CHESHIRE, P. - Cities in Competitiveness

Urban Studies, Vol.
36, Nos 5± 6, 843± 864, 1999
Cities in Com petition: Articulating the Gains from

Integration
Paul Cheshire
[Paper received in ® nal form, January 1999]
1. Introduction
This paper review s the interaction of com pe- 1976; Harding, 1991), the newer city mar-
tition betw een citiesÐ territorial com pe- keters oriented both to im age manipulation
titionÐ and the process of European and the repackaging of the `place product’
integration. By `territorial com petition’ is (Ashw orth and Voogd, 1990; van den Berg
meant a process throug h which groups, act- et al., 1993; Sadler, 1993), French (or
ing on behalf of a regional or sub-regional Japanese) planners of regional technopoles
econom y (typic ally that of a city-region), (Cohen and Sim mie, 1991), or capacity
seek to prom ote it as a location for econom ic buildin g and local supply- side policies (Ben-
activity either im plicitly or explicitly in com - nett and Krebs, 1991, 1994). W hat always
petition with other areas. This com petitive distingu ishes it is its local origin and
activity is often addressed to the attraction of af® liation.
mobile investm ent, som etimes with discrim i- As has been argued elsewhere (Cheshire
nation between more and less desirable activ- and Gordon, 1996), it can be view ed as the
ities. But it may equally be concerned with production of a local public goodÐ in this
enhancing the share of existing local busi- case, additional local econom ic development.
nesses in the markets they serve and generat- Its `produ ction’ is therefore problematic and
ing new businesses and markets. Territorial conditional, not deterministic. There are
com petition may use national programmes or signi® cant externalities involve d so that ® rm s
European Structural Funds but, in contrast to or agents will not norm ally act individ ually.
traditional regional policy, it is bottom -up in Collective action by `clubs’ acting on behalf
motivation and is concerned with econom ic of businesses or local authorities is also un-
ef® ciency (conceived purely locally) not with likely if prospective club members think that
spatial equity. it will either be ineffective or else they can
Viewed in this way, territorial com petition `free-ride’ (see Olson, 1965). Nor can
com bines the concerns of traditional prop- government actionÐ the other main mechan-
erty-oriented growth machines (Molotch, ism for providi ng quasi-public goodsÐ be re-
P aul Cheshire is in the Department of Geography and Environment, The London School of Economics, Houghton Street, London,
WC2A 2AE , UK. Fax: (0171) 955 7412. E-mail: [email protected]. This paper drew on the results of a project on Territoria l
Com petition B etween Metropolitan Regions in the SEM , undertaken within the E SRC’ s Single E uropean Market Initiative. The author
gratefully acknowledges the support of E SR C under Award W 113.251003. This project involved a network of researchers across 11
E uropean regions and the work was very much a collective effort. The author has embodied many ideas developed within the group
as a whole and gratefully acknowledges that collective effort. A monograph reporting the study w ill be published during 1999 (Cheshire
et al., 1999). The grow th model underlying the calculation of the residuals for the most recent period reported in Table 1 drew on
w ork being undertaken for a project within the ESRC’ s Cities Initiative under A ward L 130251015.
0042-0980/99/05/0843-22 Ó 1999 T he E ditors of Urban Studies

844 PAU L CHE SH IRE
lied on. The most effective scale of territori- ence of territorial com petition . This point is
ally com petitive agencies is often larger than returned to in the ® nal section. If territorial
that of established units of city government com petition is to in¯ uence the ultim ate spa-
because those units seldom correspond to tial gains from the process of Europe an inte-
econom ically functional areas. Businesses gration, then three conditions should hold.
and workers tend, how ever, to locate in, and Europea n integration itself generates terri-
be in¯ uenced by the characteristics and the torial com petition. T he resulting locally de-
resources of, functional econom ic areas, velope d policies actually have som e im pact
most obviously the city-region. This under- on differential rates of local growth. And the
lies the reasons why the capacity for particu- extent to which territories exert in¯ uence on
lar territories to engage effectively in the gains they get from integration is in som e
com petitive policies cannot be taken for systematic way conditioned by the effects of
granted. T he private sector is likely to be integration. T he second section of this paper,
ineffective because of problem s of market therefore, reviews the literature that has
failure and the zone of com petence of city analysed the potential spatial effects of inte-
government is typically smaller (and often gration and the third section examines the
fragm ented) com pared to the functionally evidence relating to whether local policie s
relevant territory. have any identi® able im pact on growth. This
Although obvious in ancient Greece, Re- leads on to the ® nal question addressed in
naissance Italy or 18th-ce ntury Germany, this paper: in what way is territorial com pe-
com petition between cities in Europe largely tition likely to in¯ uence the ultim ate spatial
disappeared with the rise of the nation-state. im pact of European integration?
In contrast, it has been a perm anent feature T here are both econom ic and political rea-
of urban developm ent in the US since the sons why integration in Europe has led to the
colonial era. The major ports of the E astÐ emergence of territorial com petition. Terri-
Baltim ore, New York or BostonÐ sold their torial com petition can be view ed as the ratio-
attractions to Europea n migrants in a wholly nal response to incentives. These incentives
overt way. Cities (or would-b e cities) on the boil dow n to tw o issues: what are the poten-
frontierÐ wherever that happened to be at the tial bene® ts to the territory in question (or the
tim eÐ com peted for developm ent. The rail- relevant set of decision-m akers which rep-
roads were built on urban com petition and resent it) from developing territorially com -
real estate developm ent and city boosterism petitive polic ies and what are the costs of
was an integral element. It continu es to the doing so? Potential bene® ts include, of
present. In 1994, the city of Amarillo in course, the avoidance of (larger) losses that
Texas posted cheques for $8 million to each might be expected to result from not engag-
of 1300 com panies with the prom ise that the ing in territorial com petition . Both bene® ts
recipient com pany could cash their cheques and costs are conceived purely in local
if they set up in Am arillo and generated 700 termsÐ local, that is, not only in territorial
jobs (Burstein and Rolnick, 1995). As terms, but also local to the relevant decision-
Burstein and Rolnick also argued, com pe- makers or participants. 1
tition betw een territories is inherent in a large Integration increases the range of com pe-
integrated econom y with few constraints on tition to which local econom ies are exposed
factor mobility and no ability to regulate the and activity becom es more footloo se, both
com petitive struggle between places (the because obstacles to movem ent are reduced
`war betw een the states’ ). and because the restructuring generated by
The revival of com petition betw een cities integration produces new local opportu nities.
in Europe is relatively recent. T his review Together, these generate increased incentives
begins by analysing brie¯ y how European for territories to develop com petitive poli-
integration and its likely spatial im pact have cies. In so far as the available gains or losses
interacted with and conditioned the emerg- from integration vary spatially in a system-
TH E GA IN S FROM INT EG RAT IO N 845
atic way, the increased extent of the incen- policies is the extent to which it is judged
tives for territorial com petition will also vary that policy can be effective. T he evidence
from place to place. At the same tim e, with examined in section 3 sugge sts that policie s
many more locations potentially available can have an im pact on com parative rates of
from which any regional or national market local econom ic developm ent, albeit only a
can be served, there are far more places lim ited one. But given that they can have
com peting with each other. National govern- som e im pact, and that the incentives to en-
ments cannot operate traditional top-dow n gage in territorial com petition vary systemat-
regional policie s on the assumption that a ically from place to place, then that im plies
particular activity, because it serves their that territorial com petition will itself be a
market, m ust be located within their territory. conditioning factor in determining the ulti-
In an uninteg rated Europe, com petition be- mate spatial incidence of the gains from Eu-
tw een two national cities for the same ac- ropean integration. There is likely to be
tivity was self-evidently wasteful from a interaction between ex ante spatial inte-
national viewpoint. W hen the range of com - gration effects and territorial com petition.
peting cities is extended, in principle, to the
whole of Europe, the incentive for national
governments to restrict the com petitive poli-
cies of their own cities is reduced or elim i-
2. The Spatial Impact of European
nated. The incentive to try to in¯ uence the
Integration
spatial distribution of activity and to regulate
the com petitive behaviour of local territories The work of the Cecchini Report (CEC,
passes upwards from the nation state to 1988) or the studies related to that, such as
the supranational authority: the European Buigues et al. (1990) , hardly need rehearsing
Com mission. In fact, both the econom ic and again. They did not, how ever, analyse the
the political reasons why integration leads likely spatial im pact of those actions collec-
to territorial com petition have two aspects tively know n as the Single European Market
to them which are returned to in section 4 (SE M). This, itself, was another step on the
below. path of policy-assisted European integration,
As noted above, the incentive to engage in in progress since the late 1950s and continu -
com petitive efforts is in part a function of the ing with monetary union from the late 1990s.
extent to which it is thought a territory may The om ission from the Cecchini Report of
potentially gain (or lose) from the restructur- any discussion of the spatial im pacts may
ing induce d by integration. The more the have re¯ ected the fact that the Directorate of
wider region (or, in the case of smaller coun- the Com mission responsib le for the studyÐ
tries, the whole country) in which a city is Econom ic and Financial AffairsÐ had no ex-
located potentially may gain from inte- plicit remit for regional issues; or it may
gration, the greater the potential pay-off to have been a matter of political convenience.
that city is if its polic ies can attract a larger One of the few quasi-of® cial judgem ents was
propor tion of those gains. If a city is in a that of Delors (1989) who asserted that the
region in which the gains from integration SE M would encourage regional convergence
are expected to be negative, then even the as the econom ic grow th it induced spread to
most effective com petitive policies can only poorer regions as a result of increased ¯ ow s
hope to reduce the rate of loss. There are few of investm ent and falling transport costs, re-
if any potential new gains available. In such inforced by government policy. This, how-
circumstances, the main incentive is to lobby ever, was on the im plicit assumption that the
for stronger redistribution al polic ies at a so-called accompanying measures to stim u-
supranational level. late the E uropean econom y were actually
A further factor in determining the incen- im plem ented. Yet of the four mechanisms
tive to engage in territorially com petitive identi® ed in the Cecchini Report (CEC,
1988) as generating the gains from the SEM, Krugm an and Venables (1991, 1993), Ven-
threeÐ and the only ones which were con- ables (1996) or Amin et al. (1992) are all
sistently quanti® edÐ inevitably meant that essentially the same. They employ very dif-
there would be enterprises and local econom - ferent methodo logies but their conclusion,
ies which lost, as well as ones which gained. subject to varying degrees of quali® cation, is
Since the attainm ent of the gains required that removing protection as a result of econ-
restructuring involving the exploitation of om ic integration works to the relative disad-
unexpl oited econom ies of scale, the rationali- vantage of backward, peripheral regions and
sation of industrial structures and the further favours advanced core regions.
exploitation of com parative advantage, there M ethodology is a useful criterion upon
had to be resource transfers, and less ef® cient which to classify the m any studies of the
plants/enterprises had to be closed so that the spatial effects of integration or the SEM.
econom ies could be exploited. There have been three broad approaches. The
It has been recognised in the academic ® rst set of studie s has taken as a starting-
literature, at least since the work of Clark et point various measures of the sectoral im -
al. (1969) , that the effects of Europe an inte- pact, usually deriving from the work of
gration in general would be spatially differ- Buigues et al. (1990) . A second set of studies
entiated. The Cecchini Report (1988) has approached the problem on the basis of
explicitly recognised the differentiated pure analysis; and a third set of studies has
sectoral effects of the SE M, since the used aggregate data to estimate the longer-
methodo logy employed built-up the estimate term spatial im pacts of integration and/or to
of aggregate gains from estimates by sector. predict the likely effects of the SEM. Since it
But there was no explicit recognition of even is widely recognised that the speci® c effects
national differences in the incidence of gains. of the SEM will take tim e to work them -
Associated studies, notably that by PA Cam- selves throug h, ex post estimates of the re-
bridge Consultants (1988) , explored the regional im pact of the SEM are not yet
gional im pacts. The PA Cambridge possible.
Consultants’ study concluded that the main T he studies that have started from the
effects of the SE M would be to concentrate basis of the estim ates of the sectoral im pact
econom ic activity in a smaller num ber of of integration have then had to ® nd som e
places where cost reductions and scale sav- additional method to convert the sectoral im -
ings could be exploited to the best advantage: pact into a regional one. At the risk of over-
a variation on the core±periphery them e ® rst simpli® cation the methods chosen have been:
strongly argued in the context of European surveys; shift share analysis; case studies;
econom ic integration 20 years previously by and, classi® catory. In som e studies, just one
Clark et al. of these methods has been used, while other
This, indeed, despite their wide variation studies have com bined methods. The studies
in methodologies, has been the central con- by Begg (1992) and Amin et al. (1992) used
clusion of virtually all ex ante analyses of the a com bination of case studies and surveys,
spatial im pact of European integration. T hey althoug h in very different ways. Begg
all converge, by one route or another, on the analysed the ® nancial services sector, chosen
19th-century econom ic geographer’ s con- on the basis of its predicted sensitivity to the
clusion that `the best protection for a back- SE M (CEC, 1988) and studied by means of a
ward region is a bad road’ . If `road’ is structured questionnaire. Amin et al. chose
interpreted broadly as a shorthand for `costs the telecommunications and pharm aceuticals
of doing trade’ , including all transport costs industries, again on the basis of their antici-
and tariff and non-tariff barriers, the conclu- pated sensitivit y to the SEM, but treated
sions of subsequent studies as varied as those them more as case studies, assembling a
of Clark et al. (1969), PA Cambridge Con- range of inform ation, including inform ation
sultants (1988) , Itaki and W aterson (1990) , from less structured surveys. The conclu-
sions of both studies were very similar. Begg where regional policy has had a long-term
(1992, p. 345) concludes that positive effect.
T he second set of studies are analytically
the bene® ts of com pletion of the internal based, althoug h they range in terms of their
market for ® nancial services will accrue approach from the highly form al analyses of
disproportionately to existing ® nancial Krugm an and Venables (1990, 1993), rigor-
centres which tend to be in the more pros- ously developed from econom ic theory; to
perous and rapidly growing regions of the the analytical but more inform al analyses of
Europea n Com munity. Cam agni (1992) , Itaki and W aterson (1990)
or Forslun d and Johansson (1995) ; to the
Amin et al. (1992, p. 329) conclude that
much more intuitiv e and judgm ental analysis
the SEM ¼ will strengthen the com para- of W egener (1995) , Dunford (1993) or
tive trade advantage of advanced regions. Bremm (1995) . Krugm an and Venables
(1990) show that on the assumption that
Quevit (1992) com bines sectoral sensitivity there are som e increasing returns in manu-
with a classi® catory approach to the com pet- facturing and im perfect com petition , but that
itiveness of industries in different regions. manufacturing is labour-intensive and labour
Although he makes the point that the effects is initially cheaper in the `peripheral’ region,
of increased com petition in reducing costs integration is associated ® rst with divergence
will have a bene® cial effect on the econom - and then with convergence. T heir 1993
ies of all regions, he, too, agrees with the model draw s on trade theory more explicitly,
basic conclusion that the SEM will have a but incorporates localised agglom eration
negative effect on the industrial fabric of the econom ies with factor im mobility. This pro-
less-favoured regions and will also tend to be duces the apparently paradoxical result that
detrim ental to the com petitive position of the the reduction in the cost of doing business
declining industrial regions. across space is associated with an increased
Finally among this set, Steinle (1992) uses advantage in industrial clustering. In turn this
measures of sectoral sensitivity to the SEM, generates, as a plausible outcom e of greater
a classi® cation of regional com petitiveness integration, fewer but larger industrial con-
together with a form of shift-share analysis, centrations, serving the European market as a
to identify three types of potentially gaining whole. Itaki and W aterson (1990) reach simi-
region: those where growth is spilling over; lar conclusions from a model incorporating
new developm ent axes associated with a econom ies of scale and absolute advantage.
broadening of the Europea n `core’ ; and, re- Cam agni’ s (1992) more macroeconom ic
gions where the long-term effects of regional analysis includes the additional effects of
policies are bearing fruit. This approach, Europea n m onetary union and a Kaldoresque
which applies underly ing econom ic concepts, concept of `productivity wages’ (based on
data and judgem ent, produces a set of winner the idea of greater convergence of money
regions which is both more speci® c and less wages than of labour productivity) but
conventional than the set generated by most reaches a similar, if more baldly stated con-
of the other studies analysing the im pact of clusion: that integration favours advanced,
the SEM on sensitive sectors. Steinle’ s win- com pared to lagging regions. Variants of this
ner regions included Swabia, Veneto and conclusion are reached by all the writers
Valencia as regions which are dynam ic and relying predom inantly on pure analysis, de-
gaining from the overspill of nearby ad- spite the disparate styles of their analysis.
vanced regions; both the Belgian and Dutch Krugm an and Venables com e closest to be-
Lim burgs (form erly declining coal mining ing an exception to this since they identify
regions) bene® ting from the extension of the forces generating convergence as well as
European core; and Brittany and Strath- diverge nce.
clydeÐ essentially Glasgow Ð as places An alternative tradition, although one
which does not model integration explicitly, then E uropean Econom ic Com munity (EE C)
is represented by Barro and Sala-i-Martin of 6 and in the regions of the UK, Ireland,
(Barro, 1990, 1991; Barro and Sala-i-M artin, Denm ark and Norw ay: the ten countries con-
1991, 1992; Sala-i-Martin, 1994). Their start- stitutin g the anticipated membership of the
ing-po int is neo-classical growth theory, in EEC after its initial enlargement. Accessibil-
which the assumption of constant returns is ity of incom e in a region was measured by
alone enough to generate a long-ru n outcom e adding to its own estimated GDP that of all
of spatial convergence. The addition of those other regions, discounted by distance, where
factors identi® ed with integrationÐ factor distance was measured as a cost, including
mobility , freer trade and technology trans- tariffs where appropriate.
ferÐ simply acts, therefore, to accelerate T hey then calculated regional econom ic
convergence. They, therefore, are interested potential as it would be in four different
not so much in investigating the spatial states of the world: for the regions of the
effects of integration (since these are effec- EEC of 6 before the T reaty of Rom e; as it
tively pre-assum ed) as in estimating the was for the EEC of 6 with tariff reductions
speed with which conve rgence occurs. Ap- follow ing the Treaty of Rom e; as it would be
plying their methodo logy to data for Euro- for the EEC of 10 after the ® rst enlarge-
pean regions over a com paratively long mentÐ assuming Norway entered; and as it
tim e-period, they found `conditional conver- would be follow ing that enlargement and a
gence’ . This could be interpreted as indicat- fall in transport costs associated with con-
ing that the effects of integration are in the tainerisation and roll-on roll-off ferries. E ach
long run differentially to the bene® t of low er- value of regional econom ic potential used the
incom e, periphe ral regions. However, work same GDP dataÐ those estimated for 1966.
by others suggests that these results are not Thus the values were for different hypoth eti-
robust. They are based on a very partial cal states of a static world. No relocations of
measure of convergence. If the evolution of econom ic activity were assumed to occur as
the distribution of regional incom es is a result of the changing spatial incidence of
analysed overall, the result of convergence econom ic potential. T his, althoug h under-
disappears (Quah, 1993; Magrini, 1999). The standable, was in a sense inconsistent with
convergence result is also sensitive to the their argum ent that econom ic potential, and
arbitrary spatial units for which data are changes in it re¯ ecting changing accessibility
available (Cheshire, 1999; Magrini, 1999). induce d by tariff and transport cost reduc-
They are also sensitive to their exclusion of tions, could be taken as an indicator of
the poorest regions from their data set (Arm- the spatial im pact of E uropean integration.
strong, 1995); and are highly sensitive to the They concluded that peripheral regions,
effects of model speci® cation (Cheshire and which included most British regions, would
Carbonaro, 1996). The same growth data can tend to lose out from integration, even with
yield apparent conditional convergence or the assumed introdu ction of roll-on roll-off
divergence depending on which independent ferries.
conditioning variables are included. T he work of Clark et al. was developed in
The third group of studies attempt em- a series of studies by Keeble (Keeble et al.,
pirically to estimate the spatial im pact of 1983, 1988). These added weight to the al-
European integration as a long-term ready existing notion that there was a core±
phenom enon ex post. The work of Clark et periphe ry problem in the EC and that this
al. (1969) represents the ® rst systematic problem would be intensi® ed by enlargement
analysis of this type. They adapted the mea- and further integration.
sure of `market pote ntial’ , developed by Har- Since then two groups have applied these
ris (1954) , to estimate regional èconomic measures of econom ic potential, and changes
potential’ . This was a measure of the accessi- in regional econom ic potential induce d by
bility to total incom e for every region in the integration, to derive ex post estimates of the
spatial im pact of European econom ic inte- dent growth variables have been publish ed.
gration, with different results. A group asso- As the database was enlarged, it was possible
ciated with BroÈ cker and Peschel (BroÈ cker et to increase the range of dependent variables
al., 1983; BroÈ cker and Peschel, 1988; from rates of popula tion growth, to change in
Peschel, 1990, 1992) has undertaken a series unem ploym ent rate, to change in the value of
of industrially disaggregated studies for Ger- an index of urban welfare for three periods
man and Scandinavian regions, which found between 1971 and 1987 and, most recently,
that the level of econom ic potential was not a for grow th in GDP per capita from 1979 to
signi® cant variable in explaining differential 1990. 3 The results from these seven separate
regional grow th for most industrial sectors. models with respect to the spatial im pact of
These negative ® ndings may be misleading, Europea n integration were sum marised in
however, either because there was too little Cheshire and Carbonaro (1996) .
variance in growth and econom ic potential Not only did a plausible relationship be-
among the regions studied, or because the tween the measure of FUR growth and
disaggregated approach embodies too lim ited change in econom ic pote ntial emerge for
a conception of the role of potential. Given each model, but for each period studied,
differences in degrees of market orientation, irrespective of which growth variable (in-
econom ic pote ntial could well be signi® cant verse growth in the case of change in unem -
for som e industries and not for others, and ploym ent rate) was the focus of analysis, the
still be signi® cant overall. And, since suc- most appropriate form of the change in econ-
cessful regions will also tend to have greater om ic potential variable performed best. For
resources of physical and hum an capital, the 1960s, the strongest relationship was with
som e of the advantages of higher potential the measure associated only with tariff bar-
may well be realised in terms of changing rier reductions between the original six mem-
sectoral specialisation, leading to faster over- ber-states of the E EC: for later periods, it was
all grow th, rather than better performance in with those incorpo rating tariff reductions,
every sector. Thus it would seem to be more transport cost reductions and enlargement. 4
appropriate to test for the signi® cance of In addition, the functional form of the rela-
econom ic potential, not on a sector by sector tionship moved from being linear (with the
basis, but for econom ic activity overall. greatest gains being associated with the
This more aggregated approach has been highest values right at the centre of econom ic
follow ed by the second group, associated gravity of the E U) to quadratic for the tw o
with Cheshire (Cheshire and Hay, 1989; periods since the late 1970s (with a peak
Cheshire, 1990, 1991, 1993; Cheshire and positive im pact som e way out from the core,
Carbonaro, 1995, 1996) who have analysed suggesting deconcentration and spread
changes in indicators of activity across the effects).
EU at the level of functional urban regions T aken together, these results im plied that
(FURs).2 T hey included the urban regions of the areas of maxim um positiv e im pact of
the EU of 12 with popula tions of a third of a Europea n integration moved outw ards from
million and with core cities of more than the `core’ over tim e to what, by the 1980s,
200 000 (om itting those of Greece and Portu- might be described as the `near periphery’ .
gal for lack of data). In contrast to the work This included regions such as Veneto,
of BroÈ cker and Peschel, it was argued that if Bretagne, Emilia-Romagna, Toscana, Midi-
the dependent variable was a measure of PyreÂ neÂ
es, Bavaria and Schleswig-H olstein.
differential developm ent, the relevant inde- In interpreting these results, it may be
pendent variable was not the level of regional worth repeating tw o points. Clark et al.’ s
econom ic potential but changes in that value (1969) calculations of the im pact on regiona l
associated with European integration. econom ic pote ntial of different states of Eu-
Seven studies, all within a multivariate ropean integration and levels of transport
framework, and using four unrelated depen- costs, used GDP data for a single date, 1966;
in addition, the gains in econom ic potential respect to the im plications of the SEM and
predicted tended to fall away with distance further integration.
from the `core’ of the EUÐ that is from the T his conclusion is the equivalent in spatial
Benelux countries and north-w estern parts of terms to that of industrial and trade
Germany. A coherent interpretation is, there- econom ists who argue that the effects of
fore, that these gains tended to induce grow th integration are to reinforce com parative ad-
and with that growth, rising costs, not ac- vantage. The stronger regiona l econom ies
counted for in Clark et al.’ s static equilib- gain relative to the weaker ones and trade
rium framework. In addition, there were and regional econom ies becom e more spe-
continu ing falls in transport costs unantici- cialised as com parative advantage is ex-
pated by Clark which extended the area of ploited. It furthe r suggests that the greatest
greatest gains from integration (see Vicker- potential gains are concentrated in the core of
man, 1995). Over tim e, therefore, the maxi- Europe which, over tim e, has been becom ing
mum favourable im pact of the change in more broadly de® ned and that therefore the
econom ic potential on regional performance greatest incentives to com pete will be for
extended outw ards from the core to regions city-regions within that broadly de® ned core.
with gains in econom ic potential less than the
highest estimated by Clark et al. on the basis
3. The Im pact of Territorial Com petition
of 1966 data. At the same tim e, the im pact of
changes in econom ic potential became statis- None of the studies discussed in section 2
tically less im portant in determining regional considered the im pact of territorial com pe-
growth differentials. tition, and how this might interact with the
One may sum marise the conclusions of the effects of integration to in¯ uence its ultim ate
studies that have been identi® ed in the fol- spatial incidence. If such interaction were to
low ing way, therefore. The greatÐ almost exist, however, it would have to be predi-
overwhelm ingÐ majority of them identify cated on the ability of locally based policie s
European integration in general, and the actually to in¯ uence the rate at which a city
SEM in particular, as differentially bene® ting or region develops. Before proceeding, there-
`core’ or central regions of Europe com pared fore, it is logical to review the evidence on
to peripheral ones. In som e studiesÐ such this point. Methodol ogically, the problems
as those of Keeble and his associates, or that arise are analogous to those that arise
of Clark et al.Ð core and peripheral regions with attempts to measure the spatial im pact
are concretely identi® ed. In others, such as of integration itself. T hat is, there is a prob-
most of the purely analytical studies, these lem of isolating the effects of local policy
are abstractions rather than speci® c regions; from all those other variables which
and in a further group of studies, they in¯ uence the rate of growth observed in a
are either vague or represented only by particular region over a particular tim e-
examples. period.
The study of Steinle (1992) , speci® cally in T here have been num erous consultancy-
the context of the SE M, identi® es a set of style evaluations of the work of local devel-
intermediate peripheral regions (in a com bi- opm ent agencies. These have the
nation of the spatial and econom ic senses of disadvantage of almost always being speci® c
peripheral) and regions recovering from in- to one location and not com parative and have
dustrial decline as a result of strategically usually failed even to acknowledge the un-
applied regional policy, as gaining . W ith re- derlying problem and have simply counted
spect to the im pact of early movem ents to- the jobs in establishm ents which have had
wards European integration, the work of contact with the developm ent agency. There
Cheshire and Carbonaro (1996) is consistent have been few studies which have tried sys-
with the great majority of other studies but it tematically to net out how many of the jobs
is more consistent with Steinle (1992) with would have been created anyway, or how
many have been diverted from elsewhere effects on overall social welfare, an issue
(even from within the local econom y), or addressed in Cheshire and Gordon (1998) .
how many jobs may have been lost in other T here is another source of evidence avail-
® rms within the local econom y; or indeed, able, however, derived from the analysis of
how many additional jobs may have been causal factors in urban growth discussed in
generated in suppliers or other local ® rms by the previous section. Som e of the variables
local multiplier effects. Nearly all such stud- found to in¯ uence differential rates of devel-
ies have also been con® ned to evaluating opm ent may them selves be susceptible to
effects on jobs rather than on incom es. For manipulation by local policy-makers. Neither
what they are worth, however, most studies the model employed by Cheshire and Car-
of local econom ic developm ent agencies bonaro (1996) , nor its successors, could in-
have concluded that their interventions at clude all variables likely to in¯ uence
least work in the intended direction. differential local growth rates. This raises the
There have also been much more sophisti- familiar òm itted variables problem’ which
cated evaluations of particular institutions may im ply estimation bias (although there
such as Cham bers of Com merce (Bennett were careful tests, and these did not suggest
and Krebs, 1991, 1994) or of the French that there was a signi® cant problem). But in
Com mittees for Expansion (Bazin-Benoit, all applied econom ic work it is inevitable
1996). Here again, the conclusion has been that there are om itted variables. T he real
that such institutions have worked in the question is not whether variables were
intended direction. Bennett and Krebs (1991) om itted but whether their om ission seriously
indeed ® nd systematic variation in their ef- biases the results.
fectiveness consistent with differences in the As was argued in Cheshire (1990) , the fact
ef® cacy of local econom ic developm ent poli- that there were om itted variables can be
cies. Such speci® c institutions are never turned to use. The residuals from the ® tted
more than one element in local developm ent grow th models are, in principle, the com -
efforts, however, so their evaluation does not bined result of random error or noise in the
lead to more general conclusions as to data, and om itted variables. It is know n that
whether such policies overall can have a real there are localised factors at work in particu-
in¯ uence on local development trajectories. lar regions or cities which cannot be system-
More effective Cham bers of Com merce, for atically quanti® ed. 5 Alm ost certainly, the
example, might just substitute for less effec- most im portant of these is the form and
tive adm inistrative structures or public± in¯ uence of territorially com petitive policy
private partnership arrangem ents. itself.
There have been rather more sophisticated T able 1 provid es inform ation which can be
evaluations of traditional, top-dow n regional used to investigate this. It shows selected
policy. It is not intended to review them here residuals from growth models for the major
(see, for example, Arm strong and Taylor, FU Rs of the E U of 12 for 3 tim e-periods.
1993), but they have generally attempted, in The ® rst set relates to the period 1971±88,
one way or another, to estimate what would the second to 1979/82 ±1987/90 and the third
have happened in the absence of the policy to 1979±94. In the ® rst case, the inde pendent
intervention and then offset for that to get a variable was the change in the urban welfare
net measure of the im pact of policy. Again, index over the period, while in the other tw o
nearly all studie s have concluded that re- it was the more conventional rate of change
gional policy has worked in the intended of GDP per capita. For the period ending
direction. In neither case, of course, does the 1990, this was total percentage change be-
conclusion that the im pact of policies has tween the means of 1979/82 and 1987/9 0; for
produced positiv e results with respect to the the most recent period, it was the annualised
target indicators im ply that the policies offer com pound growth in GDP per capita from
a good use of resources or have bene® cial 1979 to 1994. T he residuals for each model
Table 1. Ò ver’ and ùnder’ performance of FURs measured by residuals from grow th models: all major FU Rs in top or bottom 7.5 per cent
852
of distribution at any period and selected m ajor F URs
Change in urban welfare index 1971±88 a G rowth in GD P per capita1979/82±1987/90 b Grow th in G DP per capita 1979±94 c
FU R Residual Rank FUR Residual Rank FUR Residual Rank
Frankfurt 5.079 1 Murcia 13.802 1 E dinburgh 0.0136 1

V erona 4.382 2 Palm a de Mallorca 12.953 2 Madrid 0.0081 2
V alladolid 4.053 3 Strasbourg 10.794 3 Paris 0.0076 3
T aranto 3.535 4 MuÈ nchen 10.575 4 Barcelona 0.0075 4
M urcia 3.067 5 Venezia 9.648 5 Frankfurt 0.0075 5
G lasgow 2.971 6 Saarbrucken 9.337 6 MuÈ nchen 0.0065 6
D erby 2.651 7 Leeds 9.212 7 Venezia 0.0065 7
Bordeaux 2.651 8 Taranto 8.757 8 Salonikie 0.0063 8
Bologna 2.641 9 Coventry 8.659 9 Palm a de M allorca 0.0060 9
N ice 2.604 10 Barcelona 5.413 21 Saarbrucken 0.0054 11
Bruxelles/Brussel 2.551 11 Paris 5.143 23 Verona 0.0048 14
N ewcastle 2.054 18 Frankfurt 5.319 22 Valenciennes 0.0032 24
M adrid 1.962 20 Verona 4.012 32 Coventry 0.0031 25
A msterdam 1.727 24 Madrid 3.298 37 Strasbourg 0.0027 29
Coventry 1.543 28 Valenciennes 2.753 42 Cordoba 0.0021 31
PAU L CHE SH IRE
V enezia 1.359 33 Edinburgh 1.801 44 Bilbao 0.0018 34

E dinburgh 1.200 35 Am sterdam 1.318 47 L eeds 0.0018 35
Strasbourg 0.955 38 Stockholm d 1.276 48 Valladolid 0.0010 46
SaarbruÈ cken 0.725 40 Bonn 1.078 49 Glasgow 0.0006 49
Rouen 0.383 49 Glasgow 0.646 52 Nice 0.0006 50
L eeds 0.211 53 London 2 0.066 57 Murcia 0.0004 54
K oÈ ln 0.187 54 Milano 2 0.593 65 T aranto 2 0.0001 57
L iverpool 2 0.001 59 Derby 2 1.113 71 Bologna 2 0.0003 60
Palm a de Mallorca 2 0.029 62 LieÁ ge 2 1.784 73 L ondon 2 0.0004 61
N ancy 2 0.421 68 Teesside 2 2.420 79 L ieÁ ge 2 0.0005 62
Berlin 2 0.530 70 Rouen 2 2.943 83 Newcastle 2 0.0005 63
Paris 2 0.734 76 Cordoba 2 3.861 93 Milano 2 0.0006 64
Barcelona 2 1.061 83 Bilbao 2 5.751 97 Derby 2 0.0010 72
M uÈ nchen 2 1.466 87 Bordeaux 2 5.792 98 Am sterdam 2 0.0018 88
N apoli 2 1.565 88 Alicante 2 5.814 99 Bruxelles/Brussel 2 0.0019 89
M alaga 2 2.147 100 Valladolid 2 6.665 101 Bonn 2 0.0020 90
D uÈ sseldorf 2 2.249 103 Torino 2 6.719 102 Napoli 2 0.0020 91
Table 1. (continued)
Change in urban welfare index 1971±88 a G rowth in GD P per capita1979/82±1987/90 b Grow th in G DP per capita 1979±94 c
FU R Residual Rank FUR Residual Rank FUR Residual Rank
M ilano 2 2.264 104 Shef® eld 2 7.057 106 Bordeaux 2 0.0033 102
Bonn 2 2.337 107 Napoli 2 7.400 109 L iverpool 2 0.0034 104
V alenciennes 2 2.482 109 DuÈ sseldorf 2 7.841 111 T eesside 2 0.0037 106
A licante 2 2.464 110 Nice 2 8.176 112 Nancy 2 0.0038 109
Shef® eld 2 2.762 111 KoÈ ln 2 8.307 113 Alicante 2 0.0039 110
Bilbao 2 2.848 112 Bruxelles/Brussel 2 8.483 114 Rouen 2 0.0046 117
T eesside 2 3.201 113 Berlin 2 8.723 115 Stockholm d 2 0.0048 118
L ieÁ ge 2 3.526 114 Nancy 2 8.943 116 Shef® eld 2 0.0050 119
L ondon 2 4.144 115 Newcastle 2 9.699 117 Dusseldorf 2 0.0059 120
T orino 2 4.343 116 Bologna 2 9.870 118 L isboa e 2 0.0064 121
Cordoba 2 5.322 117 Malaga 2 11.238 119 Malaga 2 0.0068 122
Liverpool 2 12.785 120 Berlin 2 0.0077 123
KoÈ ln 2 0.0080 124
T orino 2 0.0089 125
a
D ependent variable change in urban w elfare index, 1971±88. Source: Cheshire (1990): R 2 5 0.80.
b
Dependent variable percentage growth of G DP per capita at PPS mean 1979/82±87/90. Update of Cheshire and Carbonaro (1996): R 2 5 0.592.
c
D ependent variable rate of growth of GD P per capita at PPS m ean 1979±1994. Update of Cheshire and Carbonaro (1996): R 2 5 0.643.
d
No data 1971±87.
TH E GA IN S FROM INT EG RAT IO N
e
N o data 1971±87 or 1979±90.
853
are shown for all those FURs which were in contrast between L iverpoo l and Glasgow has
the extrem e 7.5 per cent of the distribution in been remarked upon before (see, for exam-
any tim e-period and for four other major ple, Cheshire and Hay, 1989). Although Na-
citiesÐ Amsterdam, Bonn, Milano and Na- poli im proved its position som ewhat in the
poli. The com petitive efforts of cities such as most recent period, the inef® ciency and inef-
Barcelona, Rotterdam or Paris during the fectiveness of its local adm inistration is no-
1980s, as well as som e of the speci® c advan- torious. T orino as a city had quite favourable
tages they enjoye d, have been widely dis- characteristics but althoug h Fiat successfully
cussed (see, for example, van den Berg et al., restructured follow ing its crisis of 1980 what
1993; Cheshire, 1990). We see from Table 1 was good for Fiat does not appear necessarily
that two of these three cities had grow th to have been good for Torino. Shef® eld’ s
performances substantially greater than the failed attempt to create an island of socialism
model’ s prediction, right at the top tail of the in Thatcherite England involve d quixoti c and
distribution of residuals. Rotterdam per- costly local expenditures and a policy which
form ed substantially better than the model’ s local business found hostile.
predictions for the period ending in 1990 (the E vide nce for the ability of policy to have
29th largest residual) but had only a small som e in¯ uence on local econom ic develop-
positiv e residual for the most recent period. ment can be found not only in the perform-
StrasbourgÐ a city with both well co-ordi- ance of these cities which consistently
nated local polic y and strong backing from outperform ed or underperform ed their char-
its national government directed at retaining acteristics, but also in the tim ing with which
key Europe an institut ions and the service they did so. Two of the earliest developers of
functions going with them Ð consistently out- what would now be classi® ed as territorially
performed its characteristics. But the most com petitive policies were Bologna and Glas-
consistently overperforming city through out gow . Their period of particularly strong
the period from 1971 was Frankfurt. It had excess growth was in the ® rst period and,
strong characteristics leading to a prediction indeed, Bologna performed badly in the
of grow th well in excess of the mean for all middle period and only as predicted over
FURs, but always substantially outpe rform ed the more recent one.
its prediction. In the early 1990s, while T he strong performance of Barcelona and
Berlin and Rotterdam were failing in their Paris is con® ned to the most recent period.
political efforts to construct a strategic auth- Som e cities with special factors did worse
ority for their econom ic regions, Frankfurt than predicted. Bilbao (and Belfast)Ð both
was unobtr usively constructing the Rhein- with problem s of terrorism and unrestÐ did
Main strategic authority. It also succeeded in badly, but their performance relative to their
its efforts to obtain the embryo European characteristics im proved over the three peri-
central bank. ods. Berlin’ s performance relative to its char-
Other cities did notably badly com pared to acteristics, in contrast, declined sharply over
expectations over most of the period and the three periods. With the end of Soviet
again there was independent evidence of ei- dom ination of central and eastern Europe, it
ther no policy suppor ting the local econom y, was the prim ary focus of migrants from for-
or policy which created uncertainty and dis- mer E ast Germany in 1989 and 1990. This
couraged investm ent or sti¯ ed entrepreneur- biased measured econom ic growth down-
ship. Consistently within this group are to be wards since the migrants increased popu-
found cities such as Torino, M alaga, lation without increasing output and so
Shef® eld, Liverpool or Napoli. These are reduced the measure of GDP per capita at the
cities which not only have speci® cally un- end of the period. W ith the uni® cation of
favourable characteristics but also have had Germany, Berlin lost the large subsidies it
either no effective policy or local policies had previously enjoyed and, perhaps more
favouring particular groups or interests. The signi® cantly, regained an econom ic hinte r-
land. Although there was a construction ition of integrated government for London.
boom in the city, driven by the movem ent of Since the early 1980s, London’ s growth has
national government to Berlin, there was conformed very closely to that predicted by
sudden decentralisation of private-sector the model.
econom ic activity to the far cheaper T he conclusion from this evidence, then,
Brandenburg hinterland. The attempt politi- would seem to be that the rate of grow th of
cally to unify the city with this hinterland in territorial econom ies is largely governed by
1997 failed. factors over which local agencies have little
London and Brussel are particularly inter- in¯ uence. Of those factors identi® ed in the
esting. Bruxelles not only grew strongly rela- models used to calculate the growth residuals
tive to other Belgian cities, but it bene® ted in T able 1, only the density of development,
substantially from the direct effects of the concentration of R&D facilities and the
European integration as measured in its aggregate volum e of university students are
change in econom ic potential. Yet the prob- variables over which local policy-makers
lems of the city in terms of developing a could plausibly hope to exert som e direct or
successful territorially com petitive policy are indirect control in the medium term; and any
well know n. Like London, it suffers from a such control would only in¯ uence growth
Balkanised local government structure but, with a lag. The models are associated with
even worse than L ondon, the territory adm in- som e 60±80 per cent of the variance of local
istered by the city’ s government is smaller grow th rates. Policy itself is not, how ever,
than its functional econom ic region and its included within the model and there is evi-
hinterland is fragm ented into linguistically dence that som e of the grow th residuals are
hostile sub-regions. 6 During the 1970s and related to know n differences in the effective-
early 1980s, Brussel performed far better ness (and ineffectiveness) of territorially
than would have been predicted on the basis com petitive policy. In addition, there are
of its characteristics. It is plausible to attri- conditions in particular regionsÐ again not
bute this to its being the prim e bene® ciary of entered as variables in the modelÐ which
European integration and the location of Eu- could be modi® ed by strategically directed
ropean institutions. These not only had sub- policy. There is evidence, therefore, that ter-
stantial direct effects but attracted a wide ritorially com petitive polic ies can have a
range of satellite bodies engaged in lobbyin g signi® cant effect on differential local growth
or contracting. It is reasonable to argue, how- rates across Europe as a whole. It is true that
ever, that this was mainly a short-term effect this effect appears to be lim ited; but the
(unless those institutions keep grow ing evidence examined here sugge sts it is in fact
inde® nitely) and during the 1980s the politi- potentially more im portant as a speci® c
cal disadvantages of Bruxelles, in terms of in¯ uence than the extent to which the wider
the cultural and linguis tic splits in Belgium area in which the territory was located gained
and the divide between the adm inistrative directly from the im pact of European inte-
territory of the city and its econom ic area, gration.7 The experiences of London and
intensi® ed. The experience of Brussel/ Brussel/Bruxelles are particularly suggestive
Bruxelles suggests, therefore, that there may on this point.
be no territoriesÐ however close to Europe’ s
core they may beÐ that necessarily gain from
4. The Im plications of Interaction
European integration; they only potentially
gain. London’ s period of severe underperfor- The evidence presented in the ® rst substan-
mance was con® ned to the earliest period. tive section of this paper was that both theor-
This coincided with the period of stand-off etical and empirical analyses of the (likely)
betw een the radical socialist adm inistration spatial im pact of E uropean integration con-
of the Greater London Council and the na- cluded that gains would be concentrated in
tional government and the subsequent abol- core regions, broadly de® ned. W ithin those
core regions are located all the most prosper- set of nationa l markets) will particularly in-
ous metropolitan city-regions of Europe with volve differential gains in national capital
the possible exceptions of M adrid and cities. Such citiesÐ or major provinc ial cities
Barcelona (although Barcelona lies within such as MilanoÐ have lost their previou s
the èxtended’ core of E urope as conceived monopoly control on spatially highly concen-
of by Steinle, 1992). T he evidence of the last trated headquarters (Rozenblat and Pum ain,
section sugge sted that local policy could 1993) and inform ation-intensive functions.
have som e im pact, albeit a restricted one, on As was note d in the introduction, both the
the rate of local econom ic grow th. Those econom ic and the politica l reasons why inte-
regions where the potential im pact of integra- gration leads to territorial com petition have
tion is greatest, but simultaneously subject to two aspects to them . The political reasons are
a degree of in¯ uence by local policy-makers, relatively straightfor ward. As activity be-
have the greatest incentive, other things becom es more mobile, the capacity to in¯ uence
ing equal, to engage actively in territorial its spatial distribu tion effectively passes to a
com petition. In turn this im plies that the wider territory. If the French government
process of integration and territorial com pe- wishes to redirect activity away from pros-
tition interact in determining the future pat- perous Paris to a poorer region, in an ever
tern of spatial developm ent in Europe. Other more open econom y there will com e a point
things being equal, city-regions, most partic- when the activity may simply move to Lon-
ularly city-regions within the extended core don, perhaps, or Brussel. At the same tim e,
of Europe which develop more successful the relatively loose confederation that
territorially com petitive polic ies, will grow , presently constitutes the E U requires an overt
certainly relative to, and often at the expense concern for spatial disparities. It has to
of, those that do not. Thus there is a degree secure the acquiescence of its members and
of simultaneity betw een integration and terri- for this it is necessary to dem onstrate such a
torial com petition in determining the ultim ate concern, particularly if those disparities are
spatial im pact of European integration. perceived as arising in part because of the
One im portant additional factor to bear in process of integration.
mind is that the more recent phases of inte- At the national level, just as governments
gration, especially the SEM and monetary can less effectively control the location of
union, have affected new sectors. Trade in econom ic activity, so their incentive to regu-
manufactured goods has been being progres- late the efforts of their cities and regions to
sively more liberalised since the 1950s. Free com pete for econom ic developm ent is also
trade in services, open tendering, mutual reduced. W hen a particular activity was more
recognition of quali® cations and free capital or less certain to be located som ewhere
movem ents are recent, indeed still not com - within a country’ s territory, com petition be-
pletely im plem ented, as is the im pact of tween, say, Bristol, Leeds and M anchester,
monetary union. Moreover, the im pact of this was viewed not only as wasteful but as likely
recent wave of liberalisation and integration to work counter to national regional policy
will still be intensifying well into the 21st with its concern for spatial equity. The
century. The urban econom ies which will be strongest city would have a better chance of
most affected are not those specialised in winning. W hen the com petition extends not
manufacturingÐ as in the early phases of just to a handful of nationa l cities, but also to
European integrationÐ but those specialised a much larger num ber of cities across the
in traded services or inform ation-intensive whole of the EU, the motive for national
activities such as headquarters of multina- governments to restrict the com petitive
tionals, com munications, m edia or m arket- efforts of their cities to avoid `waste’ and
ing. Industrial restructuring (for example, as prom ote fairness is lost.
im plem ented by multinationals reorganising T he most obviou s of the econom ic forces
to serve one European market rather than a is that which underlies most of the literature
discussed so far. T he process of restructuring T erritories will fall into one of two main
to serve the European market as a whole groups, each group divided into two sub-
systematically favours som e regions com - groups. There will be those territories that
pared to others. These regions have an in- expect gains, sub-div ided into those for
creased incentive to try to get as large a share which it is worthw hile trying to increase the
as possible and this incentive is strongest in share of the gains they get and those that
those regions offering potentially com peti- expect gains but for which any efforts to
tive locations for the sectors in which the increase their share would not be worthw hile.
gains from integration are concentrated; in Sim ilarly, there will be territories which ex-
the recent past, tradable services and head- pect to lose, divided into tw o sub-gro ups.
quarters activities. The losing regions may T he territories with the greatest incentive
have an incentive to try to restrict their to develop or intensify territorially com peti-
losses. There is also another aspect to the tive efforts would be the potential gainers
econom ic incentive for territorial com pe- from the direct effects of integration. These
tition arising from integration. Not only are would have a signi® cant, but individ ualised
particular sectors and functions being re- incentive to develop speci® cally territorially
structured to serve a continental market com petitive policies, com peting for the
rather than a separate set of national markets, largest possible share of the total gains avail-
but all sectors are, to varying degrees, be- able from integration. As already indicated,
com ing more com petitive. The potential mar- at least two lines of analysis would suggest
ket for any producer, anywhere, is becom ing these regions would be the advanced metro-
more vola tile and even though the gains may politan regions at the core of the EU. At an
be concentrated in the regions gaining most empirical level, the argum ent about the loss
from increased accessibility, there may also of national monopoli stic holds on headquar-
be gains available anyw here where an ac- ters activities, in particular, but also on infor-
tivity has a com parative advantage; or, more mation-intensive activities such as R&D, or
relevant still, where a com parative advantage marketing, would also support this con-
can be created. clusion. Inform ation tends necessarily to be
If it is the rational response of local agents anecdotal and partial, but examples would
to the effects of integration, then the efforts include the sort of restructuring by large
which will be deployed in the pursuit of corporations to serve the European market as
territorial com petition will be a function of a whole, as undertaken by Tam brands Inter-
the expected net pay-off. That, in turn, will national (Cheshire and Gordon, 1995c); the
depend on the potential gross gain and the concentration of speci® c corporate activities
costs involve d in engaging in territorial com - in single locationsÐ such as the closing of 13
petition. Gains may be positio nal or absolute: national ticket reservation centres by Ameri-
a territory may be able only to make itself can Airlines in 1995 and the concentration of
better-off relative to other territories; or it all that activity in London, or Delta’ s similar
may be able to make itself absolutely better- concentration in Dublin; or the consolidation
off. A rational decision to engage in terri- of share dealing, for both the British and
torial com petition may be taken, therefore, German markets, again in London, report-
even when it is expected that the maxim um edly because of lower telecommunications
absolute pay-off is negative because the costs (Financia l Times, 26 July 1996), by
alternative outcom e might be signi® cantly Fidelity Brokerage.
more negative. There may be a prisoners’ T his group of regions which potentially
dilemma type problem, where each player gain from European integration logically
know s that they will lose, but their losses must be sub-div ided into two categories.
will be greater if they do not play, so long as There might be a sub-gro up with differenti-
other territories are playing (Cheshire and ated com parative advantage, the com petitive
Gordon, 1998). position of which is so strong that they are
certain to be winners (or, strictly, that the com bination of speci® c local structural
increment to their gains that could be pro- dif® culties and a virtual absence of territori-
duced by policy would be too small to make ally com petitive policies, produced a strong
it worth engaging in policy efforts); and a underperform ance.
sub-group with undifferentiated com parative In contrast, the incentive for the sub-group
advantageÐ those that only potentially gain. of territories which saw them selves losing
There are reasons for believing that the ® rst from integration with little that they could do
sub-group is, however, an empty set. T o be locally to im prove their position , would be a
in such a positio n would require unique ad- collective one: to lobby for stronger spatially
vantages that did not exist in any other re- redistributive policies at the level of the EU.
gion and could not be reproduced. Yet given If the conclusions of the studies surveyed in
the heterogeneity of econom ic activity, it section 2 are a guide, then such territories
does not seem a priori very plausible to would be in the more peripheral regions.
believe that such unique advantages exist in Som e such `peripheral’ regions, how ever,
more than a very restricted num ber of sec- may have particular sectors enjoying com -
tors. London may have a very strong com pet- parative advantage, or have circumstances
itive offer in ® nancial services, banking, which were so favourable to the developm ent
R&D, cultural activities or the media, but of effective local policie s, that they would
Frankfurt may have a potentially equally have a suf® cient incentive to develop territo-
strong offer in banking or ® nancial services; rially com petitive policies. The conclusion,
Paris in cultural activities and R&D; therefore, is not that no `peripheral’ region
MuÈ nchen in R&D; only the media, because would develop such policies, but that regions
of the monopol istic effect of the English which do not, will be concentrated in the
language, seems plausible as a candidate for `periphery’ ; and the lobby for stronger spa-
a sector in which London has a unique offer. tially redistributive policies will be exclu-
W ithin Europe, Hamburg and Berlin are sively form ed by such regions.
strong, but it might be necessary to go to the T hese argum ents suggest, therefore, that
US to ® nd real com petition for London as a the strongest incentives to engage in terri-
centre of media and com munication. torial com petition would be in all the ad-
Thus if one disaggregates to the sector vanced metropolitan regions, but that the
level, it seems likely that there are few if any im pact that this may have on the ultim ate
cases of pure differentiated com petitive ad- spatial incidence of the gains from European
vantage. Furthermore, the empirical evidence integration are not straightforward. As was
of Table 1 suggests that urban regions which argued in Cheshire and Gordon (1996) , the
one might think of as potentially the most energy devoted to territorial com petition , and
plausible possessors of differentiated com - the in¯ uence such polic ies may have on
parative advantageÐ Frankfurt, London, differential rates of grow th, are conditional
Brussel/Bruxelles or ParisÐ are amongst on the speci® c circumstances of a territory.
those cities with the largest apparent policy Som e regions are very much better placed
effects. LondonÐ especially in the earlier than others, depending on a range of factors
tim e-periodÐ has underperform ed and which determine not only their potential
Frankfurt has even more consistently over- gross gains but the transactions cost involve d
performed. Brussel/Bruxelles has gone from in mounting effective territorially com -
one extreme of the distribution to the other. petitive policie s. London and Brussel/
This could, of course, be the result of random Bruxelles have had particularly unfavourable
factors, but is certainly consistent with hav- circumstances; Frankfurt and Paris have par-
ing non-reproducible advantages (the loca- ticularly favourable ones. London’ s un-
tion of the Europea n institutions) and being favourable circum stances can be modi® ed,
the absolute core of the core, and then, as how ever, much more easily than can those of
these advantages became fully exploited, the Brussel. Paradoxically, because strength im -
Table 2. Involvem ent of Chambers of Comm erce in local econom ic developm ent projects in the FRG, by type of region, 1989
M eans for groups
Z ero projects Capital

Type of region (percentage) Number of projects Staff per project (000 D M) Share of businesses Number of partners
Strong local econom y 10 72 26.1 5361 47 13.2

W eak local econom y 26 46 12.2 2243 14 14.0
Source: Adapted from Bennett and Krebs (1991, T able 7.8).

TH E GA IN S FROM INT EG RAT IO N
859
plies specialisation in those high-level ser- bene® ting from integrationÐ let us call these
vice activities m ost subject to spatial redistri- the core areaÐ actually dive rge. The territo-
bution as a result of recent phases of ries developing the most effective policie s
European integration, regions with `strong’ would capture propor tionately more of the
local econom ies are both in a better position potential gains at the expense of those territo-
to com pete and have a stronger incentive to ries within the core area unable to develop
com pete. effective policies. Such a scenario would be
On the question of whether strong or weak consistent, for exam ple, with the model de-
regions are more likely to be active and velope d in Krugm an and Venables (1993) if
effective, Bennett and Krebs (1991) provide the probability of a particular industrial ag-
som e interesting evidence for Germany, glom eration becom ing one of the successful
sum marised in T able 2. This show s that on grow th nodes is signi® cantly in¯ uenced by
every measure Cham bers of Com merce were local public policy:
more engaged in territorial com petition in
econom ically stronger regions (paralleling T he worrisom e possibility is that inte-
American evidence that prosperous cities gration goes far enough to push the conti-
make more use of econom ic developm ent nental econom y into the range in which
incentives (Reese, 1992)) . Only in terms of existing national industries unravel, ag-
num bers of partners involve d was there more glom erating into a smaller num ber of in-
involve ment in weaker regions but, as Ben- dustrial districts serving the continent as a
nett and Krebs (1994) maintain, this is likely whole. T he end result [of this process] will
to be a function of necessity in areas charac- be to raise real incom es [but] there may
terised by fragm ented and separated net- well be serious adjustm ent problems along
works (i.e. a sign of organisational the way ¼ (Krugm an and Venables, 1993,
weakness). Successful areas by contrast tend p. 9).
to possess integrated networks, with a strong
level of co-ordination enabling their repro-
5. Conclusions
duction as successful econom ies.
Together, these argum ents and this evi- There is a near consensus in the existing
dence suppor t the conclusion that there is literature that European integration has rein-
likely to be a degree of interaction between forced, and will continu e to reinforce, exist-
the direct spatial effects of integration, the ing advantagesÐ at regional, sectoral and
effect integration has on stim ulating the de- establishm ent levelÐ with an increased role
velopm ent of territorial com petition, the fac- for absolute over com parative advantage.
tors which condition the energy devoted to, Few studie s have translated these general
and the effectiveness of, territorially com pet- conclusions into speci® c winner (and, by im -
itive policies and the ultim ate spatial gains plication or default, loser) regionsÐ either
from E uropean integration. The direct effects because the analysis was in abstract terms or
of integration determine the potential gains because it was in terms of generic `central/
available for a particular territory’ s econom y. core’ versus `peripheral’ regions. Two of the
The extent to which these are realised de- exceptions were the studie s of Steinle (1992)
pends, in part, on the effectiveness with and Cheshire and Carbonaro (1996) . Al-
which the agents within the territory develop though not identical, their results were
policies which ensure that the potential gains broadly com patible. Steinle identi® ed regions
are converted into actual gains. Depending with rapid recent grow th in the `near peri-
on the maxim um in¯ uence that local policies phery’ , such as Valencia and Veneto;
can have in determining local growth rates, 8 core regions that had not yet experienced
this could produce a situation in which the rapid growth; and regions with established
observed growth rates of the territories and particularly successful regional/local de-
within the broade r regions potentially velopm ent polic iesÐ Strathclyde (Glasgow )
and Brittany (Rennes and Nantes) were tion is addresse d in Cheshire and G ordon,
1998.
identi® ed in this latter group. Cheshire and
2. The core cities of FURs are de® ned in term s
Carbonaro, using an entirely independent of concentr ations of em ploym ent and their
methodo logy, identi® ed an overlapping and surround ing hinterla nds in term s of com m ut-
similar set of regions as having bene® ted ing patterns. T hey are broadly sim ilar in
most from the direct effects of integration in concept to the US m etropoli tan statistical
areas (M SAs) and were original ly de® ned for
the recent past. These regions were mainly
Europe in H all and H ay (1980).
in the `near periphery’ , including Rennes, 3. Now extended in results reported in a series
Nantes, Toulouse and Central VenetoÐ but of working papers to 1994.
also including Paris. The im plication of this 4. For which the results of K eeble et al. (1988)
latter study might be that the strongest gains were used to interpo late changes in econ-
om ic potentia l for the regions of Spain scaled
from integration would continu e, over tim e,
to the m easure derived by Clark and his
to spread outw ards from the core to the near associates .
periphery: for example, to Catalonia, Valen- 5. Although careful testing show ed that there
cia, the E bro valley and to south and eastern was no signi® cant problem of spatial auto-
England .9 correlati on of the residual s in the full m odel.
6. The relation ship betw een a city’ s adm inis-
Theory and evidence alike suggest that
trative unit and that of its FUR can be illus-
althoug h territorially com petitive policies trated by calculati ng the populati on of the
can have an im pact on the trajectory of local adm inistrati ve area as a percenta ge of its
econom ic growth, the developm ent of such total FUR populati on. Using 1991 populati on
policies is a conditional outcom e not a prede- data w e arrive at the follow ing percent-
ages:B russel (Bruxelles -Capitole) 27, L on-
termined one. The circumstances of som e
don (Greater L ondon) 57, Paris (Ile de
territories make the developm ent of such France) 93, Frankfur t (Rhein-M ain region)
policies more likely than in others. T he rela- 121 (GE MA CA, 1996).
tionshi p between the size of a city’ s adm inis- 7. That is interpre ting the direct im pact of Eu-
trative territory and that of its functional ropean integrati on on regiona l grow th as be-
ing measured by the effects of the change in
urban region is likely to be one of those
econom ic potential .
conditioning factors. If territorial com petition 8. There are also other factors, apart from pol-
is seen as a rational response to the process icy, that w ill in¯ uence this process; these
of E uropean integration, the strongest incen- include what m ight be called the `local adap-
tive to develop such policies (subject to local tive capacity ’ , includin g social and cultural
factors, or the supply of skills or entre-
conditions) is in those areas where the pote n-
preneurs hip. T hese have been discussed in,
tial pay-offs are greatestÐ and these are for exam ple, Cheshire (1991) or Rodrõ Â guez-
likely to be in the extended core. The ulti- Pose (1994, 1998).
mate spatial im pact of European integration 9 Although work in progres s suggests the con-
is not, therefore, a direct result of where, trary, at least in the short term . Since 1990
the greatest gains from integrat ion have re-
within E urope, a region is located. It is also
focused on the core area.
conditioned by the success of local territori-
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Urban Studies, Vol.

36, Nos 5± 6, 843± 864, 1999

Cities in Com petition: Articulating the Gains from

[Paper received in ® nal form, January 1999]

0042-0980/99/05/0843-22 Ó 1999 T he E ditors of Urban Studies

of distribution at any period and selected m ajor F URs

FU R Residual Rank FUR Residual Rank FUR Residual Rank

Frankfurt 5.079 1 Murcia 13.802 1 E dinburgh 0.0136 1

V enezia 1.359 33 Edinburgh 1.801 44 Bilbao 0.0018 34

FU R Residual Rank FUR Residual Rank FUR Residual Rank

M eans for groups

Z ero projects Capital

Strong local econom y 10 72 26.1 5361 47 13.2

Source: Adapted from Bennett and Krebs (1991, T able 7.8).

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