Course: Science and Technology Policy. Pedro Borges de Almeida

Transcription

1 Course: Science and Technology Policy The Algarve: Fate and Will Students: Paulo Silva Pedro Borges de Almeida Lisbon, July 2000

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3 M.Sc. in Engineering and Management of Technology Course on Science and Technology Policy Term Paper The Algarve: Fate and Will Students: Paulo Silva & Pedro Borges de Almeida Date: 2000/07/17 1 Table of Contents 1 Table of Contents List of Tables Executive Summary General Aspects Brief Economic History Territory and Demography Economy and Employment Science & Technology Econometric Analyses Introduction Location Quotient Algarve Madeira Algarve Baleares Shift share analysis Data presentation Regional comparison Components of change in the Algarve Conclusions and Recommendations on Development Strategy References Bibliography Statistical Sources... 39

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5 2 List of Tables Table 1 - Annual average growth rate of population in the Algarve... 8 Table 2 - Evolution of Algarve population and urban concentration... 9 Table 3 R&D and OSTA Regional expenses and human resources, Table 4 Location Quotient, Algarve and Madeira - GVA, , values Table 5 Location Quotient Algarve and Madeira - GVA, , main trends Table 6 Location Quotient Algarve and Madeira Total Employment, , values Table 7 Location Quotient Algarve and Madeira Total Employment, , main trends Table 8 Location Quotient Algarve and Baleares GVA, , values Table 9 Location Quotient Algarve and Baleares GVA, , main trends Table 10 Location Quotient Algarve and Baleares Total Employment, , values Table 11 Location Quotient Algarve and Baleares Total Employment, , main trends Table 12 Shift Share Analysis Algarve and Madeira vs Portugal, GVA, Table 13 Shift Share Analysis Baleares vs. Spain, GVA, Table 14 Shift Share Analysis Algarve and Madeira vs Portugal, Total Employment, Table 15 Shift Share Analysis Baleares vs. Spain, Total Employment, Table 16 Components of change in the Algarve, GVA, Table 17 Components of change in the Algarve, Total Employment, Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 3

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7 3 Executive Summary The Algarve is a small Portuguese region, situated at the very southwestern end of the European Continent. All along its history, the regional economy was sustained by two natural resources: the Sea and the Climate. Since the 60 s, the Algarve has been evolving on a path of growing dependence of the Tourist activity (and some other related activities, such as retail trade). Its economy has shown, in the 1990 s, a relative endogenous incapacity to generate growth and, when compared to Madeira (PT) and Baleares (ES), indicators such as Location Quotient (measuring sectoral specialization) and Shift Share Analysis (measuring inclusive and induced sources of development), the Algarve presents a weaker performance. In this work we take a first general look at the region, its history and general characteristics, entering afterwards in a deeper analysis in terms of Location Quotient and Shift Share Analysis. This is done bay comparing regional Gross value added and Total Employment data from the Algarve, Madeira and Baleares and their correspondent data for Portugal and Spain. The analysis is effected taking measurements in two points in time: 1990 and 1995, which gives a dynamic picture of the development forces and trends in the first half of last decade and allows the establishment of some priorities in terms of regional development strategy. The analysis made and the knowledge obtained in various strategic documents leads to a number of conclusions and development strategy recommendations, which may be summarized in one strong idea: The Algarve is in fact a region specialized in Tourism & Leisure and, to be competitive in the National, European and Global levels, and grow steadily with lesser risk, it must strongly work to be the best in what it has to offer: Environmental Sustainability, Quality of Life and Climate. These are the regional drivers that can really make the difference and the whole regional development strategy should be designed and implemented to serve the goal of true excellence in the best the Algarve has to offer. Not doing so may induce much higher social costs for ensuring future regional wealth. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 5

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9 4 General Aspects 4.1 Brief Economic History The regional economy of the Algarve has always been strongly connected to the exploitation of its two main natural resources: The Sea and the Sunshine. Its 200 Km of Atlantic coast and the high number of hours of solar direct exposition (on average 3,158 hours per year) are therefore in the base of the regional economic development from the oldest ages until the present times. The tourist activity grew in regional relevance since the 60 s, along with a number of both producer and retailer services, taking once more advantage of the natural resources available, the Sea and the Climate and due to the progressive scarcity of fish in the sea and the growth in the European tourist demand. This growth has led to a clear specialization of the regional economy, as we shall see further ahead in this work, the manufacturing industries having lost its already small importance. The agriculture has been able to survive and maintain a relative importance in the regional economy, the production of citrus fruits having grown significantly in the last decade. All the fruits & vegetables production has kept some level of activity, through an intensive use of greenhouses. The dry fruits orchards have become old and lost both productivity and quality except for carobs (due to industrial exploitation), and therefore have been declining in the regional economy. 4.2 Territory and Demography The Algarve The Algarve is the southern NUTS II region of Continental Portugal and is situated at the southwestern end of European Continent. Its territory represents roughly 5% of the total national surface and has very particular geomorphologic characteristics which allow a division in three natural areas: Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 7

10 Litoral, the southern zone boarding the Atlantic, where most of the population and economic activity are concentrated, and where the best agricultural soils also appear; Algarve natural zones. Source: CCR Algarve, Indicadores Estatísticos, 1995 Barrocal, a transition zone, where soils are commonly of lower quality and some calcium rocky areas appear; Serra, the mountainous area in the northern part of the region and making the transition to Alentejo, which occupies around 2/3 of the total area of the region and where soils are poor and some desertification phenomena are occurring. The Algarve has a mild climate that, together with its geomorphologic characteristics, is favorable to the development of some economic activities, such as Tourism and Mediterranean agriculture, which are mainly concentrated in the Litoral. The population of the region is mainly concentrated in the littoral area, due to better natural conditions and to the concentration of regional economic activity. The regional population has been relatively stable along the last 50 to 60 years, although not evenly distributed among the three sub regions. Years "Litoral" "Barrocal" "Serra" Total % -0.99% -0.79% -0.41% % -1.86% -2.55% -1.49% % 0.90% -1.09% 1.88% % 0.45% -1.17% 0.55% Sources: Plano Estratégico de Desenvolvimento Regional do Algarve, AMAL, 1998/1999; INE Table 1 - Annual average growth rate of population in the Algarve The phenomena of urban concentration have become more evident in the last decades. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 8

11 Years Portugal Algarve (b) / (a) Faro and Olhão (c) / (b) Lagos and Portimão (d) / (b) (a) (b) (c) (d) ,755, , % 61, % 37, % ,510, , % 65, % 40, % ,899, , % 67, % 41, % ,611, , % 56, % 42, % ,833, , % 79, % 54, % ,862, , % 87, % 60, % Sources: Plano Estratégico de Desenvolvimento Regional do Algarve, AMAL, 1998/1999; INE Table 2 - Evolution of Algarve population and urban concentration The phenomenon of regional internal migration (i.e. from Serra and Barrocal to Litoral ) is evident, being one of the reasons for the desertification symptoms evidenced in the mountainous zone and for the pressure put over natural resources in Resident population variation. Source: CCR Algarve, Indicadores Estatísticos, 1995 the Littoral (although in this case Tourist, Real Estate and Agricultural activities are to be considered as the main causes). The influence of Tourist activity in the flotation of population and in seasonality of employment is determinant in terms of regional characterization and planning. The structure of cities of the Algarve is also one key element to be considered, as although urban concentration is Most dynamic demographic systems and enlargement perspectives. Taken from Plano Estratégico de Desenvolvimento Regional do Algarve, AMAL, 1998/1999; INE taking place no major city has emerged. The population of Faro, which may be considered as being the regional Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 9

12 capital 1, does not exceed a population of 50,000. The Algarve presents what may be called a system of medium/small cities, which coherent articulation consists one important element of planning. The population of the Algarve presents an aging pattern differing somewhat from the national average (the ageing index was, in 31 December, 1997, 114.2% in the Algarve, against 88.5% at national level), mainly due to the attractive climatic conditions for elderly people, the number of retired foreign citizens immigrating into the Algarve being more than negligible. The estimates of population evolution show that aging will probably go on in the future, which may cause some degree of dysfunction in the productive and in the social security systems, even if also inducing some business opportunities. The scenarios of global demographic evolution all show a growth pattern for the next years. The estimates predict a regional population between 357,000 and 400,000 inhabitants around year 2011, depending of migratory movements and evolution of birth rate. 4.3 Economy and Employment The Algarve represents, in terms of Gross Value Added (GVA), approximately 3.5% of the Portuguese total economy, roughly equal to itsh share of population. This share has been relatively constant along the time ( ), with a peak on 3.8%. Madeira, one of the two insular Portuguese Autonomous Regions, and the only other region, besides the Algarve, seen as a Tourist region, 2 climbed from 1.7% to 2.0% in the same period. The relative performance of the Algarve has thus been lower than the one of Madeira. 1 In fact, the Algarve is the only National region where NUTS II and NUTS III regions coincide, together with one single Administrative District Faro. 2 The economic regional specialization aspects will be treated further ahead in this work. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 10

13 The GVA of the economy of the Algarve has grown from 228 million contos (mc) 3 in 1998 to 501 mc in 1995, at current market prices, or S hare of P ortuguese G ross Added Value 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% Years Algarve R.A.M adeira Source: INE 271 mc at constant 1998 prices (cp 1998). The evolution of the regional GVA of the Algarve (cp 1998) shows a deterioration from 1992 to 1994, with a modest recovery in The reasons for this pattern will be studied later in this document, but it is nevertheless important to notice that Madeira presented a constantly growing GVA, with a stagnation only in Portugal also presented a constant growth, with a light decrease in the same year, which shows that the economy of the Algarve was not able to recover from a negative period as well as Madeira or the rest of the Country. G ross A dded Value (cp 1998) - 1,000,000 escudos Share of Portuguese Em ploym ent 300, , ,000 8,000,000 7,500, % 3.5% 240, ,000 7,000, % 200, % 1 80, ,000 6,500, % 1 40,000 6,000, % 1 20, , Y ears 5,500, % Years A lgarve R.A. M adeira P ortugal Algarve R.A.M adeira Source: INE Source: INE Employment in the Algarve maintained a similar share in total Portuguese employment as GVA, roughly around 3.5%, but in Madeira the share of employment is higher than the share of GVA (2.3% against 2.0% in 1995). This has, as we shall see below, direct implications in productivity and salaries. 3 1 conto corresponds to 1,000 escudos and is currently July 2000 equivalent to Euro (fixed rate) and to approximately 4.7 USD. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 11

14 Total employment in the Algarve varied along the reference period ( ) roughly between 150,000 and 160,000 individuals. The variation pattern follows closely the one of GVA at constant prices. This coincidence of variation also occurred in Madeira., but the Totalem ploym ent - 1,000 individuals Em ploym ent Growth Rates , % , , , % 2.0% , , , , % -2.0% -4.0% -6.0% Years Years Algarve R.A.Madeira Portugal Source: INE Algarve R.A.M adeira Portugal Source: INE pattern is completely different for Portugal as a whole: From less than 4.4 million individuals in 1988, employment grew up to a peak on almost 4.7 million in 1991, to then decrease again 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Evolution of totalunem ploym ent in Algarve,by trim ester 1º 3º 1º 3º 1º 3º 1º 3º 1º 3º 1º 3º 1º 3º 1º 3º 1º 3º Taken from PROALGARVE , CCR Algarve, Source: IEFP Algarve by more than 200,000 employed individuals from 1992 to The unemployment curve in the Algarve presents a pattern that puts in clear evidence the seasonal characteristic of the regional economy, mainly concentrated on Tourism based on the Sun & Sea product. In average annual terms, the unemployment rate in the Algarve has been decreasing since 1995, which is in accordance to the trend at National level. It is to be noted though that due to the seasonality of the regional economy, not only specific fluctuations occur, as the one that can be noticed in the mid 90 s, but also a resistance level around 5% seems to be appearing. In fact, it is more difficult to implement mid and long term training and employment policies when employment itself fluctuates so much along each year and when its sensitivity to a number of external conditions is higher than usual. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 12

15 Evolution of the unemployment rate in the Algarve Taken from Diagnóstico da Região do Algarve, CCR Algarve, 1998 The productivity (measured in terms of GVA per worker and year) of the Algarve economy is virtually coincident with the one of Portugal as a whole and has been growing steadily along the reference period ( ), from 1.4 to 1.7 million escudos per individual and year (cp 1988), against 1.5 to 1.8 million escudos at the National level. The Autonomous region of Madeira, although also presenting a similar growth path, from 1.3 to 1.6 million escudos, has been keeping a more or less steady distance from the Algarve (more than 100,000 escudos per individual and year) and from Portugal (between 250,000 escudos and 200,000 escudos). 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1, P roductivity (cp 1998) Years Algarve R.A.M adeira P ortugal Source: INE Average yearly salaries (cp 1988) Years Algarve R.A.Madeira P ortugal Source: INE In contrast, the workforce in the Algarve receives less than both in Madeira and at Country level, these two later being very similar (although with a more unstable evolution in Madeira). A special factor of the Algarve may explain this phenomenon though, even if only in part, which is the fact that, due to the nature of the regional economy (Tourism with high degree of seasonality), many people work in self or family owned small businesses (cafeterias, restaurants, small shops ), normally not declaring any salary or only declaring a small remuneration of their own labor force. This situation does not seem so evident in Madeira, and one of the reasons for this may be a lower seasonal variance. One aspect deserving attention is the fact Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 13

16 that, between 1992 and 1995, the average salaries in Portugal and in the Algarve (cp 1988) have been kept almost constant (whilst in Madeira they have even decreased). This phenomenon must be seen in relation to the evolution of employment mentioned before. Now crossing both indicators (productivity and average salaries) we can notice that the ratio between productivity and salaries (representing the multiplicative factor of salaries in terms of value added to the economy), shows that Productivity/salaries (cp 1998) Years Algarve R.A.M adeira Portugal Source: INE salaries are more productive in the Algarve than elsewhere (taking the territorial units under comparison), Madeira presenting the worst ratio of the three. Along the period in reference the ratio has varied but both in the Algarve and in Madeira the values for 1995 are very similar to the ones for 1988 (above 2.4 for the Algarve and above 1.8 for Madeira), whilst they have slightly decreased in National terms (from just below 2.2 in 1988 to approximately 2.1 in 1995). In line with the factors described before, this ratio has been less stable along time in Madeira than in the other two territorial units under analysis. 4.4 Science & Technology R&D in the Algarve has been quite low along time, although in the last years a very positive growth may be noticed. Expense (10 6 pte) Total R&D expense betw een 1988 and 1997 (market prices) Years Algarve expense Madeira expense Algarve national share Madeira national share Source: Observatório das Ciências e das Tecnologias National share (% It is nevertheless clear that the regional R&D effort is still only half of what should result from a direct proportion of the regional economy in National terms (2% against 3.5%). The same does not happen with Madeira, where the regional Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 14

17 shares of R&D expense and GVA or Total Employment are much similar (all around 2%). Taking into account that Portugal itself presents a too low R&D effort when compared to Europe one may understand the importance that the reinforcement of R&D investment may take in the International comparison of R&D expense in Taken from the Web Site of Observatório das Ciências e das Tecnologias framework of the setting up of a mid and long term Regional Competitiveness Strategy. REGION Total NORTE CENTRO LISBOA E VALE DO TEJO ALENTEJO ALGARVE AÇORES MADEIRA Million pte 1995 (c.p.) R&D Universities 30,956 7,742 6,640 13,534 1, State 24,572 1, , ,329 Private 18,123 5,199 2,526 9, Total R&D 73,651 14,729 9,664 43,268 1, ,262 1,997 OS&TA Universities 2, , State 39,117 3,076 2,591 30, Private 6,760 1, , Total OS&TA 48,784 5,425 3,823 36,597 1, Total expense 122,436 20,155 13,488 79,865 2,879 1,188 2,162 2,700 FTE 1995 R&D Universities 5,894 1,513 1,190 2, State 4, , Private 3,088 1, , Total R&D 13,772 2,905 1,878 7, OS&TA Universities State 9, , Private Total OS&TA 10,700 1, , Total FTE 24,472 4,356 2,690 15, R&D and OS&TA (other Science and Technology activities) and Human Resources (in Full Time Equivalent) in Portuguese regions, 1995 (current prices). Sources: INE; Ministry of Science and Technology. Table 3 R&D and OSTA Regional expenses and human resources, 1995 The table shows the regional relevance of R&D performed in the University of Algarve and the importance of other Science and Technology activities carried out by Public Bodies. It puts in evidence the modest private effort in R&D and OS&TA in the region. The role of the University of Algarve as a key regional player in terms of R&D effort was mainly concentrated in 1995 in exact, natural and primary sector related sciences. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 15

18 As to the socio-economic objective of the R&D performed by the University, concentration occurred in general knowledge promotion, natural environment and primary sector productivity & technological development. Algarve - Total expense in R&D and OS&TA in University by scientific/technological area, million pte (market prices) Algarve - Total expense in R&D and OS&TA in University by socio-economic objective, million pte (market prices) Exact sciences General knowledge promotion Natural sciences Engineering & technology Natural environment protection & promotion Productivity and technological development in primary sector Productivity and technological development in secondary sector Health sciences Management of territory Primary sector sciences Social & human sciences Human health Defense Economic & social development R&D OS&TA R&D OS&TA Sources: INE; Ministry of Science and Technology. The regional R&D performed by the state in 1995 was fully carried out by the Ministry of Agriculture, Rural Development and Fisheries (primary sector). This Ministry also took the Algarve - OS&TA state expenses, by ministry, million pte (market prices) biggest share in OS&TA in the same year (where the state was dominant), whilst the Ministries of Environment and Culture absorbed minor shares. Agriculture, Rural Development & Fisheries Environment Culture Sources: INE; Ministry of Science and Technology. By these data we can conclude that not only the R&D regional effort of the Algarve is modest, but also that it is not sufficiently focused on economic development, in terms of the main economic activities of the region. The only exception is the primary sector (and mainly agriculture). It is nevertheless interesting to notice the relative interest of the University of Algarve in performing R&D related to environmental issues. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 16

19 5 Econometric Analyses 5.1 Introduction In this chapter, we will discuss the results of two econometric analyses: The location quotient and the shift share analysis. In the execution of these analyses we considered two indicators: Gross value added and total employment. The aim of this analysis is to have a picture, in two different points in time, both of regional economic specialization and of the main endogenous and/or exogenous factors contributing to the development occurred during the time period analyzed. These indicators allow a better understanding of the regional economic strengths and weaknesses and may contribute to decision-making in terms of economic development strategy. The analysis is made in a comparative way, using as reference period the first half of the 90 s decade (1990 to 1995). Madeira was chosen as national comparative region due to its dimension (population and economy) and to the common recognition that it is also a Tourist region. Baleares was taken also due to dimension (although bigger than the Algarve it is much smaller than for instance Andalusia or Catalonia) and to its specialization pattern. The analyzed sectors are according to NACE CLIO RR 17: 4 1- Agricultural, forestry and fishery products (b01) 2- Manufactured products (b06, b13, b15, b17, b24, b28, b36, b42, b47, b50) Fuel and power products Ferrous and non-ferrous ores and metals, other than radioactive Non-metallic minerals and mineral products 4 Between parentheses are the respective NACE-CLIO RR17 codes. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 17

20 Chemical products Metal products, machinery, equipment and electrical goods Transport equipment Food, beverages, tobacco Textiles and clothing, leather and footwear Paper and printing products Products of various industries 3- Building and construction (b53) 4- Recovery, repair, trade, lodging and catering services (b58) 5- Transport and communication services (b60) 6- Services of credit and insurance institutions (b69) 7- Other market services (Producer and retail services other than the ones indicated before) (b74) 8- Non-market services (b86) In these analyses two comparisons are made, based on data from two different sources: Algarve vs. Madeira, with data from INE, referred to 1990 and 1995 Algarve vs. Baleares, with data from EUROSTAT, referred to 1990 and Location Quotient The location quotient analysis pretends to identify possible specializations in sectors and in regions compared with the national (or non-national global) reality. In order to achieve that goal, we determine the Location Quotient (LQ ij ) for a certain sector i in a certain region j. If this number is more than one, it might mean that we have a relative Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 18

21 specialization in sector i and region j. If the number is equal to one, we have the national average and therefore no specialization. If the indicator is less than one, we have a deficit in production of that sector in that region Algarve Madeira Gross value added Source: INE LOCATION QUOTIENT LQij Sectors Algarve Madeira Algarve Madeira 1- Agricultural, forestry and fishery products 1,58 1,01 1,70 0,98 2- Manufactured products 0,26 0,35 0,25 0,34 3- Building and construction 1,62 1,53 1,14 1,29 4- Recovery, repair, trade, lodging and catering services 1,48 1,17 1,67 1,15 5- Transport and communication services 1,36 1,72 1,31 1,54 6- Services of credit and insurance institutions 0,73 1,08 0,63 1,84 7- Other market services 1,52 0,94 1,31 0,87 8- Non-market services 0,88 1,59 0,94 1,44 Table 4 Location Quotient, Algarve and Madeira - GVA, , values When comparing to national values n terms of Gross Value Added (GVA), we can see that the Algarve and Madeira present not only rather diverse patterns of regional specialization but also different evolutions along the reference period: Sector Algarve Madeira Trend Trend 1- Agricultural, forestry and fishery products S S Manufactured products U U U U 3- Building and construction S - S S 4- Recovery, repair, trade, lodging and catering services S S Transport and communication services S S S S 6- Services of credit and insurance institutions U U - S 7- Other market services S S Non-market services - - S S Accumulated S = Specialization (1.25 or above); U = Under specialization (0.8 or below); - = Indifferent (0.8 to 1.25). or - Change between 0.1 and 0.4 points; or - Change of 0.4 points or above. 5S 2U 4S 2U -1S =U 3S 1U Table 5 Location Quotient Algarve and Madeira - GVA, , main trends 4S 1U +1S =U Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 19

22 Significant factors to retain: The Algarve became more specialized in the Tertiary and Primary sectors; Building and Construction lost its specialization relevance in the Algarve. In Madeira this sector kept specialized, although losing importance; Manufacture products and financial services are two areas of under specialization of the Algarve, the second one having even lost relevance in the period; Against all expectations, Madeira does not present a specialization in recovery, repair, trade, lodging and catering services (including tourism). This has not changed until 1995; The relevance in transport and communication services, although declining, and the boom in the finance sector in Madeira may be related to its Offshore Zone; Madeira presents a specialization in non-market services, which decreased in time; The Algarve was in 1990 a rather specialized region and in 1995 lost one sector of specialization, whilst Madeira was in 1990 a less diversified region than the Algarve and followed a contrary trend, on the sense of the specialization; Both regions kept the sectors of under specialization (2 in the Algarve and 1 in Madeira); Manufacturing is a sector of constant under-specialization in both regions Total employment Source: INE LOCATION QUOTIENT LQij Sectors Algarve Madeira Algarve Madeira 1- Agricultural, forestry and fishery products 1,15 1,19 1,13 1,53 2- Manufactured products 0,30 0,27 0,30 0,25 3- Building and construction 1,40 1,50 1,01 1,37 4- Recovery, repair, trade, lodging and catering services 1,76 1,23 1,86 1,11 5- Transport and communication services 1,18 1,31 1,26 1,71 6- Services of credit and insurance institutions 0,74 0,67 0,77 0,60 7- Other market services 1,22 0,78 1,04 0,71 8- Non-market services 0,85 1,40 0,91 1,28 Table 6 Location Quotient Algarve and Madeira Total Employment, , values Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 20

23 In terms of total employment, the patterns and trends presented by the two regions show some similarities to the ones observed in terms of GVA. A few relevant differences must nevertheless be stressed, and therefore the summarized analysis is repeated as follows: Sector Algarve Madeira Trend Trend 1- Agricultural, forestry and fishery products - - S S 2- Manufactured products U U U U 3- Building and construction S - S S 4- Recovery, repair, trade, lodging and catering services S S Transport and communication services - S S S 6- Services of credit and insurance institutions U U U U 7- Other market services - - U U 8- Non-market services - - S S Accumulated S = Specialization (1.25 or above); U = Under specialization (0.8 or below); - = Indifferent (0.8 to 1.25). or - Change under 0.4 points; or - Change of 0.4 points or above. Table 7 Location Quotient Algarve and Madeira Total Employment, , main trends Significant factors to retain: 2S 2U 2S 2U =S =U 4S 3U 4S 3U =S =U Complete coincidences in terms of degree of specialization and trends only occur in 4 sectors in the Algarve (sectors 2, 3, 4 and 8) and in 3 sectors in Madeira (sectors 2, 3 and 8); In agricultural, forestry and fishery products, the Algarve is constantly indifferent in terms of employment, while it is getting growingly specialized in terms of GVA. The precisely opposite situation is verified in Madeira (growing specialization in GVA with constant indifference in employment). This may mean that Madeira is moving to a more laborintensive type of activity, whilst the Algarve is moving towards a more capital-intensive one (probably by enlarging the value chain of its traditional productions); In the sector of transport and communication services, the Algarve grew its employment specialization, putting it in accordance to its GVA specialization in In the same sector, the trends in Madeira present opposite directions, with the employment Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 21

24 specialization growing strongly, against a relative loss of specialization in terms of GVA. Once again, Madeira seems to be moving to a less capital intensive type of industry; In the finance sector, Madeira presents a steady under-specialization in terms of employment, whilst showing strong growth in GVA specialization. This is in accordance with a connection between these trends and the Offshore Zone creation. The Algarve kept its under-specialization in this sector, with an apparent move towards less capital-intensive activities; In the other market services, both regions show lesser specialization in terms of employment than in terms of GVA. The trends along time are similar in each region in both indicators; Both regions seem to present higher degrees of economic identity in terms of GVA than in terms of total employment. The trends appear to show a slight decrease in these regional identities along time. Madeira shows a higher degree of more specialization/under specialization than the Algarve in terms of total employment. Both the Algarve and Madeira kept the number of specialized and under specialized sectors. Whilst in Madeira these sectors were kept constant in time, in the Algarve there was a shift of specialization from building and construction to transport and communication services. This change may be related to a higher preoccupation with the environment and urban quality and with a greater effort for developing better infrastructures Algarve Baleares It is important to notice that whilst the Location Quotient when we compared the Algarve and Madeira was made in terms of the National Portuguese values, now when we compare the Algarve and Baleares the reference values are the ones that result of the addition of the two regions, as comparison to National values would not make sense. Another important notice refers to the sources of data for the Baleares: 1990 data come from EUROSTAT and 1995 data come from the Spanish National Statistics Institute. This might introduce some distortions in the figures, which were not considered to be relevant, because the data Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 22

25 published by EUROSTAT comes from the various National Statistics Institute and are in principle coincident with the ones published at national level Gross value added Sources: EUROSTAT; INE ( Portugal and Spain) LOCATION QUOTIENT LQij Sectors Algarve Baleares Algarve Baleares 1- Agricultural, forestry and fishery products 3,24 0,50 2,38 0,67 2- Manufactured products 0,74 1,06 0,71 1,07 3- Building and construction 1,07 0,99 1,04 0,99 4- Recovery, repair, trade, lodging and catering services 0,78 1,05 0,97 1,01 5- Transport and communication services 1,04 0,99 0,78 1,05 6- Services of credit and insurance institutions 0,80 1,04 0,69 1,07 7- Other market services 1,15 0,97 0,98 1,00 8- Non-market services 1,11 0,97 1,28 0,93 Table 8 Location Quotient Algarve and Baleares GVA, , values Sector Algarve Baleares Trend Trend 1- Agricultural, forestry and fishery products S S U U 2- Manufactured products U U Building and construction Recovery, repair, trade, lodging and catering services U Transport and communication services - U Services of credit and insurance institutions U U Other market services Non-market services - S - - Accumulated S = Specialization (1.25 or above); U = Under specialization (0.8 or below); - = Indifferent (0.8 to 1.25). or - Change under 0.4 points; or - Change of 0.4 points or above. 1S 3U 2S 3U +1S =U 0S 1U Table 9 Location Quotient Algarve and Baleares GVA, , main trends Between the Algarve and Baleares, and in terms of GVA, we can observe a different situation from the Algarve-Madeira comparison. Here we see lesser degrees of disparities, with the exception of the sector of agricultural, forestry and fishery products, where the Algarve appears as being highly specialized in terms of the average of the two regions (and inversely, Baleares appears as being strongly under-specialized). 0S 1U =S =U Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 23

26 The Algarve shows higher degrees of specialization and under specialization than the Baleares, which also present no significant variations along the time. A reason for these differences may be found in the economic dimension disparities, the economy of Baleares being more than 4 times bigger than the one of the Algarve Total employment Sources: EUROSTAT; INE ( Portugal and Spain) LOCATION QUOTIENT LQij Sectors Algarve Baleares Algarve Baleares 1- Agricultural, forestry and fishery products 2,00 0,36 2,26 0,30 2- Manufactured products 0,65 1,22 0,78 1,12 3- Building and construction 0,91 1,06 0,91 1,05 4- Recovery, repair, trade, lodging and catering services 0,93 1,05 0,99 1,01 5- Transport and communication services 0,75 1,16 0,66 1,19 6- Services of credit and insurance institutions 0,70 1,20 0,69 1,17 7- Other market services 0,82 1,11 0,74 1,15 8- Non-market services 1,08 0,95 1,01 0,99 Table 10 Location Quotient Algarve and Baleares Total Employment, , values Sector Algarve Baleares Trend Trend 1- Agricultural, forestry and fishery products S S U U 2- Manufactured products U U Building and construction Recovery, repair, trade, lodging and catering services Transport and communication services U U Services of credit and insurance institutions U U Other market services - U Non-market services Accumulated 1S 3U 1S 4U =S +1U S = Specialization (1.25 or above); U = Under specialization (0.8 or below); - = Indifferent (0.8 to 1.25). or - Change under 0.4 points; or - Change of 0.4 points or above. Table 11 Location Quotient Algarve and Baleares Total Employment, , main trends In terms of total employment, Baleares presents similar patterns and trends (once again, possibly due to its specific weight in the comparison). On the contrary, the evolution of Algarve along the reference period diverges from the one observed in terms of GVA, the main 0S 1U 0S 1U =S =U Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 24

27 common factor being a high number of sectors of regional under specialization (3 in terms of GVA and 4 in terms of total employment). The main conclusions that may be drawn from the Algarve Baleares comparison is that the Portuguese region is partially under specialized with one single compensation in a high specialization in the primary sector. 5.3 Shift share analysis The shift share analysis allows comparisons between local and national sectors. We can see the growth of local sectors compared to national sectors in several regions, between two points in time. This allows the determination of inclusive or induced origins of the factors in which sectoral changes were based. By comparing the data of one region and of the Country in two points in time we may determine: The development that would have occurred in the region if it had grown in all its sectors precisely as the Country average; The development occurred in the region due to its economic mix (for instance, if the region is stronger in one sector than the Country average and that sector performs well the region will perform better than the Country); The remaining regional development, which is due to the regional inclusive growth factors. The analysis made will be presented both in terms of gross value added (GVA) and total employment, and covering the Algarve, Madeira and Baleares. The data referring to the comparisons between regions will be presented first, without any comments, and will be followed by two graphs (GVA and total employment) putting in evidence the inclusive capacity for development of each of the three regions, followed by some interpretative comments. Finally, we shall analyze the components of change in the Algarve (national growth effect, industry mix effect and regional shares effect). Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 25

28 5.3.1 Data presentation Gross value added Sources: EUROSTAT; INE ( Portugal and Spain) SHIFT SHARE ANALYSIS Million escudos Sectors Algarve Madeira Portugal Algarve Madeira Portugal 1- Agricultural, forestry and fishery products Manufactured products Building and construction Recovery, repair, trade, lodging and catering services Transport and communication services Services of credit and insurance institutions Other market services Non-market services Totals in each region Percentage [%] Growth local sector c/ Growth in national Growth local sector national sector economy c/ national growth Algarve Madeira 1- Agricultural, forestry and fishery products -39,15% 2,29% 7,07% 2- Manufactured products -6,93% -5,86% 11,00% 3- Building and construction 7,05% -36,82% -4,66% 4- Recovery, repair, trade, lodging and catering services 2,11% 8,51% 12,93% 5- Transport and communication services 6,68% 5,97% -8,40% 2,01% 6- Services of credit and insurance institutions -30,65% -12,93% 71,85% 7- Other market services 20,80% -21,63% 7,25% 8- Non-market services 20,12% 2,76% 3,89% Table 12 Shift Share Analysis Algarve and Madeira vs Portugal, GVA, SHIFT SHARE ANALYSIS Million ECU Sectors 1- Agricultural, forestry and fishery products 2- Manufactured products 3- Building and construction 4- Recovery, repair, trade, lodging and catering services 5- Transport and communication services 6- Services of credit and insurance institutions 7- Other market services 8- Non-market services Totals in each region ESPANHA Percentage [%] Sectors 1- Agricultural, forestry and fishery products 2- Manufactured products 3- Building and construction 4- Recovery, repair, trade, lodging and catering services 5- Transport and communication services 6- Services of credit and insurance institutions 7- Other market services 8- Non-market services Baleares , , ,757.0 Growth in national economy -5.23% Espanha 17, , , , , , , , ,509.0 Baleares , , ,242.0 Espanha 16, , , , , , , , ,027.9 Growth local sector c/ national Growth local sector c/ national sector growth Baleares -3.60% 24.87% % 9.02% % -6.59% -8.15% -2.90% 50.10% -8.43% % -3.88% 24.53% -1.25% 14.54% % Table 13 Shift Share Analysis Baleares vs. Spain, GVA, Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 26

29 Total employment Sources: EUROSTAT; INE ( Portugal and Spain) SHIFT SHARE ANALYSIS Thousands of individuals Sectors Algarve Madeira Portugal Algarve Madeira Portugal 1- Agricultural, forestry and fishery products 34,5 19,8 802,9 24,9 21,6 619,9 2- Manufactured products 13,1 6, ,2 11,3 6, ,0 3- Building and construction 19,9 11,8 379,7 13,1 11,4 365,5 4- Recovery, repair, trade, lodging and catering services 53,6 20,8 816,0 55,3 21,2 836,3 5- Transport and communication services 7,8 4,8 176,7 6,9 6,0 153,9 6- Services of credit and insurance institutions 2,2 1,1 79,0 2,2 1,1 80,6 7- Other market services 11,0 3,9 241,1 12,9 5,6 347,8 8- Non-market services 27,6 25,0 863,8 31,1 28,1 966,2 Totals in each region 169,7 93, ,4 157,7 101, ,2 Percentage [%] Growth local sector Growth in national Growth local sector c/ national sector economy c/ national growth Algarve Madeira 1- Agricultural, forestry and fishery products -20,61% -5,03% 31,88% 2- Manufactured products -7,17% -4,38% 3,30% 3- Building and construction -1,55% -30,43% 0,35% 4- Recovery, repair, trade, lodging and catering services 4,67% 0,68% -0,56% 5- Transport and communication services -2,19% -10,72% 1,36% 37,90% 6- Services of credit and insurance institutions 4,21% -2,03% -2,03% 7- Other market services 46,44% -26,98% -0,67% 8- Non-market services 14,04% 0,83% 0,55% Table 14 Shift Share Analysis Algarve and Madeira vs Portugal, Total Employment, SHIFT SHARE ANALYSIS Million ECU Sectors 1- Agricultural, forestry and fishery products 2- Manufactured products 3- Building and construction 4- Recovery, repair, trade, lodging and catering services 5- Transport and communication services 6- Services of credit and insurance institutions 7- Other market services 8- Non-market services Totals in each region ESPANHA Percentage [%] Sectors 1- Agricultural, forestry and fishery products 2- Manufactured products 3- Building and construction 4- Recovery, repair, trade, lodging and catering services 5- Transport and communication services 6- Services of credit and insurance institutions 7- Other market services 8- Non-market services Baleares Growth in national economy 5.01% Espanha 1, , , , , , ,078.0 Baleares Espanha 1, , , , , , ,733.7 Growth local sector c/ national Growth local sector c/ national sector growth Baleares % % % % -3.93% % -4.29% 6.17% 8.63% 3.81% 7.43% 1.12% 47.85% 2.07% 19.42% 19.66% Table 15 Shift Share Analysis Baleares vs. Spain, Total Employment, Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 27

30 5.3.2 Regional comparison Growth of local sectors compared to national sectors (Base 100 = National) - GVA Agricultural, forestry and fishery products 2- Manufactured products 3- Building and construction 4- Recovery, repair, trade, lodging and catering services 5- Transport and communication services 6- Services of credit and insurance institutions 7- Other market services 8- Non-market services Sectors Algarve Madeira Baleares Growth of local sectors compared to national sectors (base 100 = National) - Total employment Agricultural, forestry and fishery products 2- Manufactured products 3- Building and construction 4- Recovery, repair, trade, lodging and catering services 5- Transport and communication services 6- Services of credit and insurance institutions 7- Other market services 8- Non-market services 40 Algarve Madeira Baleares The shift share analysis puts in evidence that the Algarve was virtually unable, between 1990 and 1995, to grow due to inclusive factors: In almost all sectors it grew less than Portugal, meaning that it was not even capable of absorbing the growth induced by National development. The only sectors showing some inclusive-driven growth in the Algarve are sectors 1 agricultural, forestry and fishery products (in terms of GVA only), 4 recovery, repair, trade, lodging and catering services and 8 non-market services (these two both in terms of GVA and total employment). But in all cases the indicators are near to 100, meaning that the inclusive driving force for development, although existing, is rather weak. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 28

31 In all the other sectors the Algarve grew less than Portugal, with significant differences in sectors 3 building and construction and significant, and 7 other market services. The picture of the regional economy of the Algarve when seen at the light of this indicator is therefore not very reassuring. The comparison of the Algarve s inclusive capacity for growth with the ones of Madeira and Baleares is also deceiving for the first of the three regions: The Algarve is outperformed by Madeira in all sectors in terms of GVA, with particular relevance for sectors 1 and 5, and only succeeds in equaling this autonomous region in terms of total employment in sectors 4, 6 and 8. In fact, Madeira shows a clear inclusive growth capacity in sectors 1 and 5 (total employment) and 6 (GVA). This may lead to a conclusion that Madeira is more capable of growing autonomously than the Algarve (in fact, the Algarve appears even to be unable to grow as much as Portugal as a whole). The comparison with Baleares is not also very comforting for the Algarve. In terms of GVA, the Algarve beats Baleares in sectors 4 and 8, whilst in terms of total employment the Portuguese region does better (or less badly ) than the Spanish one in sectors 1 and 2. Baleares presents a significant inclusive capacity for growth in sectors 1 (GVA) and 8 (total employment), and there is a number of other sectors where the regional performance is similar or even slightly higher than the one of Spain as a whole. As a closing remark to this point, we may state that the Algarve shows, in global terms, a poorer competitive capacity than any of the other two regions taken as comparison. Besides this, whilst any of the other regions present some sectors where there is a clear inclusive capacity to generate economic growth, the Algarve does not appear as being able to grow by internal factors in any sector of activity. Being a region with a significant degree of economic specialization, we may say that the Algarve does not seem to be able to gain from the advantages of such specialization whilst suffering from its negative consequences, the worst of it being maybe the exposure to external factors of change which cannot be controlled, or fought, with inclusive characteristics able enough to induce and sustain economic growth. Paulo Silva & Pedro Borges de Almeida M.Sc STP Page 29