Testing the Approaches of Regional Development in Small Municipalities

Aims of regional development in terms of the new paradigm related to creativity and sustainability and possibilities of small municipalities (with decreasing population) to reach and to evaluate development accordingly to the new paradigm have stimulated authors’ interest to test regional development in small municipalities. Additionally, high and low level of development in terms of small municipalities often finds roots in similar dominating stimuli. The paper focuses on the analysis that covers testing of two main approaches of regional development – placeand people-based – using the case study of 19 municipalities in the region with the continuously relatively low level of regional development (Latgale region at the Southeast of Latvia). Testing of a number of variables related to financial support and education (people-based approach) and to infrastructure and expenses linked with territory as well as natural resources (place-based approach) for municipalities divided accordingly to process (development rates) and result (development level) provides understanding of the contribution of each approach to the development of municipalities that are at different stages of regional development. Additionally, the paper offers variables that can be used for further monitoring of development in small municipalities in terms of the different development approaches. The results come from application of regression analysis and particularly from a number of log-log models. Authors have found dependence on the same short-term stimuli related to placebased approach in all municipalities’ groups at all stages of development. Realization of development strategies can improve the situation, because municipalities’ activities have provided effect accordingly to the data analysed, and this is a positive tendency.


Introduction
Regional development in Europe meets with the new paradigm -creativity.Creativity contributes to uniqueness and helps to get more from the resources, particularly from the knowledge that has been accumulated at certain territory.The new paradigm focuses on regional intelligence that is understood as a driving factor for stimulating required innovative activities in an effective way in regions.Mostly, the results depend on Abstract Aims of regional development in terms of the new paradigm related to creativity and sustainability and possibilities of small municipalities (with decreasing population) to reach and to evaluate development accordingly to the new paradigm have stimulated authors' interest to test regional development in small municipalities.Additionally, high and low level of development in terms of small municipalities often finds roots in similar dominating stimuli.The paper focuses on the analysis that covers testing of two main approaches of regional developmentplace-and people-based -using the case study of 19 municipalities in the region with the continuously relatively low level of regional development (Latgale region at the Southeast of Latvia).Testing of a number of variables related to financial support and education (people-based approach) and to infrastructure and expenses linked with territory as well as natural resources (place-based approach) for municipalities divided accordingly to process (development rates) and result (development level) provides understanding of the contribution of each approach to the development of municipalities that are at different stages of regional development.Additionally, the paper offers variables that can be used for further monitoring of development in small municipalities in terms of the different development approaches.The results come from application of regression analysis and particularly from a number of log-log models.Authors have found dependence on the same short-term stimuli related to place-based approach in all municipalities' groups at all stages of development.Realization of development strategies can improve the situation, because municipalities' activities have provided effect accordingly to the data analysed, and this is a positive tendency._________________________________________________________________________________________________________________ ______________ Viktorija Šipilova, Ludmila Aleksejeva and Inta Ostrovska (2016), Journal of Eastern Europe Research in Business & Economics, DOI: 10.5171/2016.677185regional inspiration that differentiates regions and requires availability of human capital and technological infrastructure (e.g., Sleuwaegen, Boiardi 2014).In general, the new paradigm for regional development contributes to sustainability, i.e., long-term development based on the potential of human capital and territory.
The implementation of the new paradigm, however, is hard to evaluate at the level of small municipalities, which have to be involved in the 'modern' pathway of regional development.Practically, regions find it necessary have necessary to implement one of the approachesplace-or people-based or combine both approaches for being able to save and even to create regional uniqueness in an economic context.The evaluation of the development, however, is limited in terms of small municipalities.Usually such variables as science, technologies, sectoral employment, and registered patents that are necessary for assessment (e.g.Huggins et al. 2014; Sleuwaegen, Boiardi 2014) are limited or absent at all for small municipalities.Moreover, small municipalities do not experience scientific activities and often have limited number of economically active sectors.Thus, the paper aims to -determine the contribution of place-and people-based approaches to regional development in small municipalities and to choose possible variables for assessment and available at the level of small municipalities.This would contribute to the further monitoring of development.The paper uses the case study of small municipalities in Latgale region (southeast of Latvia).The choice of the case study of Latgale region finds roots in: general regional tendencies in Latvia, i.e., worsening of the positions of many territories (particularly, of Latgale region) thus hindering the potential of balanced regional development -• mobility of resources towards higher developed regions (mostly capital-city and abroad territories have benefited, rather than small municipalities); • transport infrastructure; • wide educational possibilities; • high share of self-employed persons etc. (Latgale planning region 2014).
In general, scientific contributions rarely pay attention to the issues of small municipalities.Mostly, findings relate to local activities on effective service delivery (Arcelus et al. 2015) and to high dependency on financial support in a form of income transfers (Partridge et al. 2015).However, some authors indicate the effectiveness of policy-making for development in small municipalities as well (Olfert et al. 2011).Authors extend the existing findings by the experience of 'prosper' and 'lagging' small municipalities in region with high share of predominantly rural territories.Research findings could be of interest for scientists and policy-makers.
The main challenge of the research relates to mismatches between the socio-economical characteristics of small municipalities and the main aims set for regional development in terms of the new paradigm.On the one hand, regional development aims to be in a spatially balanced form, what mostly requires place-based approach for economically less attractive territories with decreasing population.On the other hand, one argues that creativity of people makes regions unique thus contributing to smart growth and sustainability in development (Sleuwaegen, Boiardi 2014).Therefore, people-based approach could be more beneficial for improving economic and social conditions of lower developed territories.
Addressing the issue under research, authors have structured the paper as follows: the second chapter discovers the main scientifically proved benefits from place-and people-based approaches; the third chapter intensively debates and explains the logic of research, while the fourth chapter introduces the research results and the fifth chapter concludes the paper.The paper mostly draws on Šipilova, Aleksejeva and Ostrovska (2015) and contributes to the previous research findings by widening of tested variables.Sleuwaegen, Boiardi 2014).Despite the widely spread understanding of regional development within the new paradigm, markets often react weakly to the elements of sustainability.Thus, the role of regional institutions and governance in regional development has increased (Krueger 2010).Recent scientific literature presents many attempts how to select better policy-making for regional development and one of the most valuable questions relates to the choice between two main policy typesplace-and people-based (Crowley et al. 2012;Olfert et al. 2011).Mostly small municipalities can get the knowledge necessary for 'modern' pathway in development from the experience of 'big' regions.
For example, increasing regional inequality and modest results in spatial balancing across countries have stimulated emergency of the issue under research.One can find that the example that was intensely debated in the scientific literature relates to attempts towards overcoming high and persistent regional inequalities in the UK ( What makes place-and people-based approaches different and beneficial?In general, place-based approach mostly relates to the high mobility of resources (for example, for directing resource allocation) for improving attractiveness of poor or declining territories.In turn, people-based approach relates to increasing resources' mobility (Partridge et al. 2015).
Place-based approach offers possibilities to realize the growth potential of every territory (McCann, Rodriguez-Pose 2011).Although, as far as activities towards supporting decreasing territories meet a challenge of reaching disadvantaged people, also, one can argue that bright differences between territories mostly relate to people rather than to place (Crowley et al. 2012).On the other hand, it is not a rule that both, i.e., targeted people and place, can be found together.One can find that many poor people live in territories that are highly developed, and in case of place-based policy, they remain excluded from the programmes (Crowley et al. 2012).
However, realizing support of particular place often can meet challenge of duration of effect, i.e., short-term or long-term.For example, specifically local activities often take a form of simple income transfers, which what is the most efficient way to overcome lagging positions of regions (Partridge et al. 2015).One finds that this is usually the case of small municipalities.Although, such activities provide serious contribution in regional development, these are not enough and other stimuli are necessary for sustainable development.
Resources move to the regions that have higher productivity.(Partridge et al. 2015).Since this takes place, the topicality of people-based approach rose, because one finds that people are a driving force for regional prosperity.One argues that people-based approach is more effective than place-based approach (Martin et al. 2015).Moreover, scientific literature concerning regional inequality is often attributable to wage-inequality, which depends on skills and education (Pereira, Galego 2015).Regions benefit also from employment of creative people (Sleuwaegen, Boiardi 2014).Additionally, investments in skills and mobility of people can reach not only people who live in distressed territories, but also poor people who live in highly developed territories.On the other hand, returns from such investments are long-term process (Crowley et al. 2012).
Scientists during debates usually use case studies and mostly peculiarities of regional disparities and challenges for further regional development.Findings highlight benefits provided by each approach.Moreover, the choice of regions for realizing certain approach is the result of detailed analysis (Olfert et al. 2011).The most recent findings on policy-making for overcoming regional inequality and balancing regional development address the issue of the example of high and persistent regional inequalities in the UK (Crowley et al. 2012;Martin et al. 2015).The conclusion made after a wide evaluation of the benefits achieved during the implementation of regional development policies in the UK underlines the necessity of balance between place-and people-based approaches (Crowley et al. 2012).In any way, sustainability of economic performance cannot be reached without developing regional uniqueness (Gedminaite-Raudone 2014).

Method
The paper aims to determine the contribution of place-and people-based approaches to regional development in small municipalities and to set the number of variables necessary for the assessment and available at the level of small municipalities for the future monitoring of development.Authors use the case study of 19 municipalities of Latgale region (Southeast of Latvia) during the time from 2009 to 2014.Lagging economic positions at the country's level, economical intrainequality and prevalence of predominantly rural territories characterise the region and stimulate scientific interest to detect reasons for the existing regional economic performance.Assessment of regional development is restricted by data availability at the regional level (especially for small municipalities) and difference in data choice (e.g.Huggins  The combination of data on development process and result (detected by authors using the data on market activities and ITDL) with the data on municipalities' activities provides the basis for understanding the character of regional development, i.e., short-term or long-term.Authors expect that dependence of regions with high regional performance by process and result from municipalities' financial support should be low or decreasing in case of long-term regional development.In turn, dependence on education and partly natural resources (depending on the effectiveness of their usage) should be strong.
Correlation analysis provides a basis for the selection of key variables from the number of factors.Finally, the number of regression log-log models discovers relationship between regional population dynamic (dependent variable) and key variables for different combinations of municipalities depending on data on process and result.

Research results
The existing peculiarities of the development level of Latgale region mostly found roots in persistently high unemployment rates, high share of workforce with low skills, insufficient capital inflows and low level of entrepreneurship (Latgale planning region 2014).However, the region provides wide educational possibilities, demonstrates high level of selfemployment and has rich natural resources that form serious regional potential (Latgale planning region 2014).The chapter introduces possible logic for the evaluation of development in terms of process and result of development within the new paradigm at small municipalities' level.However, difference in about -0.416 points between ITDL indicates relatively better regional performance in higher developed municipalities.
Authors' findings about weakly expressed linkage between regional development and population dynamic (see Fig 1) can be explained paying attention to -first, the peculiarities of process and result of regional development and second, stimuli providing regional development.Further analysis tests these suppositions in context of place-and people-based approaches.Moreover, correlation coefficient for ITDL and population at working age is slightly higher (r all municipalities = .140).
One can find that relatively higher developed territories do not attract population, especially population at working age.However, population at working age at this time is not able to contribute in the rise of regional development seriously (see data on Table 1).Therefore, the existing spread of regional development requires deeper understanding of the effect of place-or people-based approaches.This will provide additional knowledge for further choice making and further monitoring of regional development.
Presence of population at working age is a significant factor for regional development, especially during the high level of process of development.However, some contradictions are there for the case of Latgale region.For example, municipalities with high level of development process and municipalities with low level of development result demonstrate this.Correlation coefficients for linkage between ITDL and population at working age are as follow: r "high process" = .918,r "low result" = .561,r "high result" = .406and r "low process" = .397.Although, the contribution of population at working age only is not enough, it is important to test other stimuli for more effective involvement of policymaking (place-, people-based) in regional development., where correlation coefficients vary for population and population at working age from r = -.469 to r = .031and they are not statistically significant for variable STUD_VOC_EDU despite the mostly close linkage with the dependent variables.As a result, variables attributable to placebased approach dominate over variables attributable to people-based approach during the analysis.The remaining variables for place-based approach consist from five units and for people-based approach from two units.Correlation coefficients for variables selected for further analysis vary from r = .633**to r = 1.000**.Second, significance of variables is similar for all groups of municipalities regardless of the stages of development process and result.Third, significance of variables is similar within each group of municipalities.

Journal of Eastern
Characteristics of variables with close and statistically significant correlation with population and population at working age (except variables BRIDGES and STUD_GEN_EDU) indicate mostly short-term regional development -MIN_INCOME, REVENUE_EQUALIZATION, REVENUE_REAL_EST_TAX, i.e. financing of current needs and disproportions during the development process.Close linkage with natural resources cannot be evaluated univocally.The character of contribution of natural resources to regional development mostly depends on the kind of usage and demand level.Strategies aim to stimulate the involvement of natural resources to in the production of higher value added or energy that could seriously contribute to regional development.Additionally, more than 45% of entrepreneurs in Latgale region consider presence of natural resources as significant factor for decision-making and choice of place for business.However, local demand for natural resources is at level now (Latgale planning region 2014).In turn, such variables as EDUCATION_EXPENS, STUD_VOC_EDU, EU_FUNDS and ROADS, which would be necessary for long-term regional development, demonstrate weak correlation coefficients.Further analysis is necessary for detecting those variables, which provide greater impact on regional development.
As far as targets of regional development include all population (not only those at working age), correlation coefficients for both variables are similar and dynamic of population is one of the most valuable indicators of regional development, authors use population as a dependent variable in regression analysis (see Table 3).
The data on Table 3 present results of regression analysis.Number of log-log models for five municipalities' groups provides the possibility for detailed comparison of development stimuli across municipalities' groups.Such analysis highlights the quality of regional development as well.
Correlation analysis indicates the similarity between all groups of municipalities by selected variables.Data on regression analysis one more time underlines that regardless of stage of process and result of regional development, the significance of tested variables is similar.Moreover, overall tendencies across municipalities' groups indicate that population number is dependent on short-term stimuli, which are related to certain territory, i.e. financing from equalization fund, real estate tax revenues.Close linkage with natural resources seems to provide positive contribution.
Calculations indicate that a 1-percentage point rise in the "Municipality revenue from the equalization fund" and "Municipality real estate tax revenues" implies a significant _________________________________________________________________________________________________________________ ______________ Viktorija Šipilova, Ludmila Aleksejeva and Inta Ostrovska (2016), Journal of Eastern Europe Research in Business & Economics, DOI: 10.5171/2016.677185growth of population; respectively more than 1-percentage point (see Table 3).Population growth rates in this case vary from 0.967 and 1.289 across municipalities' groups.It would be difficult to imagine that such indicators can stimulate population growth because of rising birth rate or positive migration.Therefore, authors explain these findings, i.e., population growth, as households' decision does not move to other municipalities or abroad, but stays at the territory, which is able to provide certain level (hypothetically higher than in other municipalities) of well-being by equalization's donations and real estates' tax revenues.Population demonstrates the tendency to grow mostly because of population decrease in other poorer municipalities.
Variables, related to infrastructure, as "Total number of municipal bridges" and "Density of the road network in Latvia", are mostly attributable to long-term regional development.These variables demonstrate weaker impact on population number.For example, the variable "Density of the road network in Latvia" does not participate in the regression analysis (see Table 2).In turn, the variable "Total number of municipal bridges" demonstrates significant impact on population number and 1-percentage point rise implies growth of population by about 0.706-0.796percentage points.This indicates that infrastructure significantly contributes to population concentration.Calculations made by the authors have underlined the high significance of natural resources also -the significance of forests for municipalities with low performance and the significance of mineral resources for municipalities with high performance in terms of result and process of development.People-based approach practically does not find evidence in the analysis carried out by the authors, because of several reasons.First, there is a limited number of available variables attributable to people-based approach.Second, four of six of the selected variables did not show close linkage with population number, what is especially unfavourable in the case of the variables EDUCATION_EXPENS, STUD_VOC_EDU and EU_FUNDS.Additionally, "Amount of benefits to ensure the level of guaranteed minimum income" provides lesser impact on population than variables of place-based approach.Authors' calculations indicate that 1-percentage point increase of "Amount of benefits to ensure the level of guaranteed minimum income" stimulates growth of population by about 0.596-0.984percentage points.In turn, the effect of the variable "Number of students at the general educational establishments" is significant, but similar for all municipalities' groups despite the stage of process and result.The tendencies discovered during the analysis can be improved during the implementation of the aims set in the development strategies.For example, the development strategies of Latgale region make focus on 'smart' regional development that requires correspondence with the new paradigm of creativity and sustainability for all areas -education, entrepreneurship, infrastructure, and governance (Latgale planning region 2014).Particularly, Latgale region set the following aims for further development: • to increase the involvement of the population in getting vocational education using wide possibilities offered in the region; • to improve skills of workforce; • to attract local workforce for regional vacancies; • to coordinate the usage of attracted investments; • to develop regional brand for activating entrepreneurship activities; • to increase the usage of natural resources for the production of higher value added and energy (Latgale planning region 2014).
The research findings could be of help to make a better choice for targeted municipalities and to focus attention on certain approach (approaches) of regional development.For example, authors found out that development in municipalities has gained from the place-based approach mostly.However, the research findings have discovered the domination of short-term stimuli as financing of current needs and necessity to improve and diversify the usage of natural resources that provide sufficient contribution to regional development.On the other hand, the potential of people is not used effectively.Weak linkage between regional development and expenses on education and the number of students at vocational educational establishments evidences about this.Moreover, the effect from EU structural funds, where human capacity is very important, should be higher at municipalities' level.

Conclusion
The paper has aimed to determine the contribution of place-and people-based approaches to regional development in small municipalities and to set variables available at the level of small municipalities for the future monitoring of development.Authors have focused attention on the case study of nineteen municipalities of Latgale region (Southeast of Latvia) using data on financial support and education for testing people-based approach and data on infrastructure, revenues linked with territory and natural resources for testing place-based approach in small municipalities.Small municipalities were divided into the groups accordingly to process (development rates) and result (development level).
Authors have concluded that differentiation was expressed weakly between municipalities' groups in terms of stimuli of regional development.Development in all municipalities has gained from activities and resources related to place-based approach in bigger extent.Additionally, regional development in all municipalities' groups has demonstrated dependence on the same stimuli, which can mostly be unified under definition short-term.Moreover, relatively higher developed municipalities have brighter expressed dependency on shortterm stimuli than lower developed municipalities, what indicates an unfavourable tendency.For example, authors have discovered the dominance of short-term stimuli in municipalities with low level of development process and high level of development result.Authors indicate that wider list of tested variables would be necessary in further research aiming to detect key reasons for vulnerability of regional development at small municipalities' level.However, authors underline positive tendency as well -the contribution of municipalities' activities provides effect on regional development in small municipalities in Latgale.
Taking into account the existing peculiarities of regional development of small municipalities, the realization of aims set in the strategies for Latgale region can seriously contribute to balanced regional development.Scientific  indicate that the combination of both approaches, i.e. place-and people-based, better address recent challenges in regional development.The case study, presented in this paper, corresponds with this statement.The research results indicate that further activities could pay attention to the combining of both approaches, i.e. place-and people-based, for stimulating regional development.

Figure
Figure 1: ITDL, population and population at working age in municipalities et al. 2014; Sleuwaegen, Boiardi 2014).Authors partly use EDORA Cube principles according to Copus and Noguera (2010) for refreshing stereotypes of intermediate and predominantly rural regions.New typology bases on process and result of development.Authors divide municipalities into the groups using the data on economically active statistical units of the market sector and sole proprietorships (development rates) and index of territorial development level (ITDL) (development level).Calculations allow authors to focus attention on regional development process and result.Authors understand development process, as development rates, and development result,

Dynamic of population and population at working age at municipalities' level
______________ Viktorija Šipilova, Ludmila Aleksejeva and Inta Ostrovska (2016), Journal of Eastern Europe Research in Business & Economics, DOI: 10.5171/2016.677185