Unlocking the Potential of Intermediary Cities for Regional Development

Executive summary

Intermediary cities (ICs), often referred to as small and medium-sized cities, are home to millions of people worldwide and play a critical role in connecting metropolitan, rural and remote areas. Yet they often remain the “missing middle” in urban and regional policy, typically receiving less attention than large metropolitan areas and rural regions. This policy blind spot is compounded by a lack of internationally comparable data and evidence on ICs. This report represents one of the first international efforts to establish a common understanding of ICs and their functions. It shows that ICs are highly diverse, shaped by distinct geographical and institutional contexts, and require place-based policy approaches tailored to their specific strengths and challenges.

Intermediary cities perform many important economic and social functions

Unlike large metropolitan areas, ICs do not fully benefit from the agglomeration economies associated with large markets, dense labour pools and knowledge spillovers. However, ICs play a pivotal “bridging” role within national urban systems by connecting people, firms and communities across urban and rural areas. Many ICs complement larger cities by offering more affordable housing, higher quality of life and specialised economic functions. ICs also contribute to territorial cohesion by linking surrounding rural communities to jobs, services and opportunities. They often act as essential service centres, helping residents access healthcare, education and public services without relocating to larger cities, thereby supporting the “right to stay”. Across these diverse contexts, ICs fulfil eight key functions – business, knowledge, transport, housing, culture, retail, health and government – which provide a structured lens for understanding their roles and informing more targeted policies.

To enable international comparability, this report defines ICs as small and medium-sized functional urban areas (FUAs) with populations between 50 000 and 250 000 inhabitants, using 2010 as the reference year, and excluding capital cities and the largest FUAs in each country. Based on this definition, there are 555 ICs across OECD countries, representing 46% of cities and 9% of the total urban population. Within the European Union (EU), 365 ICs have been identified, accounting for 59% of cities and 19% of the urban population. Moreover, half of all EU residents living outside of larger cities reside within an intermediary city or close proximity to it.

Although ICs are generally economically weaker than larger cities, some ICs demonstrate strong economic performance. In ten countries with available data – Austria, Estonia, Finland, Germany, Hungary, Italy, Norway, Portugal, Spain and Sweden – 15% of ICs are high-income cities, illustrating their diversity and development potential. Compared with low-income ICs, high-income ICs tend to be larger, with lower unemployment, higher educational attainment and a stronger high-technology manufacturing base. At the same time, low-income ICs are often growing faster, contributing to gradual convergence in income levels across cities in a subset of countries. However, demographic pressures remain significant. More than half of EU ICs experienced population decline between 2014 and 2024.

As a first exploratory step, the report identifies five broad types of ICs through an experimental analysis of 173 ICs across seven EU countries: Knowledge Hubs, Service Hubs, Housing Hubs, Cultural Hubs and Self-contained Employment Hubs. While based on a limited sample, this typology offers a practical framework to support more differentiated policy approaches.

Policy priorities for unlocking the potential of ICs to drive regional development

Unlocking the potential of ICs requires co-ordinated action across local, regional and national governments, supported by effective multi-level governance arrangements. Drawing primarily on six case studies – Alba Iulia (Romania), Brindisi (Italy), Klagenfurt (Austria), Liepaja and Saldus (Latvia), Most (Czechia), as well as a national‑level case study of France – the report identifies common policy priorities across ICs:

• Setting targeted strategies for ICs: National and regional governments should articulate a clear strategic vision for ICs, while municipalities play a central role in designing strategies that build on their specific local assets and development potential.

• Attracting and retaining workforce while supporting skills development: National and regional governments can support forward-looking labour market analysis and better align education and vocational training with emerging skill needs, while local governments can promote reskilling and labour market participation across age groups.

• Strengthening physical and digital connectivity: National and regional governments could improve access to larger urban centres through investment in transport infrastructure, while local authorities can reinforce these efforts through spatial planning approaches such as transit-oriented development. Expanding digital infrastructure is also essential to narrow urban-rural gaps and facilitate access to services, particularly in more remote areas.

• Promoting well-being and quality of life: National and regional governments could help ensure adequate funding and service standards for healthcare, education and housing, while local governments could focus on service delivery, housing provision aligned with labour market needs, and place-based strategies that leverage local cultural and natural assets.

At the same time, different types of ICs require different policy mixes. For example, Knowledge Hubs benefit from stronger innovation ecosystems and university-industry collaboration, while Service Hubs require digitalisation and resilient infrastructure to enhance the accessibility and quality of public services. Geographical context also matters. ICs located near large metropolitan areas often require stronger co‑ordination on transport, housing and labour markets, whereas those in predominantly rural regions often serve as anchors of regional labour markets and essential services. These differences underline the importance of place-based and multi-level governance approaches that recognise the diversity of ICs and maximise their contribution to balanced regional development.

In addition, policy priorities need to be adapted to different institutional contexts. Governance arrangements and financing capacities vary across countries and can constrain the development of intermediary cities. Effective co-ordination across levels of government is a critical driver of regional development, as ICs cannot fulfil their bridging roles in isolation. Vertical co‑ordination between national, regional and local authorities helps provide strategic direction, while horizontal co-ordination within FUAs supports joint planning, integrated service delivery and shared investment. National and regional governments also play an important role in ensuring ICs’ access to finance, aligning funding with place-based strategies, addressing cost-sharing imbalances within FUAs, and providing technical assistance. In Europe, forthcoming reforms of the EU’s Multiannual Financial Framework and Cohesion Policy present an opportunity to strengthen place-based and more integrated support for ICs.

Finally, improving data and evidence on ICs remains a priority. Better measurement of their economic, social and territorial contributions – including benefits for surrounding rural areas and wider territorial spillovers – would support more informed policymaking. Broadening the geographical scope of data and analysis across OECD countries would further refine the definition of ICs to better reflect national realities and enhance the robustness, comparability and policy relevance of the analytical framework and empirical results presented in this report.