Regional disparities in labour productivity remain significant and international trade and greenfield foreign direct investment (GFDI) are highly concentrated in a few regions
In 2022, regional disparities in productivity within OECD member and accession countries remained large, with labour productivity in a country’s most productive regions being double that of the least productive ones. The differences were particularly pronounced in Colombia, Mexico and Romania, where the most productive regions were four or more times as productive as the least productive. Capital-city regions were the most productive places in 20 out of 33 countries and the second most productive in 5 others (Figure 1.7).
Productivity levels have been slowly converging across regions over the last 2 decades, with low‑productivity regions experiencing an average annual growth of 1.3%, compared to 1% for high‑productivity ones. Even though a large majority of regions (more than 80%) experienced productivity growth between 2002 and 2022, 14 out of 33 OECD member and accession countries had at least 1 region with productivity decline, and Greece saw productivity decline in most regions (with employment rising faster than output).
Productivity growth can result from employment declining faster than output. Conversely, slow productivity growth can result from employment growing faster than output. Employment grew in 97% of regions in the top 20% of productivity for at least 15 years in 2002-22, where productivity increased. In contrast, only 88% of regions in the bottom 20%, with rising productivity, saw employment growth (Figure 1.8). This means that 3% of high-productivity regions and 12% of low‑productivity regions experienced productivity increases that were not matched by employment growth, equivalent to 9% of all regions.
Trade openness – the sum of imports and exports relative to GDP – was below 40% in half of the regions. In contrast, in 24 out of 298 regions, the combined value of imports and exports was equivalent to 100% or more of GDP (Figure 1.9). West Slovenia, Slovenia, and Ticino, Switzerland were the top regions for trade openness in 2022. Overall, regional differences in trade openness within OECD member and accession countries are substantial, averaging around 100 p.p. These differences are even more pronounced in Belgium, Finland, Greece and Switzerland, exceeding 150 p.p. between the most and least open regions. Significant differences in trade openness are partly driven by a high concentration of international trade in a few regions in countries. Indeed, in 2022, around 20% of regions accounted for half of the total imports and exports.
GFDI is even more spatially concentrated than trade. In 2023, half of the total GFDI in the OECD went to just 34 subnational regions (out of 357). The main industries for GFDI were renewable energy, electronic components and semiconductors. Investment in the top five OECD regions receiving GFDI focused on renewable energy (Queensland, Australia; Quebec, Canada; Scotland, United Kingdom; and Texas, United States), and semiconductors (Okinawa, Japan). The industries driving investments remain relatively stable in their locations, even when leading regions vary over time, resulting in a consistent geographical clustering of GFDI over time (Figure 1.10).
Innovation is another growth driver but patenting capacity varies widely with city size. Patents are concentrated in metropolitan regions, which increased their share of patent applications (as a percentage of total patent applications) from 85% in 2000 to 90% in 2022, despite having 70% of the population. Patenting activity tends to be higher in larger cities: large FUAs have an average patenting rate of 8.3 applications per 50 000 inhabitants, 60% higher than midsize FUAs, more than double that of small FUAs, and over 5 times that of very small FUAs. Patenting activity is also geographically concentrated within continents (Figure 1.11 and Figure 1.12).
