How Regional Governance Constrains Regional Development. Evidences from an Econometric Base Model for the Azores

Abstract

Regional growth depends on the progress of the basic activities. Nevertheless, these basic activities involve not only exports but also all the inflows of money associated with public and private transferences and service of the debt. The aim of this paper is to analyze the relevant growth factors in the economy of the Azores, during the current century, including the prolonged crisis that resulted from the financial collapse in 2008 and the break of Portuguese public finances in 2012. To achieve this we estimate an econometric model with data from 2001 until 2016 that relates total employment to the main exports, the external financial support for the Azores Economy and the public debt of the previous year as a proxy to the debt service. We conclude that the exports of milk, the number of hosts and the public transferences have a strong positive role on employment whereas public debt has a strong negative effect on employment in the next year. We show that the liberalization of air transport decided by the national government and the end of constrains in the production of milk decided by the European Union had a major effect in the economy of the Azores but the increase in governmental debt is strongly destroying the employment created.