CEE capital cities are catching up quickly
Increasing attention has recently been paid to regional development, with a focus on removing inequalities. Regional development - which in many cases involves the development of the rural areas in a country - has become a focus of policy-makers. Politicians are being forced to address the issue of providing equality, given the increasing discrepancies between the status of capital cities and the rest of a particular country.
According to an OECD study2, together with faster growth in high per capita income countries since 2011, the regional disparities between the countries increased. On the other hand, the regional economic disparities within countries have been falling since their peak at the beginning of the global financial crisis. However, they remain significant in most OECD countries. In 2016, on average, GDP per capita was more than twice as high in the top 10% of a country’s regions as in the bottom 10%.
Regional income disparities within and across the countries arise from differences in labor productivity. Higher labor productivity is in general associated with regions with a large share for the services sector - those are usually the capital regions. The OECD points to the high and increasing importance of capital regions, which on average accounted for more than one quarter of national GDP in 2016. The capital cities and metropolitan areas (agglomerations of at least 500,000 inhabitants) are important for the overall convergence of the country, as they tend to have higher rates of innovation and firm creation.
In CEE, the division between more and less developed regions is seen around a west-east axis. The eastern parts of CEE countries usually have much lower GDP per capita compared to central regions. Despite the availability of Cohesion Funds that should mainly support the less developed regions, the pace of convergence differs visibly between capital cities and the rest of the country.
With the fast income convergence of CEE capital cities, the satisfaction of living in those cities has also been rising. According to the European Commission Quality of Life study3 from 2019, the overall satisfaction with living in the city among the CEE capitals is the highest in Warsaw, Prague, Bratislava, Ljubljana and Zagreb, where 90-92% of respondents strongly or somewhat agree with the statement. In Budapest and Bucharest, the overall satisfaction is slightly lower, standing at 86% and 81%, respectively, while in Belgrade the situation looks the least favorable, as the satisfaction rate stands at 63%.