Territorial Capital and Regional Competitiveness: Theory and Evidence

Abstract

Proposed by OECD[28]in its Territorial Outlook (2001) and recently re-launched by DG Regio of the Commission of the European Union, the new concept of territorial capital deserves a closer inspection, mainly regarding its components and economic meaning. This paper suggests a theoretical interpretation of this new concept and provides an empirical measure of its role on regional growth in the near future. The empirical analysis is applied to all 259 NUTS2 regions of the 27 European countries using an original forecasting macro-econometric regional growth model, called MASST. The empirical analysis clearly demonstrates that in those regions where territorial capital assets play an important role on regional growth, the overall performance of the regions is higher. Moreover, it clearly demonstrates that territorial capital, as all production factors, is subject to strong decreasing returns to scale: in fact, in those regions in which the level of territorial capital is higher, its effects on regional growth are more contained.JEL Classification: R10