Economic flows between Regions in Belgium

What are the barriers to the mobility of workers, capital, goods and services in Belgium? Does crossing a regional border in Belgium put a brake on these economic flows? In an increasingly globalised world, is distance still a factor? The article uses a new comprehensive set of microeconomic data in order to answer these questions as best as possible.

Distance comes at a cost for workers

The Belgian labour market is characterised by major disparities between the three Regions, not least in terms of unemployment rates. In this context, one would expect to see a convergence process at play, especially in the form of worker mobility. Yet, 85 % of employees work in the Region where they live. This finding is even more clear-cut on a provincial scale: 75% des employees do not leave their province for their work.

There are of course disparities between the Regions. In Brussels and Wallonia, the share of interregional commuters (around 20 % of total employment) is higher than in Flanders (12%). This seems to be dictated by economic necessity.

Distance obviously puts a brake on geographical mobility, but its impact depends on the characteristics of workers. Highly educated people, private sector employees and civil servants cross regional borders to go to work more frequently than medium and low educated people or blue-collar workers. Wages are also an important factor: the share of interregional commuters rises strongly with the salaries they are paid. And, lastly, the branch of activity is crucial, interregional workers generally tend to be concentrated in banking and insurance, IT, public administration and business services. For both the north and the south of the country, Brussels is the primary destination of interregional commuters. The Brussels-Capital Region posts strong demand for skilled labour owing to the concentration of administrative centres and company headquarters.

As less-skilled workers are the least mobile, they depend more on local job opportunities. In this context, it is hardly realistic to imagine that worker mobility alone will smooth out the regional disparities.

Financial links are few and far between, but nevertheless important

As far as capital movements are concerned, the findings are striking. In Flanders and in Wallonia, only 1 or 2 % of firms hold stakes or own establishments in another Region. The percentage is highest in Brussels (6%), which is unusual in being home to a large number of operational headquarters.

What can be said about the 600 firms that have establishments in all three Regions? While there are not very many of them in relative terms when there are more than 300 000 firms operating in Belgium, they are nevertheless fairly large, employing over 800 workers on average. They are also firmly anchored in Belgium, since only one-quarter of these firms record any foreign direct investment. And they are active in different sectors, and in particular temporary agency employment, mass retail trade, banking, postal activities and transport, etc.

Lastly, while capital movements between the Regions concern only a few firms, those firms represent a particularly large volume of employment. In both Flanders and Wallonia, more than one-third of private sector workers are active in bi-regional or tri-regional groups. The proportion is even higher in Brussels.         

Substantial trade in goods and services between the Regions

To assess the scale of sales from one Region to the other two Regions, it is interesting to compare them with sales abroad, i.e. exports of goods and services (excluding re-exports). In practical terms, for establishments located in Flanders, sales to Brussels and to Wallonia comes to 29 % of total extra-regional sales. By way of comparison, Germany counts for 10 %, the Netherlands and France 9 %. The interregional market is even bigger for Walloon establishments, representing 44 %, compared to 13 % for France, 8 % for Germany and 4 % for the Netherlands. In the case of Brussels, the interregional market takes the lion’s share, of as much as 57 %, compared to 7 % for the United States, 6 % for France and 5 % for the Netherlands.

Two other figures underline the importance of the interregional market. Six percent of firms in the sample export goods and services abroad, while the proportion of firms that sell to at least one other Region works out at 55%. Interregional trade therefore concerns a much larger set of firms than international trade does.

What is the cost of distance and the regional barriers in Belgium?

The first finding is that geographical distance is still an impediment to economic flows. . Even in a small country like Belgium with well-developed transport networks and no natural barriers, the number of commuters, financial stakes, and trade in goods and services declines significantly with the number of kilometres to be travelled. This reduction in the number of connections is taking place even within each Region itself.

Added to this cost of distance is a barrier between Flanders and Wallonia, which does exist but is not dominant. It is highest for commuters, middle of the range for capital and services and lowest for manufactured goods. Conversely, there is no penalty affecting movements between Brussels and the other two Regions. By contrast, the Brussels-Capital Region exerts a strong attraction for workers or companies from the other Regions, so much so that it partly offsets the costs associated with distance.