Regional performance is a result of both national and common factors (e.g. national policies and the business cycle) and regional factors (e.g. demographic trends and regional policies). If all regions in a country grow faster than the regions in other OECD countries, this faster growth can be ascribed to that country’s good performances (national factors) or to factors influencing the performance of all regions within that country (a common factor such as the business cycle). On the other hand, if a region exhibits faster growth than all other OECD regions, including those in the same country, that growth can be ascribed to the region’s good performance (regional factors). In sum, overall movements in a region’s share of GDP are ascribed to regional and national factors. 

Although national (and common) factors can influence the performance of regions, the extent that a region exhibits faster growth than all other OECD regions, including those in the same country, can be ascribed to regional factors. 

A region’s change in its OECD GDP share can be decomposed into national factors (i.e. changes in the national GDP share), population growth or changes in GDP per capita. Changes in population are due to natural demographic trends and migrants from other regions and countries. Growth in GDP per capita may be further decomposed into changes in GDP per worker (labour productivity), in employment rates (employment to labour force), participation rates (labour force to working age population) or in age activity rates (working age to total population) (see Annex C for formula).

At the regional level, labour productivity is measured by GDP per worker capturing the efficiency of the regional production system. Although many factors influence a region’s level of efficiency, labour productivity mainly depends on the balance between capital and labour (i.e. capital to labour ratios) and on the available technology (i.e. multifactor productivity) in a given region.

Employment rates, participation rates and age activity rates influence regional performance. High growth in employment rates may be due to higher skill levels or to greater efficiency of the local labour market. Both can be regarded as resulting from regional assets: skills can be upgraded through training and education, and changes in employment regulations and active labour market programs can increase the regional labour market efficiency.