Twin transition and regional inequalities in EU regions

  • João Leitão
  • 9 November 2022

In the years to come, the digital and green transition will further increase disparities between European regions, as the changes will be more easily undertaken by already highly developed regions.

One of the fundamental policy aspirations of the European Union (EU) is to mitigate the prosperity gap between regions. To meet this goal, cohesion policy has “lifted” the tolls on the digital and green highways, running the risk of accelerating regional inequalities.

In this sense, the EU has embarked on a trajectory of technological change towards a digital and green transition that is dramatically altering the way its economy operates, with radical implications for members of society. How well prepared are regions to capitalise on this twin transition? And what impact will it have on regional cohesion across Europe?

Based on new evidence from the study entitled: ‘The Future of EU Cohesion: Effects of the Twin Transition on Disparities across European Regions’, developed by a multidisciplinary team at the Vienna Institute for International Economic Studies, it is worthwhile to outline that the combination of digitalisation and decarbonisation of the economy is likely to widen the gap between rich and poor regions in Europe.

Shedding light on the future of regional growth and cohesion across the EU, the study presents new data for a total of 230 NUTS II regions on their overall growth potential and their aptitude to deal with the specific opportunities and challenges of digitalisation and decarbonisation of their economies.

The starting point of the study is an estimate of the overall economic growth potential. Eastern European regions that have exhibited prolonged periods of growth over the past decades show a worse scenario in terms of prospective future growth potential, as the former score lower for the main drivers of growth, namely highly qualified employment, investment or innovation. This scenario is replicated in the Southern European regions, which have already experienced stagnant economic development and whose future growth potential proves to be lower than that of the Western and Northern European regions.

Moreover, EU regions are prepared and able to reap the benefits or bear the costs, in very different degrees, of both digitisation and decarbonisation of their economies. For example, regions with high levels of labour productivity, good internet access or high levels of business sophistication and corporate governance are better prepared and able to benefit from a digitalised economy.

Other regions are better prepared to decarbonise their industrial production, transport or housing stock. In turn, some regions are better prepared to face the dual transition, while many are not particularly prepared and fit for any of them.

The best positioned regions at European level include, Lisbon, Berlin, Bratislava, Budapest, Warsaw, Prague, Stockholm and Cologne, but also include regions around the Alpine zone in the centre of Europe, which points towards having a standard profile of regions with good accessibility, centrality and polarisation of human and industrial capital.

In contrast, the study also unveils that particularly rural and agricultural regions in Spain, Greece, Southern Italy and Romania, and mining regions in Poland and Slovakia show low levels of digital and green skills as well as low overall growth potential. These regions will most likely fall further behind due to this twin transition, suggesting a typical profile of medium/low population and industrial density peripheral regions subject to increasing pressures of population and industrial erosion.

The study shows that the twin transition will widen the gap between EU regions with good and bad economic prospects. In the years to come, the digital and green transition will further increase disparities between European regions, as the necessary structural changes will be more easily undertaken by already highly developed regions, located mainly in the European core, in geographical and political decision-making terms. By contrast, peripheral regions, which are already lagging behind and remote from the decision-making centres, will face additional burdens to improve their competitive position.

In this dual purpose, what role public debt had, has and will have in building a full digitalisation and decarbonisation capacity of the EU’s lagging regions? And what about a sustainable growth policy, where does it live?

These findings alert us to a threat that Europe, as a single bloc with solidarity, social responsibility and sustainability, must be able to anticipate by rethinking and reorienting its future cohesion policy to better meet the new challenges of convergence created by this twin transition, which is under way, in order to halt the worsening of regional inequalities. To conclude, such a solidarity-based objective can be achieved by building new intelligent regional innovation systems, in the trans-European space, which positively consider the integration of the different sustainable development needs of the EU regions. The responsible decision makers could start by creating programmes to replace public debt by mutualised programmes for issuing green and sustainable bonds, as well as accelerating productive investment oriented towards the consumption of regional and certified products!

  • João Leitão
  • Associate Professor with habilitation at UBI and Director of UBIExecutive Business School, and Member of the EIT Food RIS Policy Council