Place‑Based Policies for the Future

1. Context and definition

Abstract

Multi-dimensional challenges facing countries today will require ambitious, coordinated and effective policy. Place-based policies have an important role to help efficiently tackle these challenges by addressing spatially differentiated market failures and enhancing local public good provision. While place-based policies seek to support economic development in a specific place, they are much more than spatially-targeted policy. They are place‑sensitive policies that mobilise underutilised local assets through multi‑level governance and integrated cross-sectoral policy action. Although place‑based policies have existed for a long time, they have experienced renewed interest in recent years. This calls for re-examining their purpose and effective design.

Evolving policy challenges and priorities

Shocks, transitions, structural pressures and a changing geopolitical landscape are reshaping policy priorities across OECD countries. Repeated economic, social and environmental shocks continue to have long-term effects on national, regional and local economies, including through elevated levels of public debt and inflation (OECD, 2024[1]). As governments continue to respond to these effects, there also remains an urgent need to accelerate the twin climate and digital transitions and to support long-term structural changes linked to demographic change. On top of this, a changing geopolitical landscape is leading countries to increasingly focus on international competitiveness and resilience.

Alongside changing policy priorities, there remain persistent disparities in economic and social outcomes across places in OECD countries, which can have high costs. Today, 70% of the OECD population live in a country experiencing regional divergence in economic performance (when comparing small TL3 regions) (OECD, 2023[2]). While metropolitan regions continue to surge ahead in many OECD countries, many other places face economic stagnation, or even decline, and have ageing and shrinking populations. Some places also face economic and social disruption from the loss of traditional industries linked to the twin climate and digital transitions. As disparities persist or increase, they risk creating substantial long‑term economic, social, fiscal and political costs for countries (see Chapter 2).

Enhancing international competitiveness and facilitating the twin transitions—without leaving large parts of a country behind—requires ambitious, effective and well-coordinated policy. The multi‑dimensional nature of today’s policy challenges calls for long-term and integrated policy action across all levels of government and all places. “Spatially-blind” macro‑structural and sectoral policies will not be enough to tackle these intertwined and spatially distinct policy challenges on their own. To simultaneously increase international competitiveness and support the green transition, without leaving large parts of a country behind, there is a need for effective place-based policies.

Place-based policies for the future

The concept of place-based policies has seen renewed interest in recent years. While place-based policies have likely always existed in some form—and the term itself has been used for the last 75 years (McCann, 2023[3])—policy makers are now increasingly looking to harness the potential of place-based policies to tackle today’s challenges. Interest has been driven by a desire to address the persistent underperformance of some places and by a deeper understanding of the risks and costs posed by asymmetric transitions and shocks (OECD, 2023[2]). The most prominent recent development is the emergence of ‘place-based industrial policies’ that seek to improve national competitiveness through spatially targeted investment. This is illustrated by three pieces of legislation in the United States that commit USD 80 billion to this type of policy (Infrastructure Investment and Jobs Act, Inflation Reduction Act (IRA) and the CHIPS and Science Act) (Muro, 2023[4]), as well as the EU Green Deal Industrial Plan and associated Net-Zero Industry Act and France’s Territoires d’Industrie (OECD, 2023[5]).

Increased interest in place-based policies calls for deepening our understanding of the conditions for effective place-based policies. To support this, the OECD and the European Commission organised a six-part seminar series on the topic of “Place-Based Policies for the Future” between March and October 2023. As part of the seminar series, eleven academic papers were prepared for closed‑door discussions with a group of invited experts (see website). This report combines insights from these academic papers and discussions during the seminars, with a synthesis of the literature. Each chapter of the report broadly aligns with a topic covered in one seminar. This report also builds upon long-standing research and evidence on place‑based policies, including from the OECD Regional Development Policy Committee (RDPC) (Box 1.1).

Box 1.1. Role of the OECD’s Regional Development Policy Committee in the evolution of place‑based policies

The OECD’s RDPC Committee, represented by delegates of 38 member countries, partner countries and other international organisations have contributed to shaping the evolution of place-based policies over the last two decades. This contribution has been made over many years through reports such as ‘How Regions Grow’ (OECD, 2009[6]), ‘Regions Matter’ (OECD, 2009[7]), ‘Promoting Growth in all Regions’ (OECD, 2012[8]) and the Regional Outlook series (OECD, 2011[9]; OECD, 2014[10]; OECD, 2016[11]; OECD, 2019[12]; OECD, 2021[13]; OECD, 2023[2]).

In 2014, the OECD adopted in 2014 the Council Recommendation on Effective Public Investment Across Levels of Government (OECD, 2014[14]), which for the first time acknowledged the role of subnational governments, in charge of 55% of total public investment on average in the OECD, and the need for proper vertical and horizontal coordination mechanisms to enhance the efficiency of public investment across places.

In 2017, the OECD Ministerial Council meeting introduced for the first time a focus on regional disparities and highlighted the need to prepare communities through policies tailored to the challenges and potential of individual cities, regions and rural areas (OECD, 2017[15]). Renewed momentum around place-based policies has also led to the adoption of the OECD Recommendation on Regional Development Policy in June 2023 (OECD, 2023[16]).

Source: Authors’ elaboration.

Defining place-based policies

The concept of place-based policies goes beyond spatial targeting. It is “notoriously difficult to even define place-based policies” (Suedekum, 2023[17]). In practice, place-based policies are highly diverse in their design, context, objectives and instruments. Given the range of place-based policies in practice, definitions of ‘place‑based policy’ in the academic literature are also highly diverse (Box 1.2). Based on a review of thirteen definitions in the literature (see Annex 1.A), a few key elements can be identified:

• Intentionally spatially-targeted: All definitions include a focus on policies that are intentionally spatially-targeted. One definition also includes implicitly spatially-targeted policies.

• Support from a higher-level: Ten definitions imply that place-based policies involve spatially-targeted support for a specific place within a jurisdiction. Two definitions also explicitly include endogenous regional or local government policies that apply across an entire jurisdiction.

• Economic development and well-being: Six definitions focus exclusively on economic development, with the remaining seven focusing on both economic development and wellbeing.

• Place-sensitivity: Nine definitions highlight that place-based policies are based on an understanding of local context, conditions and opportunities.

• Efficiency and equity: Nine definitions focus on the role of place-based policies to support both efficiency and equity objectives. Four only focus on economic efficiency.

• Objectives: Four definitions focus exclusively on productivity. Three focus on productivity and inclusiveness. One definition also focuses on sustainability.

• Type of place: Five definitions focus exclusively on lagging places or places with ‘underutilised potential’. Eight definitions focus on all types of places.

• Multi-level governance: Eleven definitions highlight the need for multi-level governance.

• Leverage local assets: Nine definitions focus on the role of place-based policies to leverage local assets, knowledge and networks.

Box 1.2. Definitions of ‘place-based policies’ go beyond spatial-targeting

Selected definitions from the academic literature:

• Place-based policies are “…government efforts to enhance the economic performance of an area within its jurisdiction, typically in the form of more job opportunities and higher wages” (Neumark and Simpson, 2015[18]).

• A place-based policy is a “long-term strategy aimed at tackling persistent underutilisation of potential and reducing persistent social exclusion in specific places through external interventions and multi-level governance. It promotes the supply of integrated goods and services tailored to contexts, and it triggers institutional changes.” (Barca, 2009[19])

• “Place-based policy is defined as special and differential spending, tax, or regulatory measures targeted at areas with lagging socioeconomic performance and with the objective of improving their performance.” (Venables, 2023[20])

• "Place-based policies... explicitly target geographic areas for some form of special treatment, be it tax subsidies, public investments, or special rules and regulations.” They aim “at fostering economic growth in lagging regions and reducing the extent of spatial inequality within their borders.” (Kline and Moretti, 2024[21])

• A place-based approach has... “two fundamental aspects to it. First, the place-based approach assumes that geographical context really matters, whereby context here is understood in terms of its social, cultural, and institutional characteristics… Second, the place-based approach also focuses on the issue of knowledge in policy intervention. Who knows what to do where and when?” (Barca, Mccann and Rodríguez-Pose, 2012[22])

• Place-based policies “can take the form of more generous employment subsidies in depressed areas, which provide implicit insurance against place-based shocks but distort migration decisions, or equivalently generous policies that tilt existing programs to encourage employment in areas with more joblessness.” (Austin, Glaeser and Summers, 2018[23])

• “In theoretical economic frameworks they are often modelled as pure income transfers to residents of economically lagging regions, but this is not how place-based policies work in practice. Instead, there is much heterogeneity in economic circumstances across regions, and as much heterogeneity in specific policy designs. Place-based policies consist of a highly diverse multitude of programs, which try to affect the spatial resource allocation in many ways.” (Suedekum, 2023[17])

• Place-based arguments “emphasise a ‘people-in-places’ perspective” and posit that “there is no simple and clearly observable and understandable dichotomous distinction between so-called ‘people prosperity’ and ‘place prosperity’, or between ‘place-based’ and ‘people-based’ policies.” (McCann, 2023[3])

• Place-based policies are a “type of economic development strategy that focuses on promoting investment and job creation in specific geographic areas, such as a region or a city. The main goal of these policies is to support long-term economic development in a particular location by addressing the unique challenges and opportunities of that area.” (Solé-Ollé, 2023[24])

• Place-based policies "...have a focus on specific cities, localities or regions, but they represent far more than just a label for already established programs of government activity, or the concentration of public sector resources in specific locations. Place-based policies embody an ethos about, and an approach to, the development of economies and society that acknowledges that the context of each and every city, region, and rural district offers opportunities for wellbeing. It advocates for a development approach that is tailored to the needs of each. Importantly, place-based policy explicitly seeks the development of all parts of the landscape, with no settlement too small or too remote to plan for progress” (Beer et al., 2020[25]).

Source: Authors’ elaboration based on review of literature.

The definition of place-based policies adopted in this report is based on three key features. First, intentional spatial-targeting. While many policies may be implicitly spatially targeted (i.e. heterogeneous spatial impacts of transport infrastructure policy), this definition excludes these policies. Second, place‑based policies involve support from a higher-level. Given that they involve spatial targeting, these policies are intentionally spatially-targeted actions within a jurisdiction from a government with responsibilities across a larger geographic area. This typically involves support from a higher level of government. While regional and local policies that apply across an entire jurisdiction are also essential for economic development and wellbeing, these are only considered to be place-based policies in this report when they are spatially‑targeted within a jurisdiction. Third, place-based policies are focused on improving long‑term economic and well‑being outcomes in a place. This acknowledges that these policies are focused on fundamentally transforming the local development trajectory.

DEFINITION OF PLACE-BASED POLICIES ADOPTED IN THIS REPORT

Place-based policies are intentionally spatially-targeted policies that provide higher-level support to a place to improve long-term economic and well-being outcomes.

Effective place-based policies aim to efficiently address market failures and enhance productivity, inclusiveness and sustainability. They are place-sensitive to local conditions and opportunities, involve multi-level governance and focus on cross‑sectoral policy action. They can support all types of places, but often focus on lagging places and places at risk from transitions and shocks.

Given that place-based policies are linked with ‘spatial targeting’ and ‘higher-level support’, they must focus on ‘efficiency’, ‘place-sensitivity’, ‘multi-level governance’ and ‘cross-sectoral policy action’ to be effective. Spatial-targeting can risk that policies create an efficiency-equity trade-off, as concentrating resources in one place may limit resources available for other places and risk lowering aggregate output in a national economy (further discussed in Chapter 2). This creates a need for effective place-based policies that focus on efficiency by addressing specific market failures and focusing on cross‑sectoral policy integration (further discussed in Chapters 2 and 3). The role of higher-level support indicates that these policies are often focused on lagging places and places at risk from transitions and shocks, where local institutions may be weaker. Higher-level support can also risk that policies are not appropriately designed for a local context, create a principal-agent problem between a higher-level of government and a beneficiary, and can create long-term dependence on external resources for development (OECD, 2012[8]). The dimension of higher-level support highlights the need to ensure that these policies are place‑sensitive to local contexts (as discussed in Chapter 3) and integrate multi-level governance to ensure effective design and implementation (as discussed in Chapter 6).

Place-based policies are distinct from other policies that can support regional and local development. While many types of policy are essential to support regional and local development, it is relevant to make a distinction with place-based policies. In this report, place-based policies are distinct from regional development policies, regional and local government policies, decentralisation and localisation policies, fiscal equalisation mechanisms, 'spatially-targeted’ sectoral policies and connectivity and mobility policies. While each of these types of policy is closely related to place-based policies, their rationale and objectives can differ (Box 1.3).

Box 1.3. Place-based policies are distinct from other types of policies that can support regional and local development

The concept of place-based policies is derived from the economic geography literature (see Chapter 2) and is distinct from other types of policy that can support regional and local development. This box briefly describes differences between place-based policies and other related policies.

Regional development policies

The OECD Recommendation on Regional Development Policy (OECD, 2023[26]) defines regional development policy as “a long-term, cross-sectoral, multi-level policy that aims to improve the contribution of all regions to national performance and reduce inequalities between places and between people by promoting long-term sustainable development in all regions through strategic and targeted public policy, investment and service provision measures that are tailored to the specific needs and opportunities of regions and their inhabitants”. A comparison between the definitions highlights that although they are always place-sensitive, regional development policies are not necessarily ‘spatially targeted’. Furthermore, regional development policies do not always involve ‘higher-level support’.

Regional and local government policies

Regional and local governments are responsible for a wide range of competencies in OECD countries, spanning health, education, transport and many other sectors (OECD/UCLG, 2022[27]). Although some regional and local policies may be place-based policies, many regional and local policies apply across a jurisdiction in a ‘spatially-blind’ way. Furthermore, spatial-targeting implies that higher-level support is being provided to a place, which requires support from an actor at a larger geographic scale (i.e. a higher level of government).

Decentralisation and localisation

Decentralisation refers to the transfer of powers and responsibilities from the central government to elected authorities at the subnational level (OECD, 2019[28]). Unlike decentralisation policies, place-based policies do not imply a permanent change in powers and responsibilities across levels of government. However, decentralisation can profoundly influence the shape and role of place-based policies, as the quality of regional and local institutions is important for policy outcomes (Rodriguez-Pose and Cataldo, 2015[29]). Some place-based policies may also be accompanied by decentralisation or related processes, as is the case with Levelling-Up Policy in the United Kingdom.

Fiscal equalisation

Fiscal equalisation refers to financial transfers aimed at reducing disparities in subnational government fiscal capacity. They seek to ensure that all governments can provide public services at a similar level regardless of their fiscal capacity, provided they exert the same tax effort (Solé-Ollé, 2023[24]; Moisio and Vidal Bover, 2023[30]; OECD, 2021[31]). Although closely related, for this report fiscal equalisation policies are not defined as place-based policies as the main objective of fiscal equalisation is related to providing equal access to public services across regions.

‘Spatially-tailored’ sectoral policies

National governments can seek to develop ‘spatially-tailored’ sectoral policies (e.g., education, health, transport) that apply across an entire territory but are adjusted to address the specific needs of different places. For this report, these are considered to be distinct from place-based policies that are always targeted towards a certain place within a jurisdiction. Place-based policies are also usually cross-sectoral policies that aim to support long-term economic transformation of a place.

Connectivity and mobility policies

Policies to improve connectivity and mobility, such as to improve transport and digital networks or incentivise for workers to relocate, also seek to improve efficiency of an economy by supporting agglomeration processes. While these policies are closely related to place-based policies in the economic geography literature, they are distinguished from place-based policies in this report insofar as they often do not directly seek to transform economic development and well-being outcomes of a specific place.

Source: Authors’ elaboration

Outline of report

The report aims to help advance the debate on the rationale for place-based policies, in which circumstances they should be used, and on what type of place-based policies might be relevant for a given context. The report is structured as follows:

• Chapter 2 provides an overview of the rationale for place-based policies, outlining the case for place‑based policies.

• Chapter 3 focuses on the key priorities for the design of effective place‑based policies.

• Chapter 4 explores the role of place-based policies in helping to avoid a ‘tragedy of the commons’, with a focus on the provision of local public goods in the context of environmental challenges and demographic change.

• Chapter 5 provides an overview of approaches for monitoring and evaluating place-based policies.

• Chapter 6 explores the role of multi-level governance for place-based policies, including the need to establish coordination mechanisms, build administrative and strategic capacity, strengthen fiscal capacity, foster place-based leadership, support experimental governance and engage with diverse stakeholders.

• Chapter 7 provides a stock-take of place-based policies today in OECD countries and explores how these policies are increasingly being designed to become more proactive. It concludes with some guiding principles for the future of place-based policies.

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Annex 1.A. Comparison of place-based policy definitions

Annex Table 1.A.1. Classification of place-based policy definitions of in the literature

	Intentionally spatially targeted	Support from a higher level*	Aims to improve economic or wellbeing outcomes	Understands local context and conditions	Targets efficiency or equity	Enhances productivity, inclusion and/or sustainability	Focuses on lagging places or places at risk	Employs multi‑level governance	Leverages local assets, knowledge and networks
Venables (2023[20])	Yes	Yes	Both	Not discussed	Both	Productivity and inclusion	Yes	Yes	Yes
Glasmeier (2023[32])	Yes	Also for entire jurisdiction	Both	Yes	Both	Inclusion and sustainability	Any place	Yes	Yes
McCann (2023[3])	Yes	Yes	Both	Yes	Both	All	Any place	Yes	Yes
Suedekum (2023[17])	Yes	Yes	Both	Yes	Both	All	Any place	Yes	Yes
Solé-Ollé (2023[24])	Yes	Also for entire jurisdiction	Economic	Yes	Both	All	Any place	Yes	Yes
Ehrlich and Overmann (2020[33])	Yes	Not discussed	Economic	Yes	Both	Productivity	Yes	Yes	Human capital and governance
Austin, Glaeser and Summers (2018[23])	Intentional or implicit	Yes	Economic	Not discussed	Both	Not discussed	Any place	Not discussed	Yes
Neumark and Simpson (2015[34])	Yes	Yes	Economic	Yes	Both	Productivity	Any place	Yes	Not discussed
Kline and Moretti (2014[35])	Yes	Yes	Both	Not discussed	Efficiency	Productivity	Any place	Yes	Not discussed
OECD (2011[9])	Yes	Yes	Both	Yes	Efficiency	Productivity and inclusion	Yes	Yes	Yes
Barca (2009[19])	Yes	Yes	Both	Yes	Both	Productivity and inclusion	Places with underutilised potential	Yes	Yes
World Bank (2009[36])	Yes	Yes	Economic	Yes	Efficiency	Enhance mobility	Yes	Yes	Yes
Glaeser and Gottlieb (2008[37])	Yes	Yes	Economic	Not discussed	Efficiency	Productivity	Any place	Not discussed	Human capital

Note: Author’s elaboration based on explicit or implicit description within the literature cited. * ‘Support from a higher level’ indicates support from a higher-level of government for a place and/or targeted support from a lower‑level government for a place within its jurisdiction.