This chapter explores in detail the need to adopt a regional approach to internationalisation and attractiveness in a changing world. At a time of economic recovery, it discusses the impact of the COVID-19 crisis on the positioning of regions in globalisation as well as the ongoing impacts of Russia’s war of aggression against Ukraine and other existing megatrends. Ultimately, the chapter explores the unique position of regions in globalisation to respond to crises by implementing resilient place-based policies. It also examines how the internationalisation of sectors and policies can help to enhance regional development to promote economic development, facilitate digital and green transitions and engage regions on the global stage. Finally, the chapter presents a methodology for measuring and monitoring the internationalisation of regions with regard to international connections (business, human, infrastructure and knowledge) and concludes by examining how international attractiveness strategies can help to strengthen internationalisation.
Rethinking Regional Attractiveness in the New Global Environment
2. Internationalisation of regions in the new global environment
Abstract
Key messages
Regions need to navigate a new global environment
In a global environment that continues to deal with the impacts of the COVID-19 crisis, compounded by the consequences of the war in Ukraine and changes in megatrends, the territorial dimension of internationalisation and attractiveness is even more critical for regions as these sudden shocks can translate into major risks and opportunities that depend heavily on their relative performance across international connections (infrastructure, human, knowledge and business connections).
The heterogeneity of regions can lead to marked differences in terms of their ability to withstand shocks and crises. For example, mobile and fixed broadband download speeds vary by 50% within some OECD countries and the disparity between regional remote working rates within each country is the largest in France and Italy and relatively lower in Germany and the United Kingdom.
Recent crises have led many decision makers in regions to rethink their place in an evolving global environment. However, they have not taken place in isolation but rather in the context of existing megatrends, notably climate and demographic change and digitalisation, all of which uniquely impact the scale and nature of the policy responses required.
On the global scale and across the OECD, governments have favoured increased flows of goods, people and ideas across national borders but the opening up of global economies is slowing down.
Enhancing regional development through the internationalisation of sectors and policies
Export promotion is a way to reinforce regions’ participation in global value chains (GVCs) – however, more information is needed to assess the regional-sectoral linkages that can signal to policy makers uneven exposure to global shocks.
Active industrial policies that seek strategic autonomy in certain regions and sectors are not a one-size-fits-all policy solution but are being increasingly explored as potential avenues for creating regional resilience and developing key export sectors to support regions in the likelihood of future economic shocks.
The green and digital transitions are global shifts that regions can only capitalise on if the right policies are in place to support regions to compete on the global stage – including the widespread adoption of the Internet, investments in renewable energy and the human capital to deliver on regional ambitions.
Regions are increasingly seen as actors in international affairs; governments at all levels should co‑operate more to promote subnational participation in international events, which can bolster local industry and create linkages across borders. However, intergovernmental co‑ordination should be leveraged to avoid potential externalities associated with inter-regional competition to attract target groups.
Understanding the internationalisation of regions in relation to international connections
The OECD considers four families of international connections: business (e.g. foreign direct investment [FDI] projects, trade, employment in foreign-controlled business, etc.), human (employment, migration and visitors), knowledge (international students, research and development [R&D], patents) and infrastructure (broadband, ports, airports, stations).
Business connections are among the most measured and monitored connections; however, collecting and/or exploiting information on regional-sectoral linkages can shed light on the resilience of regional economies to global shocks.
Human connections are increasingly important for regional resilience, which recent shocks and global trends have shown (COVID-19, labour shortages, demographic decline) leading to a need to better design, measure and monitor policies that boost regions’ international human connections.
Infrastructure is a key portal to internationalisation. However, not all regions within countries are endowed with the same advantages in this realm – measuring regional accessibility and infrastructure performance can identify and, in turn, help to close gaps.
Knowledge connections are an increasingly central tenet of a region’s competitive advantage – and an area where governments can do more to measure and promote international networks of knowledge and innovation activity.
The attractiveness of regions increasingly depends on their ability to better connect to the rest of the world. Whether through physical connections, such as transport infrastructure and logistics, or virtual connections, such as information and communication technology (ICT), regions increasingly depend on their connectivity to the global economy through various channels. In a growingly interconnected world, it is progressively essential to create favourable environments for local innovation and entrepreneurship that promote collaboration between firms, academic institutions and government. Further investing in transport and logistics infrastructure, for example, is key for regions to facilitate the movement of people and goods, as well as investing in ICT to ensure good connectivity for firms and talent to operate in an increasingly digitalised world. Increasing digitalisation and intensifying global competition are also transforming the way regions connect with the world, requiring rapid adaptation and a redefinition of regional development strategies. Achieving a more thorough grasp of the internationalisation of sectors can contribute to designing tailored policies to enhance regional development. In addition, recent changes in the global economic environment challenge traditional policy responses and demand further understanding of the internationalisation of regions in relation to international connections, particularly to strengthen regional resilience through international attractiveness strategies.
This chapter explains the dynamics that have shifted the global playing field for regional actors before exploring the policies and strategies that are being adopted to become better connected – and more attractive – in an increasingly competitive international environment. Finally, an approach for measuring internationalisation is advanced, which can be used as a tool to select and monitor policies that aim to improve a region’s international connectedness, namely, international attractiveness policies.
A new global environment
In a new global environment that continues to deal with the impacts of the COVID-19 pandemic, compounded by the consequences of the war in Ukraine and recent changes in megatrends, the territorial dimension of internationalisation and attractiveness is even more critical for regions. For the purposes of this activity:
Internationalisation is defined as “the inclusion of a country, a region, a territory or a company in international networks through business, human, infrastructure and knowledge connections” (adapted from OECD (2022[1])).
Regional attractiveness is defined as “the ability to map, promote and improve a territory’s economic, social and environmental assets in order to attract and retain talent, investment and visitors” (OCDE, 2022[1]).
Global openness and integration have brought important benefits to raise productivity gains, facilitate technology diffusion and lift hundreds of millions of people out of poverty. However, within such globally integrated economies, shocks can rapidly turn into severe global economic downturns, as impacts cascade through interconnected systems and sectors (OECD, 2021[2]). Indeed, the effects of sudden shocks are closely intertwined with globalisation and may disrupt global trade and investment flows, impact global supply chains and create challenges for businesses and economies. The pandemic not only temporarily slowed down international trade and many global industries such as aeronautics, but also brought into question the globalisation model by, for example, highlighting the high degree of regional dependence on foreign suppliers for essential resources. The war in Ukraine has added further layers of complexity to an already rapidly changing and highly unpredictable world (OECD, 2022[3]). From an economic perspective, the recent developments resulted in increased stress regarding energy access and pricing. This stress has made the issue of dependency more apparent and has come to pass through two opposing trends. On the one hand, there has been a push towards more localised and renewable energy production, which aims to reduce reliance on Russia’s energy sources. On the other, climate-related commitments in certain areas of fossil fuel production, such as coal and fuel extraction methods, have become increasingly challenged, especially by governments suffering from economic hardship and/or specially affected by the green transition in the short term. These trends are reflective of the ongoing complexities and trade-offs not only to address energy-related issues but also to discuss the role of multinational enterprises, pushing countries to enact place-based or place-sensitive policies to protect domestic industries and local jobs.
While the current context poses significant challenges to the envisioned new globalised world, it also presents opportunities for exploring new pathways of regional attractiveness. In the context of deep global uncertainty, achieving a forward-looking, win-win scenario for internationalisation and inclusive and sustainable territorial development cannot be ensured through the market alone and can be led to confrontations, rejection and enclaves (OECD, 2021[4]). On the basis that it is neither possible nor appropriate to reshore everything and risk the interruption of supply and sharp price increases, a gradual and territorially balanced transformation taking into account local characteristics and the existing international links between territories is needed (OECD, 2022[3]). Still, internationalisation can lead to positive local spillover effects (Lembcke and Wildnerova, 2020[5]) in terms of skills and innovation, job creation and providing access to key resources, infrastructure and services, all of which can lead to better territorial distribution of economic activity and positive environmental outcomes (OECD, 2020[6]). Therefore, a better understanding of the position of regions in a changing globalisation is key to improving their attractiveness to international target groups. In this sense, resilient regional development will require supporting diversity in the provision of supplies and attracting not only visitors but also investors and talent to further develop local capacity to foster innovation (OECD, 2021[4]).
With this in mind, the OECD developed an innovative dashboard for measuring and monitoring a region’s international connections with regard to four families: infrastructure, human, knowledge and business (see Figure 2.3). The dashboard, applied first in the case of France, illustrates the regional differences that can exist within a country and offers policy makers a view into their relative strengths and gaps in terms of internationalisation. For each family of indicators, a select number of variables are provided along with a description of their utility to policy makers (OCDE, 2022[1]). This assessment of indicators of internationalisation is the basis behind the development of – and the testing of – the attractiveness framework presented in Chapter 3. Together, these frameworks support balanced regional development in complementary ways: regions can leverage their connections to attract investment, talent and visitors. This can in turn strengthen those international connections leading to the development of more attractive regions.
The unique characteristics of regions lead to asymmetric impacts
The heterogeneity of regions can lead to marked differences in terms of their ability to withstand shocks and crises. For example, mobile and fixed broadband download speeds vary by 50% within OECD countries and the disparity between regional remote working rates within each country is the largest in France and Italy and relatively lower in Germany and the United Kingdom (OECD, 2021[7]). The capacity of different places to address these digital divides – as well as to leverage existing digital assets – will be an important determinant of their ability to reposition themselves as attractive places to investors and talent looking to (re)locate.
Similarly, governments at all levels are now grappling with the implications of further disruptions stemming from the war in Ukraine and rising energy prices, which are jeopardising efforts to rebuild economies following COVID-19. Because these impacts are not felt equally within OECD countries, they require national and regional policy makers to work together to address the differentiated impact (OECD, 2022[3]) (see Box 2.1). In Italy, for example, the effect of the war was particularly pronounced in regions relying more heavily on the import of fertilisers and wheat for production, largely located in the southern and island regions – which are already facing steep economic challenges (OECD, 2022[8])
Box 2.1. The rise of energy prices has asymmetric impacts across regions and recent evolutions
Higher energy prices may have disproportionate impacts on some regions, especially in Europe where there has been a significant reliance on oil and gas from Russia. Since the summer of 2021, natural gas prices have risen from EUR 18.8 per megawatt-hour (MWh) in January 2021 to EUR 85 per MWh by 24 May 2022, an increase of 350%. The price shock is already hurting many households and threatens to disrupt the production of goods and services worldwide. As global oil and gas markets are interdependent, price rises will also affect regions, sectors and households that do not source their fossil fuel from Russia. Regional vulnerabilities will vary due to the energy mix, consumption patterns – including the presence of energy-intensive industries – and the ability of consumers and businesses to absorb price increases. This will raise the risk of energy poverty and may reinforce existing inequalities between metropolitan areas, and regions with high car dependency (rural regions, suburban cities) (OECD, 2022[3]).
Headline inflation has begun to decline mainly due to the easing of energy and food prices at the beginning of 2023. The decline in energy prices partly reflects the impact of a warm winter in Europe, which helped to preserve gas storage levels as well as lower energy consumption in many countries. While levels are still relatively high compared to pre-war, this is boosting purchasing power for most firms and households and is helping to lower headline inflation. The earlier-than-expected reopening in China is also expected to have a positive impact on global activity, reducing supply chain pressures and giving a boost to international tourism (OECD, 2023[9]).
The increased focus on energy security will create opportunities for regions as governments seek to unlock endogenous energy resources. Regions with higher renewable energy potential (e.g. windy coastal regions, sunny regions) may see substantially increased investment in wind and solar energy systems that could be exported across Europe. The life of other existing energy infrastructure in Europe may be extended. Furthermore, there are risks associated with short-term measures to import gas from further afield, resulting in higher transport emissions, and the risk of reviving mining production such as coal, which had previously been seen as being in inexorable decline to meet energy security needs (OECD, 2022[3]).
Source: OECD (2022[3]), “The implications for OECD regions of the war in Ukraine: An initial analysis”, https://doi.org/10.1787/8e0fcb83-en; OECD (2023[9]), OECD Economic Outlook, Interim Report March 2023: A Fragile Recovery, https://doi.org/10.1787/d14d49eb-en.
Climate change is requiring regions to rethink their proposition to key targets
Recent crises have led many regions to rethink their place in an evolving global environment, however, they have not taken place in isolation but rather in the context of existing megatrends, notably climate and demographic change and digitalisation, all of which uniquely impact the scale and nature of the policy responses required.
In the context of climate change, there is great variance between regions as to the risks faced in terms of attractiveness, with some regions facing more severe impacts, sooner than others, which in turn calls for subnational action (Xu et al., 2020[10]; Hultman et al., 2020[11]). Well before that threshold is surpassed, the outlook for residents and visitors will be drastically altered as today’s hotspots become less desirable places to live in or visit. At the same time, the global investment landscape needs to become a part of the solution in meeting net-zero targets, meaning that multinationals will need to think more strategically about how investment location choices align with sustainability commitments. At the same time, regional investment attraction efforts will need to consider the environmental impacts of potential investments, while also demonstrating their environmental value proposition to prospective investors and talent required to fill new jobs. This creates advantages for regions with abundant renewable potential to become emerging hotbeds of FDI attraction (OECD, 2022[12]). At the same time, the ongoing energy crisis has elevated perceived national security risks in developed economies leading to a proliferation of FDI screening mechanisms that, in several country cases, include the renewable energy sector (UNCTAD, 2022[13]). Climate change is a global problem with local origins and consequences that requires a rethink of how subnational actors engage on the world stage (WEF, 2023[14]; OECD, 2021[15]).
Demographic change is widening territorial disparities
Demographic change is a structural force that can widen territorial disparities in access to services. Talented young people are moving away from areas affected by population decline, due to the lack of labour market prospects. A large part of the population, however, remains, even though they may be lacking the knowledge and skills needed by local businesses, which puts the viability of these businesses under pressure and generates a “labour market mismatch” (OECD, 2014[16]). Population decline directly affects the provision of public services by shrinking the pool of potential users, leading to professional shortages and forcing facilities to close and consequently increasing the distance to services for users in remote areas. Indeed, with population decline and ongoing concentration in metropolitan regions, the population base of many regions is becoming smaller, older and more dispersed. Within Europe, 35% of people live in a region that saw a population decrease between 2011 and 2019. The population of regions covering about half of the European territory, most of them non-metropolitan, is projected to decline in 2011-35. As a result, depopulation widens and reinforces regional disparities, disproportionately affecting rural and remote areas. Such regional demographic decline will require changes to the provision of local public services, building on efficiency gains across levels of government (OECD/EC-JRC, 2021[17]). For instance, projections from Statistics Portugal (INE) foresee a further 30% drop in the population of the Alentejo Region between 2020 and 2080. As in the rest of Portugal, Alentejo is experiencing population ageing and low in-migration due to the preference of nationals and migrants for coastal areas. This trend will particularly affect the more remote areas of the region – which already have an elderly dependency ratio 10 percentage points higher than in other regions in Portugal. As demand recedes, governments, mandated to provide equal access to all residents, will face higher costs from the lack of economies of scale and larger distances between settlements (OECD, 2022[18]).
Globalisation is not ending, it is changing, requiring policy makers to rethink strategies
Across the OECD and the world, governments have favoured increased flows of goods, people and ideas across national borders but the opening up of global economies and policies is slowing down in both an OECD and global context (see Figure 2.1) (Gygli et al., 2019[19]).
The trend towards ever-greater globalisation had already begun to stagnate over the past decade, with a dramatic reduction in Chinese exports, slow down in GVCs and a sharp reduction in services exports prior to the COVID-19 pandemic (Rodrik, 2020[20]). Compounding this, the COVID-19 pandemic and war in Ukraine have further disrupted supply chains and led many countries and regions to re-evaluate the benefits of globalisation to consider reshoring and nearshoring opportunities (see Box 2.2). This will not prompt policy makers to move back towards a pre-COVID-19 pandemic status quo. On the contrary, there is a general acknowledgement of the need to rethink the economic model that prevailed until now, based on which globalisation was considered a full success delivering benefits from a growing openness to trade, investment and movement of people. The question is not about more or less globalisation – it is about strengthening regional positions in globalisation to bring about more inclusive and sustainable development.
Figure 2.1. The KOF Globalisation Index, OECD and world, 1970-2020
Note: There is a flattening trend in both de jure (referring to policies that facilitate internationalisation) and de facto (referring to actual flows of goods and activities) globalisation (0 = no globalisation; 100 = max globalisation).
The index measures the social, political and economic dimensions of globalisation covering everything from trade to tourism to international R&D. De facto globalisation refers to total actual international flows of goods and activities while de jure refers to the changes associated with internationalisation policies that facilitate said flows.
Source: Based on Gygli, S. et al. (2019[19])), “The KOF Globalisation Index – Revisited”, https://doi.org/10.1007/s11558-019-09344-2.
When considering the dynamics and directions that are influencing globalisation, it might be argued that the world is trending towards more (macro)regionalised camps of global capital flows (macro-regions such as Europe, Latin America and the Caribbean, the Middle East and North Africa, etc.), with almost all macro regions depending heavily on China (McKinsey Global Institute, 2022[21]; EIU, 2020[22]). Recent research covering the European Union’s imports over the period 2001-22 shows an increasingly concentrated import share where the relationship is driven by China’s rise and is more salient for high-tech and final goods (Bruegel, 2023[23]). A response to this has been the “China plus one” strategy where nations seek to diversify their value chains away from a dependency on one foreign supplier. For regional actors, it is important to monitor these shifts and to provide support to firms to secure their supply chains while continuing to attract FDI from diverse markets.
Box 2.2. Active industrial policies for regional resilience
Strategic autonomy is being discussed as a means of relocating certain sectors closer to home
OECD governments are actively rethinking their positioning in GVCs to secure more strategic autonomy in certain sectors deemed essential or where a current foreign dependency exists. Mechanisms range from reshoring to nearshoring and friendshoring strategies and have been the subject of ample policy attention in recent years, however, little evidence illustrates the degree to which this has been embedded in territorial development strategies.
Examples of how these mechanisms can be embedded in territorial development strategies, however, are starting to appear. One such example involves the West Midlands region in the United Kingdom. Here, a regional approach to implement a national industrial strategy in order to make a more attractive case for the reshoring of manufacturing activities led to the relocation of a large firm supplying the automotive sector (Pegoraro, De Propris and Chidlow, 2021[24]).
In Italy, the reshoring activities of micro and small enterprises (MSEs) proved that even when production processes are relocated abroad, firms tend not to cut ties with their local-level suppliers, and vice versa (Canello, Buciuni and Gereffi, 2022[25]). This directly challenges the notion that a firm’s embeddedness in GVCs is contradictory to its embeddedness in the local economy. From an attractiveness point of view, this is not a trivial result. It suggests that both international investment attraction and micro, small and medium-sized enterprise (MSME) linkages can be a part of the same policy mix – a matter further explored in Chapter 4.
In France, the Territoires d’industrie programme aims to foster co‑operation across levels of government and with private stakeholders to support the reindustrialisation of French territories thanks to a broad range of activities, which includes the identification of reshoring opportunities in specific sectors (such as flax spinning in Alsace). Within the framework of a method of agreement (signed on 30 July 2020), the central government and the regions have pledged to co-finance – as part of recovery plans – the reshoring of segments of production value chains within French territories (OCDE, 2022[1]; forthcoming[26]).
These strategies are also manifest at the supranational level. In the release of the European Union Green Deal Industrial Plan (February 2023) and the associated Net-Zero Industry Act (March 2023), the rationale clearly stipulates the need to develop European energy production that can compete with established strategies abroad (e.g. United States Inflation Reduction Act and China’s massive investments in greener industry) as well as to ensure “public order and security” (EC, 2023[27]). The proposal includes specific stipulations for the development of net-zero technologies as a catalyst for growth in less-developed regions.
While reorganising segments of GVCs is being discussed as a vehicle for promoting regional resilience, it is important to consider that firms which reshore for strategic reasons may be required to operate with smaller headcount due to the higher cost of labour and inputs. The impact of these strategies will likely vary across places and should be further assessed to determine when and where strategic autonomy translates into resilient and inclusive regional development. Regions should also consider evidence that GVC participation can be associated with greater market diversification, increasing, in turn, economic resilience.
Source: Criscuolo, C. et al. (2022[28]), “An industrial policy framework for OECD countries: Old debates, new perspectives”, https://doi.org/10.1787/0002217c-en; Borin, A., M. Mancini and D. Taglioni (2022[29]), “Integration in global value chains might not increase exposure to risk after all”, https://voxeu.org/article/integration-global-value-chains-might-not-increase-exposure-risk-after-all; Pegoraro, D., L. De Propris and A. Chidlow (2021[24]), “Regional factors enabling manufacturing reshoring strategies: A case study perspective”, https://doi.org/10.1057/s42214-021-00112-x; Canello, J., G. Buciuni and G. Gereffi (2022[25]), “Reshoring by small firms: Dual sourcing strategies and local subcontracting in value chains”, https://doi.org/10.1093/cjres/rsac015; OECD (2022[1]), L’internationalisation et l’attractivité des régions françaises, https://doi.org/10.1787/6f04564a-fr; OECD (forthcoming[26]), The Future of Rural Manufacturing, OECD Publishing, Paris; EC (2023[27]), Proposal of a Regulation of the European Parliament and of the Council on Establishing a Framework of Measures for Strengthening Europe’s Net-zero Technology Products Manufacturing Ecosystem (Net Zero Industry Act), https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52023PC0161 (accessed on 4 April 2023).
The internationalisation of sectors and policies to enhance regional development
As global value chains evolve, it is up to regions to define how they fit in. The impacts of megatrends/GVCs are not even and depend on the incumbent strengths and weaknesses of individual regions, including their traditional sectors and endowments in terms of natural and cultural capital, transport and information technology (IT) infrastructure. Within countries, the disparities can be significant and can in turn influence how effectively said regions are able to engage in globalisation, including attracting investment, talent and visitors and developing exports. Thankfully, the assets that enable regional participation in GVCs are growing increasingly diverse. As a result, opportunities for enhanced integration of left-behind regions have increased in recent years, not least, through greater investment in renewable energy, which can benefit remote regions, and the use of active industrial policies to localise key segments of supply chains. Embeddedness in GVCs should not be seen, however, as the answer to all of region’s questions, and in fact can be a source of potential vulnerability. For example, a region embedded in a long value chain may be highly exposed to the choices of other countries in relation to their own resilience.
Export shares are one way of assessing regions’ embeddedness in GVCs, with a higher share (as a percentage of gross domestic product [GDP]) illustrating their dependence on foreign markets. Collecting – currently scarce – information on the regional-sectoral concentration of exports can help policy makers to assess this embeddedness more precisely and to support regions in the likelihood of future economic shocks. As depicted in Figure 2.2, export shares are prone to change over time and can vary significantly within countries. By way of example, among the 15 regions studied, Portuguese regions exhibit some of the largest increases in terms of exports as a share of GDP over the period, while the dynamic shows strong regional differences in Italy and a decrease in both Swedish TL3 regions, Dalarna and Norrbotten.
Indeed, supporting the export development of domestic firms is a key part of a region’s internationalisation process. A benefit of attracting foreign investors is the spillover to local small- and medium-sized enterprises (SMEs) – one of which includes providing them easier access to foreign markets. Across the European Union, about 600 000 SMEs, employing just 6 million people, are exporting to markets beyond the union: growing export opportunities for SMEs can help them to take advantage of growth opportunities in untapped, especially developing and emerging markets, which will account for roughly 60% of world GDP by 2030 (EC, n.d.[30]). The role of regional policy makers is clear: to support firms in developing international contacts and supply chain linkages and to overcome barriers to international market access (see Chapter 4).
Figure 2.2. Exports as a share of GDP across selected European regions
Note: First year and last year are 2010 and 2018 for Sweden due to data availability. The selection of regions is based on their involvement in the OECD’s growing community of practice on Rethinking Regional Attractiveness in the New Global Environment. In La Reunion, exports as a share of GDP were unchanged at 1%. For the Algarve region, the share doubled from 1% to 2%.
Source: Based on (OECD, 2023[31]), "Regional economy", OECD Regional Statistics (database), https://doi.org/10.1787/6b288ab8-en (accessed on 31 March 2023).
Promoting resilient, inclusive and innovative regional economies
Engaging in globalisation can be a means for sustainable and inclusive development when strategies are aligned with regional priorities. This also requires due consideration for the potential spillovers for local firms and residents – both positive and negative (OECD, 2022[32]). It is less a question of diversification or specialisation as it is about attracting investment that enhances the innovative capacity of regions and makes the best use of the assets, skills and infrastructure that can foster regional development (Ortega-Argiles, n.d.[33]). A policy tool being widely adopted – albeit with a greater leadership role required for subnational actors – are smart specialisation strategies (S3) – explored further in Chapter 4. Regional approaches to innovation, specialisation and diversification can enhance the ability of territories to adopt or absorb innovations from outside the region, as well as enable the development of clusters in areas of emerging potential, such as renewables, artificial intelligence and the blue economy. Regional bodies can act as stewards of this process, bringing together different actors across categories of internationalisation and ensuring that multi-level governance arrangements and attractiveness policies are in place that support internationalisation (OECD, 2021[4]). Moreover, regions need to consider which skills gaps – high, medium and low – are needed to be bridged to achieve inclusive and sustainable regional development (OECD, 2022[32]). This involves adopting a regional approach while taking into account regional authorities’ competencies, the need to clarify the “who does what” and the implementation of relevant multi-level co‑ordination mechanisms, as explored in Chapter 7.
Territorial marketing is also a key strategy to promote resilient, inclusive and innovative regional economies. It can be used not only to promote regional assets, thus contributing to its attractiveness to foreign targets, but also to engage local stakeholders around a territorial project. For instance, countries and regions use geographical indications (GIs) to defend and promote local interests at the international level. Furthermore, a cohesive and consistent territorial marketing strategy is a necessary step for regional talent attraction and retention, as demonstrated in Chapter 5. A cohesive territorial marketing strategy is also needed to attract visitors, as explored in Chapter 6. For example, three territorial brands have been set up in French regions (Provence, Enjoy the Unexpected, Alpes French South and Côte d’Azur France) as part of territorial marketing strategies to reinforce the tourist appeal of the Provence, Alpes and Côte d’Azur destinations (OCDE, 2022[1]). In these regions, the participation of stakeholders in the development of territorial marketing strategies is an opportunity for dialogue and consensus building among actors working on regional attractiveness, which ultimately leads to better policies and outcomes for the wider region.
Facilitating the digital and green transitions through international connections
The digital and green transitions pose new challenges and opportunities to regions, which will differ across places within countries. Across OECD regions, people enjoy significantly different access to high-quality Internet. This is particularly true for fibre fixed broadband connections (fibre-to-the-home, FTTH), while the green transition is changing jobs, skills and local economies and presenting new challenges and opportunities, both of which show regional asymmetries (OECD, 2023[34]). Regions can turn challenges of digital and green transitions into opportunities by using regional assets to restructure the local economy. Providing access to high-quality broadband services at affordable prices, across different territories will help to ensure that economic and social activities can continue in an increasingly remote manner. This is of particular concern for non-metropolitan areas which do not typically have the same access to high-speed broadband, revealing a clear urban-rural divide. According to the information provided by regulators in 26 OECD countries, overall, only 7 out of 26 countries have succeeded in ensuring access to a high-speed connection to more than 80% of households in rural regions (OECD, 2020[35]). At the same time, remote areas are particularly poised to become leaders of the green transition given that clean energy sources, from wind to solar (farms) to tidal, are well-placed in non-metropolitan areas. Across Ireland and the United Kingdom, for example, off-shore windfarms are a core part of regions’ spatial development strategies, taking advantage of the record wind speeds in the North Atlantic. They are also a way to further develop and make use of regional ports, which support the economies of small and medium-sized towns.
Digital and green skills shortages are a major obstacle to local economic growth, firms’ investments and delivering the digital and green transition in regions. Therefore, to seize the benefits of the digital transition, access to digital infrastructure in regions is essential, not only for local communities but also to attract the key target groups of investors, talent and visitors. This needs to be accompanied by the widespread adoption of digital technologies in regions, complemented by minimum digital skills. There is also a need to address a skills gap when it comes to the green transition. This is highlighted by the fact that, in 2022, 58% of surveyed companies in Europe indicate the shortage of a skilled workforce as a major barrier to making their business model greener (Eurochambers, 2022[36]). Still, the share of workers in green-task jobs grew overall from 16% in 2011 to 18% in 2021, ranging from 10 percentage point increases to 7 percentage point decreases across OECD regions (OECD, 2023[34]). The challenge today is for regions to attract diverse talent and investment – from healthcare workers to renewable energy to creative and cultural industries – and thus to provide the infrastructure and offerings needed to make these transitions a possibility. Moreover, regions need to consider which skill gaps – high, medium and low – are needed to be bridged to achieve inclusive and sustainable regional development, which is explored in Chapter 5 (OECD, 2022[32]).
Regions as actors on the global stage
Regions are increasingly seen as actors in global exchanges in a process dubbed paradiplomacy, where legitimate representatives of local and regional authorities undertake external relations with other local, regional, national and international actors (OECD, 2019[37]). In France, for instance, the Rhône-Alpes region and its partner Entreprise Rhône-Alpes International have several economic representations abroad and, in Spain, Catalonia has 4 delegations (France, Belgium, Germany, United Kingdom) as well as 34 trade bureaus, 4 cultural and linguistic representatives, 9 overseas development offices, 10 tourism centres and 5 cultural industries representatives (Paquin, 2019[38]). Although national governments continue to have the means and power to influence international agendas, regions and cities are more visible on the international scene through various fora (Acuto, 2013[39]). Indeed, paradiplomacy is a tool for regions to increase attractiveness by advancing their global interests and attracting global investment and talent, increasing international visibility and intervening in global flows of international relations (Lord, 2000[40]). Although there may be restrictions for certain subnational governments to play a role in the international arena, many countries hold extensive consultations with subnational governments and other stakeholders in the lead-up to significant international agreements. Even where multi-level governance arrangements do not provide an easy path for regions to participate in international affairs, it is imperative that regions work across sectors and levels of government to co‑operate in promoting their key assets on the global stage, including through support for subnational investment promotion agencies, which exist at the municipal and/or regional level across virtually all OECD countries. These activities benefit from national-regional co‑ordination efforts, which can reduce the risk of races-to-the-bottom where regions compete to attract investors, talent and visitors through offering competitive fiscal advantages. For instance, the case of Germany is a telling example of how cities and regions can collaborate with their peers in the Global South. Germany has put in place a dedicated multi-level governance architecture with specific programmes and funding schemes to support both federal states and municipalities in strengthening their decentralised development co‑operation strategies and to co-ordinate activities across levels of government (OECD, forthcoming[41]).
Understanding the internationalisation of regions in relation to international connections
National factors alone are no longer sufficient to determine international attractiveness to foreign targets. A set of subnational information is needed to address the broader sensitivities expressed in the current environment (e.g. teleworking conditions, broadband connections, access to public health and education, logistics networks and environmental and cultural quality). In doing so, this information offers regional and territorial actors new possibilities to act and distinguish themselves in globalisation, supported by countries to sustain opportunities and favour synergies rather than subnational competition (OCDE, 2022[1]). To deliver on this, the OECD developed an approach to allow regions to be situated in their global environment by distinguishing four categories of international “connections” (Figure 2.3) (OECD, 2021[4]).
Figure 2.3. Analytical framework for the diagnosis of the internationalisation of regions
Source: OECD (2022[1]), L’internationalisation et l’attractivité des régions françaises, https://doi.org/10.1787/6f04564a-fr.
Business connections: Consisting of international exchange of goods, services and capital. Business connections are often the most important among a set of international exchanges and they are cited by actors as a priority for their internationalisation activities, in particular exports by local companies and the attraction of FDI.
Human connections: International flows of people. These are mainly migrants and visitors, defined as a traveller taking a trip to a destination outside his/her usual environment, for less than a year, for any main purpose (business, leisure or other personal purposes) other than to be employed in the country or place visited (OECD, 2018[42]).
Infrastructure connections: The physical and digital networks that are provided by a region to national and international actors. They condition the existence and intensity of the various flows – human, financial, goods or data – linking regions to their international partners.
Knowledge connections: The international relations developed by R&D actors: public and private research centres and universities. International collaboration in the field of research and innovation is a key element in the internationalisation and attractiveness of a territory (OECD, 2021[4]). These connections are thus also embodied in the flow of foreign researchers and international students and include international cultural relations, which are more difficult to capture statistically. Furthermore, these knowledge connections include the diplomatic action of the regions and in particular exchanges linked to decentralised development co‑operation (OECD, 2018[43]).
Business connections
Business ties are key to globalised networks and are often among the only aspect measured. They materialise primarily through trade, imports and exports to final or intermediary destinations. Multinational enterprises are driving both globalisation and the resulting international fragmentation of production but there is an increasingly important role for SMEs in supporting the internationalisation of regions. There is a need for better measures of the actual scale of the activities of both multinational enterprises (MNEs) and SMEs (including their foreign affiliates, supply chain linkages and their core markets abroad). MNEs and SMEs play an ever-increasing role in the development of GVCs, which are not limited to trade and FDI alone: they have a direct and global effect on the organisation of production networks (through R&D, marketing and branding, parent and affiliate companies, etc.). Overall, comparable statistical indicators on business connections at the regional level are scarce, with the most relevant measures relating to a region’s trade, such as the share of the regional economy in the “tradable goods” sectors (including agriculture, industry, information and communication, financial and insurance activities, and other services) (OECD, 2018[44]), the level of imports/exports and the level of FDI, the latter of which is expanded upon in Chapter 3.
While many countries have regional data on imports and exports of goods, about half of OECD countries do not provide this information in detail. Information is even scarcer when considering sectoral data – which would be a vital tool for regions to understand their region-sector linkages and their resilience against global shocks. For example, using input-output (IO) tables from the cross-border EUREGIO database, which synthesises the regional flows of all goods and services, the Banco de España analysed Spanish regions in GVCs and determined that the Basque Country was most exposed to global economic shocks through backward participation (meaning they rely most on inputs of production from other regions and countries). Madrid, Spain, was found to be most impacted by changes in US tariffs and the largest overall foreign dependency (OECD, 2022[32]).
Human connections
People, and more specifically visitors and migrants, are an important dimension of internationalisation. Human connections are therefore measured using both migration and visitor data. Data on migration cover not only the length of stay but also the foreign-born share of the population and their integration into society with regard to employment and education outcomes. On the visitor front, measurements from the United Nations Educational, Scientific and Cultural Organization (UNESCO) (e.g. number of World Heritage sites), the European Commission’s Joint Research Centre (JRC) (e.g. an indicator of regional vulnerability to tourism shocks) (Batista e Silva et al., 2018[45]) and Eurostat (e.g. number of overnight tourist stays) provide useful assessments of a region’s embeddedness in the global tourism economy. In terms of visitor connections, for instance, the Algarve region, Portugal, and the Balearic Islands region, Spain, performed well above other EU regions, with the Balearic Islands having recorded the highest number of visitor nights spent per square kilometre (sq. km) (over 1 540) out of all of the Spanish regions. In addition, many OECD member countries, such as Canada, France, Spain and the United Kingdom, collect useful information on the number of arrivals and foreign-born employment across sectors and at the subnational level (OECD, 2016[46]). Measuring human connections – especially following shocks like COVID-19 where these flows tend to decline – can support regions to enhance their visitor and talent attraction policies (explored in Chapters 6 and 5 respectively).
Infrastructure connections
Infrastructure connections are the physical connections a region offers to its potential international partners. The existence and characteristics of infrastructure connections condition the existence and intensity of the various flows that link regions to their international partners – whether these are flows of people, goods, finance or information. When infrastructure connections are limited, it can isolate regions from an attractiveness perspective, as prospective talent, investors and visitors find these places hard to reach and to work or export from (see Box 2.3).
Projects like Ireland’s All-Island Strategic Rail Review, a cross-border project including both Northern Ireland and the Republic of Ireland, are aimed at reducing these regional disparities by “catching up” on years of lost international connections in relation to a limited rail network. One of the key tenants of the strategy is to promote regional accessibility in the Northern and Western regions – a key barrier to its development and attractiveness as illustrated in Chapter 3 (Government of Ireland, 2021[47]).
Box 2.3. Ports and logistics networks, an asset for regional development
Without relevant access to road, air, train, broadband and logistics networks, regions may lose opportunities for export and be less attractive to FDI, talent and visitors. Among infrastructure hubs, ports remain at the frontline of globalisation, with around 90% of traded goods carried by sea. At the same time, regional policy choices related to port and logistics networks can also shape different types of globalisation.
In May 2022, the OECD held a webinar on “Making ports and logistics networks an asset for regional development”. The webinar discussed infrastructure connections as a factor in the internationalisation and attractiveness of regions and the critical role ports and logistics networks can play in regional development, especially for island regions such as the Azores (Portugal), Islas Baleares (Spain) and La Reunion (France), due to their dependence on maritime transport, in the case of outermost islands, their strategic role as a frontline presence for nations. Key takeaways included the following:
Ports are pivot points of international economic activity in terms of organisation and value creation and they should be planned and developed to complement other transport and logistics policies and infrastructure.
However, the current shipping model, based on the presumption that more, bigger and cheaper is better, has reached its limits. Thanks to record-high freight rates since 2020, the ten largest container shipping companies registered large profits in 2021, a substantial part of which has been used to fund acquisitions of firms operating inland logistics and transport to achieve vertical integration of the supply chain. Meanwhile, the pandemic showed the limits of the hub‑and-spoke tendencies in maritime transport as companies consolidated port networks resulting in increased calls to main hub ports and a reduction in calls to secondary ports. This consolidation by industry giants creates significant challenges for coastal regions looking to attract port activity and investment that improves both their maritime and inland logistics infrastructure.
Indeed, the post-pandemic period has highlighted that congestion in only a few hub ports can result in severe disruption of global supply chains. A shipping model based on smaller ships, more direct connectivity, delivering value-added and better environmental performance would help rebalance the current “race for critical mass” and be more aligned to regional development objectives. This renewed approach could also allow for new regions and territories, including those with mid-sized ports, to become more attractive to global trade.
Shifting to such a model will present multi-level governance challenges and require quality partnerships between stakeholders (e.g. national and regional governments, cities and the private sector, and ports). For example, the Nexus Agenda, led by the Ports of Sines and the Algarve Authority in Portugal, is a consortium of 35 national and international representatives from the transport and logistics sector, academia, research institutions and technology companies, to develop solutions for the digital and ecological transition of the transport and logistics sector in Algarve. It is estimated that by 2030, products created under the agenda will generate 1 000 jobs and reduce the carbon footprint of the Port of Sines by 55%.
Source: OECD (2022[1]), L’internationalisation et l’attractivité des régions françaises, https://doi.org/10.1787/6f04564a-fr; OECD (2022[48]), “2nd in the OECD webinar series on Rethinking regional attractiveness in the new global environment: Making ports and logistics networks an asset for regional development – 24 May”, https://www.oecd.org/regional/globalisation.htm; ITF (2022[49]), “Performance of Maritime Logistics”, https://doi.org/10.1787/8e06fcd1-en; Merk, O., J. Hoffmann and H. Haralambides (2022[50]), “Post-COVID-19 scenarios for the governance of maritime transport and ports”, https://doi.org/10.1057/s41278-022-00228-8.
Knowledge connections
Knowledge flows are a crucial aspect of internationalisation and – in a digital, rapidly changing society – they strongly contribute to the success of individual, business and territorial activities. In principle, knowledge connections include many aspects, although the existing literature provides few indicators to enable the comparison of regions from one country to another. Available indicators include patent production, R&D spending and measures relating to knowledge-intensive industries. The core hypothesis of this pillar is that the most innovative sectors create more performant international links. Empirical research shows that increased access to foreign markets increases stimulus for innovation, which in turn increases productivity and ultimately market size (Lileeva and Trefler, 2010[51]). In addition, R&D enable businesses to better withstand foreign competition (Matray and Hombert, 2015[52]). The number of co‑patents filed by partners in different countries is one of the best measures because it is inherently linked to knowledge flows (at least between inventors). Making progress on these indicators requires regional actors to work across sectors to promote their region as a knowledge hub. The Ruhr area, Germany, for example, exploited its large urban population to create a knowledge hub for the chemical and green industries. By 2014, the Ruhr area had 22 universities with more than 250 000 active students. The large investment was very successful in creating a highly skilled workforce that built an innovation-led economy, attracting companies and new employment. Indeed, regions with a high share of digital or green jobs have a comparative advantage in attracting green investment, given the availability of workers and other firms with which they can collaborate (OECD, 2023[53]).
Strengthening internationalisation through international attractiveness strategies
Recent crises have prompted regions in OECD countries to rethink their participation in globalisation, as well as their relative attractiveness to investors, talent and visitors. As a result, regions need to better understand the structural challenges emerging or reinforced by these crises (i.e. COVID-19 pandemic, the war in Ukraine) and existing megatrends (climate change, globalisation, digitalisation and demographic change) and how their international profiles may have changed, while maintaining a focus on providing benefits to local residents and businesses and preserving environmental resources.
To help regions better understand their position in the new global environment and rethink their attractiveness strategies, the OECD has designed an innovative and multidimensional methodological framework that first considers and maps a region’s international connections, as presented above. However, simply understanding a region’s position in the world is not sufficient: other tools need to be identified to help strengthen that position. Spotting available policy levers to enhance international connections and more effectively attract specific target groups (e.g. investors, talent and visitors), for example, requires a closer examination and understanding of subnational drivers of regional attractiveness. To do this, the OECD regional attractiveness framework, presented in the next chapter, considers global engagement beyond international connections and economic factors alone.
The discussion needs to focus on how to transform globalisation as a driver of regional development, making trade work for all, with respect to climate, demographic and technological change and rising social and economic inequalities. Reflecting on ways to articulate global and local development leads to multiple questions:
What levers do regions have at their disposal to reinforce their attractiveness and global engagement? (Chapter 3).
How can regions strengthen their value proposition to attract global investment? (Chapter 4).
How can regions enhance economic opportunities and well-being to attract international talent? (Chapter 5).
What are the levers that promote sustainable international tourism activity beyond metropolitan regions? (Chapter 6).
How can regional policy makers work across sectors and levels of government (including international) to co‑ordinate their attractiveness policies? (Chapter 7).
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