D expenditure in European regions (NUTS 2) in 2009, % of GDP. Source: Eurostat, Regional Statistics Database & Statistics Finland.

Figure 5. The liveability ranking of European cities in 2012. Source: EIU Liveability Ranking 2012.

Figure 6. The average price for an apartment in selected metropolises in 2007–2009, €/m² (Helsinki=Helsinki Metropolitan Region 2009). Source: Eurostat, Urban Audit Database & Uusimaa Regional Council Database.

References:

Economist’s Intelligence Unit 2012. Liveability Ranking 2012.

Laakso, S. & Kostiainen, E. & Kalvet, T. & Velström, K. Economic flows between Helsinki-Uusimaa and Tallinn-Harju regions. 2013. Helsinki-Tallinn Transport and Planning Scenarios project (H-TTransPlan).

The World Bank 2009. Reshaping Economic Geography. World development report 2009.

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