Digital and Green Transition Threatens to Widen the Gap between EU Regions

Closing the prosperity gap between regions has always been a key political aspiration of the European Union – and cohesion policy is the primary means to achieve that goal. Europe is currently undergoing a digital and green transition that is drastically changing the way its economy works. How well prepared are regions to capitalise on the twin transition? And what impact will it have on regional cohesion in Europe? Our new study, “The Future of EU Cohesion: Effects of the Twin Transition on Disparities across European Regions,” finds that greening and digitalising the economy will likely widen the gap between rich and poor regions in Europe.

The structural changes emanating from digitalising and greening the European Union will play out differently across European regions, potentially redrawing the EU’s economic landscape as we know it.

The twin transition will present fresh opportunities for some regions, while others will face enormous challenges adjusting.

To shed light on the future of regional growth and cohesion across the EU, the study presents novel evidence for 230 NUTS-2 regions on their general growth potential and their readiness to deal with the specific opportunities and challenges of digitalising and greening their economies.

Our study,  prepared in cooperation with The Vienna Institute for International Economic Studies (wiiw), uses a scoring system consisting of 14 key factors that shape medium-run growth on the back of the twin transition.

The digital and green transition will further reinforce EU regions’ diverging growth potential

The study’s starting point is an estimation of the potential for general economic growth. Regions in Eastern Europe, which have exhibited prolonged periods of growth in recent decades, have a worse outlook when it comes to their potential for future growth, as they have lower scores for key growth drivers such as high-skilled employment, investment or innovation.

Together with Southern European regions, which have already experienced stagnating economic development, their future growth potential falls behind that of regions in Western and Northern Europe.

In addition, regions across the EU are unevenly prepared for reaping the benefits or shouldering the costs of digitalising and greening and their economies. For example, regions with high levels of labour productivity, good internet access or high levels of business sophistication are poised to benefit more from a digitalised economy.

Other regions are better prepared to decarbonise their industrial production, transport sector or housing stock. Some regions are well suited to tackle both transitions, and many are not particularly ready for either.

The study assesses how the twin transition may alter the prospects of future economic development. It finds that urban and metropolitan regions that mostly specialise in knowledge-intensive services show high levels of readiness for the digital and green transition in addition to high general growth potential.

These regions will most likely pull ahead during the twin transition. They include Lisbon, Berlin, Bratislava, Budapest, Warsaw, Prague, Stockholm and Cologne, but also regions around the Alpine area in Europe’s core.

The study also shows that particularly rural and agricultural regions in Spain, Greece, Southern Italy and Romania, and mining regions in Poland and Slovakia have low levels of digital and green readiness on top of their low potential for general growth. These regions will most likely fall further behind on the back of the twin transition.

Future EU Cohesion policy needs to counter agglomeration pressures from twin transition

Overall, the study finds that regions with higher GDP per capita today have a higher potential for economic growth in the face of the twin transition. In comparison, regions with lower GDP per capita are more likely to stagnate in their economic development. Economically strong regions are thus set to pull further ahead, while economically weak regions will fall further behind.

The twin transition may therefore contribute to increasing economic disparities across European regions. This calls for action to gear future EU cohesion policy better to the fresh convergence challenges created by the twin transition. If measures are not tailored to regions’ specific transition challenges, digitalising and greening the European economy may work against the overarching goals of economic convergence and cohesion in Europe.

Get the Study

For more information and to download it, please click here.

About the author

Thomas Schwab is Project Manager for the Europe’s Future Program at the Bertelsmann Stiftung. He applies a data-driven approach to economic analysis by employing data science and econometric methods.