Trakia University-Stara Zagora Faculty of Economics Department of Regional Development ______

A B S T R A C T

OF DISSERTATION For awarding an educational and scientific degree «PhD»

Thesis theme: "SMART SPECIALIZATION OF THE REGIONAL ECONOMY (THE EXAMPLE OF YAMBOL DISTRICT)"

Petya Dobrinova Atanasova

Scientific area: 3.8. Economics Scientific specialty: "National Economy (incl. Regional Economy and History of the National Economy)"

Scientific Supervisor: Prof. Dr. Yuliana Blagoeva-Yarkova

Stara Zagora, 2021

The dissertation was discussed at an extended department council of the Department of Regional Development, Faculty of Economics, Trakia University on 13.05.2021 and directed for defense.

The dissertation and the abstract of the defended dissertations are transmitted to the National Library "St.St. Cyril and Methodius" and in the Scientific Department of the Faculty of Economics.

Author: Petya Dobrinova Atanasova PhD student

Title: “SMART SPECIALIZATION OF THE REGIONAL ECONOMY (THE EXAMPLE OF YAMBOL DISTRICT) "

TRAKIA UNIVERSITY – Stara Zagora

Faculty of Economics

Author: Petya Dobrinova Atanasova

Thesis theme: "SMART SPECIALIZATION OF THE REGIONAL ECONOMY (THE EXAMPLE OF YAMBOL DISTRICT) "

A B S T R A C T

of a dissertation for awarding an educational and scientific degree «PhD»

Stara Zagora, 2021

The dissertation contains 222 pages, including 45 figures, 27 tables and 14 applications, formed in: introduction, 3 chapters, conclusion, list of figures, list of tables, list of applications, section of applications and list of references from 179 sources, of which books and other publications - 137 pcs. (32 in Bulgarian and 105 in English), normative documents - 29, Internet addresses - 13.

The defense of the dissertation will be held on 27.07.2021 from 11:00 am in Hall № 3A, Trakia University Stara Zagora. Order № 1123 / 20.05.2021 of the Rector of the Trakia University, Stara Zagora.

Scientific jury: Chair: Prof. Dr. Veneta Stoyanova Gaydardzhieva - standpoint Members: Prof. Dr. Stefan Dimitrov Ivanov - review Prof. Dr. Darina Ruscheva Todorova - review Prof. Dr. Tsvetka Atanasova Stoencheva - standpoint Assoc. Prof. Dr. Katya Emilova Kirilova - standpoint

The defense materials (dissertation and reviews) are available in the Scientific Department of the Faculty of Economics, Trakia University Stara Zagora, Studentski grad.

CONTENTS

Sections page GENERAL CHARACTERISTICS OF THE DISSERTATION 1

BRIEF PRESENTATION OF THE DISSERTATION 4 INTRODUCTION 4

CHAPTER ONE: THEORETICAL FUNDAMENTALS OF THE 4 SPECIALIZATION OF THE REGIONAL ECONOMY 1.1.Concepts for spatial distribution of economic activities 4

1.2. Nature and role of the production specialization of the regional 5 economy 1.3. Regional smart specialization - EU policy and practice 6

1.4. Methodology for analysis of the specialization of the regional 7 economy CHAPTER TWO: SMART SPECIALIZATION IN BULGARIA 10

2.1. Strategic guidelines for smart specialization in Bulgaria 10

2.2. Trends in thematic areas of smart specialization and innovation 11 system in Bulgaria 2.3. Regional specialization in leading innovation activities 13

CHAPTER THREE: SPECIALIZATION OF THE REGIONAL 17 ECONOMY IN YAMBOL DISTRICT 3.1. General characteristics of the level of development of the regional 17 economy 3.2. Specialization and concentration of the regional economy in Yambol 20 district 3.3. Smart specialization of the regional economy of Yambol district 26

CONCLUSION 32

CONTRIBUTIONS TO THE DISSERTATION 36

PUBLICATIONS RELATED TO THE DISSERTATION 36

ABSTRACT 37

GENERAL CHARACTERISTICS OF THE DISSERTATION

Relevance of the problem In recent years, Yambol district has faced challenges of a diverse nature - demographic decline, energy transformation, climate change, global competition, pandemic crisis, risk of environmental degradation and loss of cultural heritage. Moreover, a number of analyzes of the economic structure at the regional level show that low value-added sectors play a dominant role, which determines the development of higher-tech industries as one of the ways to increase the regional product and regional competitiveness. Identifying the unique characteristics and opportunities of the region to develop in "smart" areas is the basis for building the much-desired competitive advantages. This will also serve to build an up-to-date vision for the development of Yambol district, to deal with the challenges and adapt to modern conditions, to achieve sustainable economic growth, effective use of the specific economic and human potential of the district. To a large extent, the development of the Bulgarian regions must be linked to the national priorities and the policy of the European Union for territorial development. This requires taking into account the trends and peculiarities in the characteristics of the regional economy and its specialization, taking into account the compliance with the thematic areas set in the "Innovation Strategy for Smart Specialization of the Republic of Bulgaria 2014 - 2020". The development of the regions in Bulgaria is at an important stage in entering a new programming period, when it is necessary not only to update the national strategic document, but also to study the state and profile of regional economies. Special attention needs to be paid to the regions of level 3 - the areas that are administrative-territorial units and can develop their own strategies, follow their implementation and timely update the set priorities, goals and measures. When the focus is on the smart specialization of the regions, this means that we prioritize activities and technologies based on knowledge and innovation at the respective sub-national level. On the one hand, it provides a stimulating charge at the regional and local level to implement transformations based on the bottom-up approach, which is the working mechanism for initiating and implementing innovations. On the other hand, in this way the resources for support from various funds and programs are concentrated in several regional economic spheres. The need to study regional specialization from the point of view of economic sciences is based on three scientific questions. First, it is important to define the concept of regional specialization derived from economic theories. Here it is important to consider the terminology in the context of the spatial and economic dimensions. Secondly, it is necessary to define the factors that determine regional specialization. The third issue is the complexity of the choice of approach and indicators for its measurement, because it is a result of the structure, dynamics and degree of uniqueness of the regional economy, as well as the availability of data. This requires a more in-depth look at the definition and selection of measures of regional specialization, taking into account the processes that describe the regularity

1 of social and economic changes in space. Moreover, Fujita & Thisse (2013) recognize the role of regional specialization for growth and regional development, which emphasizes once again the importance of its knowledge.

Aim and tasks Taking into account all that has been said so far, the following leading aim of the current study is formulated - to establish the potential of Yambol district for development in key thematic areas of smart specialization, identifying opportunities for future economic development based on level analysis, dynamics and the structure of the regional economy.

Tasks that follow from the goal of the dissertation are:  Study of the theoretical foundation of the production and smart specialization, formulation of a methodical apparatus for analysis;  Determining the leading trends of smart specialization in Bulgaria - the level of development, dynamics, thematic areas;  Analysis of the level and dynamics of the regional economy of Yambol district; determining the degree and type of specialization of the regional economy and the factors for its formation;  Identification of "smart" areas of economic activity, tracking the prospects for a competitive economy in the priority thematic areas in Yambol district;  Study of the innovation potential of the regional system;  Formulation of conclusions, current problems for the smart specialization in Yambol district and recommendations for priorities and measures for the programming period 2021-2027.

Object and subject of the research The object of analysis is a region of NUTS 3 level, which in 2018 has an average level of development (14th place out of 28 districts).

The subject of analysis is the development and structure of the regional economy for the period 2009-2018, production specialization and concentration, development of research and development. The level of presentation of the thematic areas of smart specialization for the region recommended in ISIS during the observed period is studied.

Research thesis: Yambol District has resources and opportunities for a smart and competitive economy, but there are problems in the development of innovation potential, the solution of which is related to policy at the national level and measures at the regional and local level.

The methods used for analysis are general scientific and economic-statistical, described in a separate section in the first chapter and are applied in the analytical second and third chapters of the dissertation. The starting points of information on smart specialization at the national level are analyzes of the Ministry of Economy.

2 The results of research by the European Institute of Business Administration INSEAD and the United Nations Copyright Agency (WIPO), taking into account the changes in Bulgaria's position according to the Global Innovation Index, as well as analyzes of the European Regional Development Fund were used. The key factors (national, structural, local) for the process of change in the production structure are analyzed by applying shift-share analysis. The survey includes 3 levels: national, district and municipal. At the regional level the studied indicators are about the scope of Yambol district, and at the municipal level - 5 municipalities (Yambol, Elhovo, Tundzha, Straldzha and Bolyarovo) on the territory of the district have been studied. Objective statistical data of the NSI, RSO - Yambol, as well as data from the District Administration - Yambol were used. The District Strategy for Development of the District of Yambol 2014 - 2020, as well as the municipal plans for development on the territory of the district are also considered. The research period at the level of indicators for development and structure of the regional economy is 10 years - from 2009 to 2018. For indicators of smart specialization the period is the maximum possible - from 5 years 2014 - 2018.

Limitations of the study The survey is limited to available information at the regional level. There are no data on regional balances (flows of regional exports of manufactured products). In addition, the official economic data on employees in the individual activities for the NUTS 3 regions are up to the second level of aggregation. This does not allow a more in-depth analysis of the dynamics of economic activities at the third and lower level of aggregation.

Thanks I express my gratitude to Ms. Stoyka Dimitrova, Deputy Regional Governor of the Yambol District Administration, the team of the Territorial Statistical Bureau - Yambol, the team of the National Statistical Institute, who willingly assisted in collecting information and statistics.

3 BRIEF PRESENTATION OF THE DISSERTATION

INTRODUCTION The introduction presents the topicality of the topic of the dissertation. The purpose, tasks, subject, object and thesis of the work are defined. The methods of analysis are summarized and the limitations of the conducted research are highlighted.

CHAPTER ONE THEORETICAL FUNDAMENTALS OF THE SPECIALIZATION OF THE REGIONAL ECONOMY

1.1. Concepts for spatial distribution of economic activities

Economic activity is inextricably linked to space. This statement is dictated by the natural observation that all forms of production require space. Economic activity arises and develops in a spatial environment, which is an indispensable factor for the functioning of the economic system and is essential for the competitiveness of the regional economy. The explanation of the spatial distribution of production activities is usually based on two groups of theories. The first group focuses on explaining the location models of economic activity. The beginning of this first group, known as localization theory, dates back to the late 19th and early 20th centuries, with an emphasis on the economic mechanisms that distribute activities in space. The traditional localization theory presented by the models of Von Thunen, Weber, Christaller, Losch and Isard tries to explain the spatial location of an activity using microeconomic models. This group of theories adopts the purely geographical concept of a continuous, physico-metric space, defined in terms of physical distance and transport costs. This is how the regularities related to the variation of prices and costs in the space and the consequences regarding the localization choice and the distribution of the market between the companies are interpreted. The second group of theories on the spatial distribution of production activities is based on an explanation of the rules of international relations and trade. Theories of international trade provide an alternative explanation for the spatial localization of activity. Neoclassical theory of international trade, for example, views trade between countries as the end result of the differences that exist between them in terms of available technology (Ricardo, 1817) or factor "giftedness" (Heckscher, 1919 and Ohlin, 1933). These models are developed for an environment of perfect competition, homogeneous goods and a constant return on scale. Under these conditions, the removal of trade barriers allows a country / region to specialize in any goods that it can produce cheaper than others.

4 1.2 . Nature and role of the production specialization of the regional economy

Specialization is generally known as a method of production in which a business, region or country focuses on the production of certain goods or services in order to achieve a greater degree of production efficiency within the economic system. What we can accept as clear is that the regional specialization is partial and macroeconomic, it reflects the regional aspect in the distribution of the sectoral / branch / activity shares, represented in the structure of the regional economy. Therefore, regional specialization is most often understood as the relative uniqueness of the region, which is identified by analyzing the economic structure of the region compared to the economic structure of other regions or countries (Marelli, 2004; Aiginger and Rossi-Hansberg, 2006). The regional economic specialization includes both the specialization in the field of material production (production specialization) and the specialization in the branches of the public sphere. The highly qualified (intelligent) labor resources that serve these industries provide their employment opportunities not only for the local production needs, but also for the general needs of the country. The role of specialization for the economic growth of the regional economy is intertwined with the concept of its classification according to the way it is measured, relative and absolute specialization. The relative specialization is considered on the basis of a comparison of the actual sectoral structure of the region's economy and the sectoral structure, which is a result of the average distribution of activities in the sectors in an aggregated reference group based on the territorial units. In relative terms, regional specialization is defined as the ratio between the share of a given production in a particular region compared to its share in a reference territorial unit. Absolute specialization means a comparison of the actual sectoral structure of the region's economy and the sectoral structure resulting from the equal distribution of activities in the sectors of the region. In absolute terms, a region is 'specialized' in relation to a production if that production occupies a high share in the production activities of the region. This means that the production structure of a region is highly specialized if one or a small number of productions have a high total share in the total production activity of the region. Therefore, absolute specialization would mean many jobs in the respective activity, a high level of the created product or a large number of companies in this activity. On the other hand, relative specialization provides information mainly for comparative assessment of the structure of the regional economy, while a clearer basis for the existence of specialization of a region is the absolute production capacity of a particular activity in the region, which means assessing its concentration there.

5 1.3. Regional smart specialization - EU policy and practice

The main meaning that the European Commission puts into "smart specialization" is the creation of better opportunities for development through the specialization of territorial units of the rank of municipalities, regions and at national level. As part of the EU's cohesion policy for the period 2014-2020, it is proposed to establish smart specialization as a precondition for investment in order to achieve two key policy objectives, namely strengthening research, technological development and innovation, and improving access to and use and quality of information and communication technologies (ICT). This means that EU Member States / regions need to identify the areas of knowledge in which they specialize and which are most relevant to their innovation potential, based on their strengths and capabilities. Smart specialization is not an imposed strategy, but rather involves the collaboration of business, research centers and universities to identify the most promising areas of specialization of the country / region, as well as the weaknesses that hinder innovation. On this basis, national / regional authorities can draw up a document outlining a proposed strategy, in particular, planned public and private investment, including from the Structural Funds, in research, technological development and innovation. Smart specialization is a combination of economic growth and prudent public spending, known as "growthsterity". This predetermines that each Member State or region specifies a limited number of priorities based on its strengths and comparative advantages that have the greatest potential to lead to a lasting impact. This approach would help the regions to use their potential for innovation and to direct their structures from the spheres of production and knowledge to developing sectors. All the above, together with the formation of new societal needs in the context of global challenges, give me reason to propose the following definition of smart specialization: "Knowledge- and innovation-based transformation of the regional economy, building on local potential and the region's strengths, to improve the well-being of the local community and the competitiveness of the region."

6 1.4. Methodology for analysis of the specialization of the regional economy

In the present study, three approaches have been adopted to reflect regional specialization - general specialization, export specialization, smart specialization:

First approach: general specialization

The general specialization includes determination and analysis of indicators for specialization and concentration, ie measuring directly the degree of specialization in a given region on the one hand and on the other hand reflecting the general regional specialization indirectly, by measuring the level of concentration of a given production activity.

Index for absolute regional specialization / diversification Herfindahl Index: n 2 Н = ∑ PS i i=1 where: PS i - relative share of employees in i - еconomic activity (coefficient) n - the number of еconomic activities. The amount can be from 0 (when one region has a multisectoral economy and each sector has a small share of total employment - large diversification) to 1 (when only one sector includes all employees in the region - full specialization).

Index of relative specialization level (localization coefficient):

LQi = (ei/e) / (Ei/E)

where: LQi is an index of relative specialization (localization coefficient); ei - labor force employed in еconomic activity /sector (i) of the region; e - the employed labor force in the region; Ei - the employed labor in branch (i) in the country; E - total employment in the national economy. When studying the concentration of one production in one region, the coefficient of absolute and relative concentration is calculated:

Absolute concentration:

Cir = еir / er

where: Cir is the coefficient of absolute concentration; еir - employees in sector (i) of the regional system (r); er - total employment in the region (r);

Relative concentration: Sir = еir / NEi

7 where: Sir is a coefficient of relative concentration; еir - employees in sector (i) of the regional system (r); NEi - total national employment in sector (i);

Concentration index:

Kir = (еir / NEi) / (er/NE)

where: Kir is the concentration factor; еir - persons employed in sector (i) of the regional system (r); NEi - total national employment in sector (i); er - employees in the region; NE - employees at national level. Another method that has been used to study the dynamics of the structural shares of industries is shift-share analysis. It establishes which are the competitive branches in the local economy by calculating how the following participate in the regional growth (number of employees by branches): the total national growth; the change in the individual economic activities at national level; the local factor. This means that the dynamics in the structural shares of activities in a given region (SS) can be determined as a result of three factors: national effect - (NE); structural effect - (MIX); local effect - (DIF) and is presented as a coefficient and / or in absolute value): SS = NЕ + MIX + DIF

Second approach: Export specialization

According to this approach, the more successful the economy of the regional system, the more in-depth the processes of specialization in terms of export goods. The larger the share of exports of goods / services, the greater the return on regional investment, respectively, we will have greater regional stability and higher growth rates. The leading place in these studies is occupied by the economic base multiplier.

Economic basic multiplier: BM = Ert / BErt where: BM is the basic multiplier; Ert is total employment in year (t) in region (r); BErt is the employment in the base sector in year (t) in region (r). The basic multiplier provides information on how many jobs are created with 1 basic job, assesses the impact of employment in the basic sector. It makes it possible to forecast an increase in employment in the non-basic sector and in the region as a whole with a given increase in employment in the basic sector. To determine the basic employment in a sector where LQ> 1, the formula should be used:

BEir = [1- 1 / LQi] * Eir

where: BEir is the basic employment (number) in sector (i), Eir is total employment in sector (i) of region (r).

8 Third approach: Smart specialization The third approach to measuring specialization is to track the smart specialization of regions / countries. It analyzes innovation and research, collaboration between business and academia. Stimulating, financing and developing research and development are tasks of high importance for the economy. Each region / country must specialize in an activity that is most characteristic and specifically distinguishes the region / country from the others, and it is necessary to achieve high levels of competitiveness.

Smart specialization in Yambol region The set of data on the productions and the regional data for research at the level of Yambol district are provided by the official Bulgarian statistics (NSI and the Territorial Office). The ISIS recommendations for priority thematic areas are used as a basis for the analysis of the intelligent specialization in development. The potential of the district in the indicated directions has been studied. Next, the capacity of the innovative performance in the district was monitored through analyzes of foreign direct investments, costs for fixed assets, turnover and output, share of the population according to education. The survey also includes indicators for innovative SMEs, output, number of enterprises and employees in a distinct specialized sector in Yambol district, as well as the relative number of enterprises, according to the number of employees. An analysis of the research activity and ICT potential on the territory of the region for the observed period is made.

Main conclusions from chapter one:

1. In the context of the place and role of the regional economy in national economic processes, it is important to take into account both the sectoral structural aspect of the regional economy - "specialization" and its spatial perspective - "concentration", which can be considered and as "specialization" in a broad sense, because it is related to the inter-territorial division of labor. 2. The nature and policy of smart specialization links it to the EU's main objectives of enhancing research, technological development and innovation, as well as improving access to ICT, taking into account the region's strengths. The claim of a number of contemporary authors is that diversification is the way to protect the regional economy from market fluctuations. That is why it is important to look at smart specialization not just as an alternative to a diversified economy, based on regional employment in a small number of industries. Moreover, modern challenges are shaping new societal needs. Thus, the understanding of smart specialization acquires the following meaning "knowledge and innovation-based transformation of the regional economy, which builds on local potential and strengths of the region to improve the well-being of the local community and competitiveness of the region." 3. The regional economic structure is presupposed by the specific characteristics of the spatial components. This includes both the provision of natural (natural) resources and the built man-made environment. Despite the dominance of the

9 mobility of production factors as a determinant in modern localization theories, the presence of challenges (such as pandemic constraints) determines the need for special attention to the national, structural and local factors for the dynamics of the regional economy.

CHAPTER TWO SMART SPECIALIZATION IN BULGARIA

2.1. Strategic guidelines for smart specialization in Bulgaria The Member States in the European Union are divided into four groups according to the so-called generalized innovation index. Leading innovators are countries with a score above 20% higher than the EU average. They are followed by the strong innovators, whose result is between 90 and 120% of the EU average. The group of moderate innovators includes countries with an index between 50 and 90% of the EU average. Finally, there are the timid innovators with a score below 50% of the EU average. Bulgaria and Romania are the only two countries in the group of the so-called modest innovators with results much lower than the EU average. The lack of progress in this group generally deepens the gap with the next one, that of moderate innovators, which includes countries such as the Czech Republic, Lithuania and Estonia. According to the Innovation Ranking for 2019, it is clear that our country is still in the group of modest innovators, followed by Romania. For Bulgaria there is an increase in the indicators for innovation and high-tech production, but since there is also an increase in the average level for the European Union, we again remain in the last group in the ranking. In addition to the reviewed ranking of innovations in the European Union, the Global Innovation Index is calculated internationally according to the methodology of the international business school INSEAD. It is composed of 80 different parameters regarding the learning potential, the human factor, the infrastructure, the internal market, the development of the business, the development of new technologies, the creative activity and others. The index reflects the ratio of costs and their effect and provides an opportunity to assess the effectiveness of innovation development efforts. The performance of our country is different in different indicators. A detailed examination of the indicators shows that some are making progress, others are deteriorating. According to this ranking, in 2014 Bulgaria ranked 44th in the world (ahead of Poland, Romania and Greece) in technological readiness / technological adaptation and application of ICT / and in the period 2016 - 2017 on this indicator climbed to 38- my place. Our country reports the highest growth in terms of intellectual assets, based on data on patent applications, trademarks and design - 48.5 points (only Malta has a larger increase between 2010 - 2016). Bulgaria has made great progress (38.1 points) in terms of human resources. The new doctoral degrees are taken into account here, as well as the share of young people between 25 and 34 years of age with higher education and the share of

10 people between 25 and 64 years of age engaged in lifelong learning. According to this indicator, we are ahead of two countries of moderate innovators. With an increase of 10.2 points in 2016 in terms of impact on employment, we rank immediately below the average level for the European Union. Employment in knowledge-intensive activities and employment in fast-growing enterprises in innovative sectors are included. The largest deterioration is in the indicator Finance and support, which takes into account the expenditures for research and development in the public sector, as well as investment in venture capital (-43.3 points). The reporting of the international scientific publications in co-authorship, the cited publications and the number of foreign doctoral students in our country is also with low results. In 2016, we ranked 38th out of all 127 countries, ranked according to their innovation opportunities and results. In its tenth edition, GII 2017 shows the constant difference in the ability to innovate between developed and developing countries and weak growth in development, both at the governmental and corporate level. In the ranking of the Global Innovation Index (GII) 2020 of innovation capacity and performance of world economies, Bulgaria ranks 37th out of 131 countries. In terms of the results of introduced innovations it is on the 30th position, and in terms of new investments in innovations we are on the 45th position.

2.2. Trends in thematic areas of smart specialization and innovation system in Bulgaria Based on analyzes, studies and meetings conducted by the Ministry of Economy and the Bulgarian Academy of Sciences, the thematic areas that have the potential for development in accordance with the characteristics and indicators of the planning regions or the so-called NUTS 2 statistical regions. Figure 2.1. Regional specialization - focus on thematic areas of ISIS

Source: Economic Policies for Promotion Directorate Ministry of Economy

11 The first launched procedures under OP "Innovation and Competitiveness" are: project BG16RFOP002-1.001 - Support for the implementation of innovations in enterprises / announced on 23.12.2015 with a deadline of 04.04.2016 / - includes a budget of 50 million euros and a project BG16RFOP002-1.002 - Support for the development of innovations by start-ups / announced on 04.02.2016 with a deadline of 05.05.2016 / - with a budget of 10 million euros. It should be noted that for “Informatics and ICT” there are no approved project proposals to support innovation from start-ups BG16RFOP002-1.002. Leading in this thematic area is the South-Western region with 11 approved proposals, followed by South-Central (5 concluded contracts) and South-Eastern (2 contracts). According to the regional specialization set in ISIS, this direction is focused on the Southwest, South Central and North Central statistical regions. It is essential that for the second thematic area "Mechatronics and clean technologies" the concluded contracts under project BG16RFOP002-1.001 are 52 pieces, and for project BG16RFOP002-1.002 - 34 pieces. The approved proposals for SZR are significantly higher than the others. Given the specifics of this support, the contracts concluded are largely with micro-enterprises. According to OPIC and OPIMSP, the first procedure approved 27 micro, 16 - small, 36 medium and 36 large enterprises for all types of thematic areas, and the second - mainly funded micro enterprises - 46 out of 52 approved candidates. This information indicates that the support of the districts cannot necessarily be linked to the rapid development of the regions concerned. The third thematic area is "Healthy Living industry and Biotechnologies". The North-West region has the most submitted proposals (98), followed by the South-West (90). Respectively, SZR has the most approved project proposals (17). It is also important from the presented information that in total in all other regions the approved proposals are 17. For the thematic area "New technologies in the creative and recreational industries" again with the most submitted project proposals is the North-West region (144), as well as with the most approved ones (38). It is followed by the Southwest region (59 applications submitted and 8 approved). There is an increased interest in the procedure for support and development of innovations in start-ups, but there are significantly few contracts in this area. The lowest activity is in the North Central (4 submitted) and the South Central region (6 submitted), as the SRC is also distinguished by the fact that there is no approved project proposal in this thematic area. Conclusions to be drawn from the considered thematic areas, project proposals and concluded contracts for implementation of innovations in enterprises and development of innovations in start-ups are:  The largest number of submitted project proposals in all thematic areas is in SWR, followed by NWR.  Excluding the direction "Informatics and ICT", in which the concentration is in SWR, NWR is a leader in innovative projects in the observed period in all other thematic areas, both in terms of submitted applications and the number of concluded contracts.

12  Despite the financial assistance provided to NWR through the larger number of approved project proposals, this cannot lead to regional economic growth in the short term, as the support is targeted at micro and start-ups that do not give the necessary impetus to the economy.  After NWR and SWR, the South-East and South-Central regions stand out in terms of the number of approved innovation projects in the indicated areas.  The least represented according to the approved projects are the North Central and Northeast region.  Of all the thematic areas, "Mechatronics and Clean Technologies" stands out with the largest number of concluded contracts in the considered project areas.

2.3. Regional specialization in leading innovation activities The Innovation and Entrepreneurship Department, Investment, Innovation and Entrepreneurship Directorate at the Ministry of Economy prepares a regional specialization of leading innovative activities based on the BVD Amadeus company information database. 216 economic activities are covered, third level of aggregation of all business activities (NACE.BG-2008), excluding financial services and agricultural production. All business activities are linked by a coefficient (innovation assessment) and are ranked in descending order. The regional specialization is assessed by the number of employees in the respective business activity. Two groups of economic activities are analyzed - 25 leading business activities in terms of innovation, as well as 25 leading business activities in terms of employment. From the point of view of employment in the country, the food industry and related activities form maximum employment and there is a good degree of specialization and potential for specialization of all regions. Clothing production is mainly concentrated in Western and Central Bulgaria. The North-East and South- East do not meet the criterion of "regional potential". The production of furniture has a regional specialization (over 10%) in all statistical regions, but has a relatively low employment compared to the other activities considered. Information technologies are concentrated in the South-West region (mainly in Sofia) and none of the other regions meets the criterion for specialization with such low employment. This also applies to private security activities, without technical security systems. We see that ISIS does not present in a sufficiently concretized plan the regional separation of sectors and activities with potential for innovation and regional growth, because there is no or little emphasis on those sectors that have strong potential for individual regions, developing sectors or those that they are just entering a phase of recovery. Moreover, in ISIS from 2014. It is recorded that the current state of the innovation system is reflected on the basis of data for a period defined as an economic crisis. This also distorts the real picture of the potential of each region and requires updating and deepening regional research to strategically determine the intelligent specialization of the regions in Bulgaria. In this way, the priorities and needs of the regions will be more clearly outlined and they will be

13 financially linked in the regional planning documents. The use of national and regional measures to stimulate demand and access to markets is still limited. It will also be necessary to develop a knowledge management system that can gather knowledge from projects and nurture the learning process. The Ministry of Economy publishes information on the regional specialization of low-tech, medium-tech and high-tech industries in our country. Eurostat ranking for the degree of technological and scientific intensity of production and services as of 2012 is used. Tables with own calculations based on NSI data for the period 2009 - 2018 are attached in order to follow and analyze the development in the respective production. The analysis highlights the large concentration of SMEs in the activities "Clothing" and "Food" as of 2009. Of the other industries with the highest employment rate is "Manufacture of furniture". Regarding "beverage production", those employed in SMEs have a relatively higher share than those employed in the activity at country level. In the other examined proceedings the employed in the country have relatively equal shares, compared to the employed in SMEs. These analyzes prove the need to support small and medium-sized businesses, which also engage a large part of society's human resources.

Table 2.1. Staff in economic activities with low-tech productions 2009 - 2018 2009 2018 Eurostat Economic activities share share code employed % employed % Food production C10 85384 7.72 73593 7.19 Manufacture of beverages C11 15144 1.37 11633 1.14 Manufacture of tobacco products C12 3764 0.34 1364 0.13 Manufacture of textiles and textile products, except apparel C13 12203 1.10 11605 1.13 Production of clothing C14 108257 9.79 78118 7.63 Leather treatment; manufacture of articles of leather without hair C15 19290 1.74 11509 1.12 Manufacture of wood and of products of wood and cork, except furniture C16 14370 1.30 13909 1.36 Manufacture of paper and paperboard and of articles of paper and paperboard C17 9124 0.83 9279 0.91 Printing and reproduction of recorded media C18 9424 0.85 8577 0.84 Furniture manufacturing C31 23298 2.11 19260 1.88 Source: own calculations based on NSI data

By 2018, the largest number of employees is again in the activities "Food production" and "Clothing production" with a decrease in employment compared to 2009. Of the other industries examined with a high share is "Furniture production", but also the number of employees in 2018 is lower than in 2009. All other economic

14 activities have a similar number of employees. Those with the lowest share are engaged in "Manufacture of tobacco products". With regard to medium-tech productions, the highest share is in Metal Products - 25% of those employed in medium-tech productions in SMEs in the country. The following activities also have a larger relative share: "Machinery and equipment" -13% and "Non-metallic mineral raw materials" -14%. The lowest share in this type of production as of 2009 have: "Vehicles", "Cars" and "Base metals", indicative of underdeveloped business of SMEs in these economic activities in the country.

Table 2.2. Staff in economic activities with medium-tech productions 2009 - 2018 2009 2018 Eurostat Economic activities share share code employed employed % % Manufacture of rubber and plastic products C22 24141 2.18 29635 2.90 Manufacture of other non - metallic mineral products C23 25264 2.28 20394 1.99 Manufacture of basic metals C24 13733 1.24 12855 1.26 Manufacture of fabricated metal products, except machinery and equipment C25 53659 4.85 55296 5.40 Manufacture of electrical equipment C27 18609 1.68 27358 2.67 Manufacture of machinery and equipment, general and special purpose C28 26976 2.44 31534 3.08 Manufacture of motor vehicles, trailers and semi - trailers C29 11005 1.00 24047 2.35 Manufacture of vehicles, except automobiles C30 5465 0.49 5059 0.49 Repair and installation of machinery and equipment C33 14624 1.32 14545 1.42 Source: own calculations based on NSI data

The attached table shows that in this group with the highest share is "Manufacture of fabricated metal products, except machinery and equipment" - 5.4% of employees for 2018, increased compared to 2009. This highlights the growth of this type of production for the observed 10-year period. Other activities in which there is also an increase in the number of employees are: "Manufacture of rubber and plastic products" (by 5494), "Manufacture of electrical equipment" (by 8749), "Manufacture of machinery and equipment, general and special purpose ”(with 4558 units) and “ Manufacture of motor vehicles, trailers and semi- trailers ”(with 13042 units). There is a continuing negative trend towards 2018 with the least engaged staff in the activity "Manufacture of vehicles, excluding cars", which can be explained by low interest from small and medium-sized businesses in the country.

15 Regarding the hired staff in economic activities with high-tech production for the observed period of the study shows an expansion of production in the following areas: "Manufacture of computer equipment, electronic and optical products" (with 2949 pcs.), "Activities in the field of information technology "(With 25951), as well as" Information Services "(with 6685). These data show and prove the development of our country in the field of Information Technology and the presence of successfully realized specialists.

Main conclusions from chapter two:

1. In Bulgaria there is a state policy aimed at transforming the national economy in the direction of its intelligent specialization on the basis of a developed strategy, as well as other program and planning documents related to innovative development and digitalization. 2. For the period after the adoption (2014-2019) of the strategy for smart specialization, the innovation ratio increases, but due to the overall growth of innovation in the EU, Bulgaria remains in the group of "weak innovators". 3. At its launch in 2014, ISIS does not present in a sufficiently specific plan the regional separation of sectors and activities with potential for innovation and regional growth. There is no or little emphasis on those sectors that have strong potential for certain areas of the country, developing sectors or those that are just entering a phase of recovery. Moreover, in ISIS from 2014 it is written that the current state of the innovation system is reflected on the basis of data for a period defined as economic crisis. This also distorts the real picture of the potential of each region and requires updating and deepening regional research to strategically determine the smart specialization of the regions in Bulgaria. 4. The assessment of smart specialization at the start of the strategy shows that the activities with the highest innovative assessment are concentrated in SWR, mainly because of the capital region, and for the period until 2018 this trend is maintained. 5. The analysis of the regional specialization in activities with different technological level shows that in the largest districts of the country no activities with low technological level are developed, but activities with high technological level are concentrated, mainly in Sofia district. Medium-tech productions are characterized by a more even distribution. Yambol district is represented in the low- tech productions with economic activity C10. Food and medium-tech activities - with activity C29.Cars and less with C28.Machines and equipment. 6. In general, Bulgaria still has untapped potential for innovation and smart specialization in the fields of green and circular economy (waste-free technologies, separate waste collection, recycling, renewable energy, water resources, etc.) and digitalization (introduction of ICT in the sector of waste, climate control, industry and energy, e - government, etc.)

16 CHAPTER THREE SPECIALIZATION OF THE REGIONAL ECONOMY IN YAMBOL DISTRICT

3.1. General characteristics of the level of development of the regional economy Yambol District is part of the Southeastern Region at level 3, according to the regional classification for the Republic of Bulgaria. Its area is 3355 sq. Km, 77% of which is agricultural land, and 81% of them are arable. The forest territories occupy 15.9% of the territory of the district, as most are in the municipalities of Bolyarovo - 27.6% and Elhovo - 19.6%. This specificity of the district determines a highly developed sector "Agriculture, forestry and fishing". For the period 2009 - 2018, Yambol district recorded an overall positive growth in the main indicators of economic development. Although there is a decrease in the number of population and employed persons for the observed period, GDP, GVA, FDI, economic activity of the population and the employment rate increase.

Table 3.1. GDP of the districts of the Southeast region for the period 2009 – 2018 GDP, BGN million Growth rate District 2009 2018 Absolute % Total for the 72986 109743 36562 50.36 country Burgas 3707 5174 1458 39.57 Sliven 1034 1425 388 37.81 Stara Zagora 3426 5490 2055 60.25 Yambol 787 1161 371 47.50 Source: own calculations based on NSI data

From the presented information it is evident that Yambol district is in second place in the South East in terms of growth rate after Stara Zagora district, but lags behind the country by more than 2 percentage points. The published data of the NSI for 2019 show that Yambol district (BGN 1198 million) has a leading position in SEE in terms of growth rate - 52.22%, although it has almost 12 percentage points. below the growth rate at national level (64.1%).

Figure 3.1. GVA by sectors for Yambol district 2009 and 2018 (%) 56.5 55.3 60.0 30.5 32.9 40.0 13.0 11.8 20.0 0.0 Agriculture, forestry Industry Services and fishing

2009 2018

Source: own calculations based on NSI data

According to the analysis of the figure in 2018 in the structure of the regional economy with the highest share of the three sectors is "Services" (55.3%), followed by "Industry" (32.9%) and lastly " Agriculture" (11.8%) ). It is evident that only the industry group "Industry" increased by 2.4 percentage points, compared in relative terms with the base period. This is indicative of a relatively better development of production activities in the area, both in terms of innovation and a prerequisite for attracting foreign investment. In 2018, the contribution of Yambol district to the national GVA is 1.06% and by sectors is as follows: agricultural sector - 3.2%, industry - 1.3%, services - 0.8%. The share of Yambol district in the national GVA in 2009 was 1.08%, and by sectors: agriculture - 2.9%, industry - 1.08%, services - 0.9%. These data show that for the observed period the overall contribution of the district to the national economy has decreased, albeit slightly, but there is an increase in the agricultural sector and industry, which directs attention to seek localization advantages of these sectors.

Figure 3.2. Labor productivity 2009 and 2018 (BGN / employed) A. GDP / 1 busy (BGN / busy) B. GVA / 1 busy (BGN / busy) 34809 30171 35000 25344 35000 30000 22492 30000 21967 25000 25000 19523 14644 20000 20000 12720 15000 15000 10000 10000 5000 5000 0 0 Bulgaria Yambol Bulgaria Yambol

GDP BGN / 1 busy 2009 BDS BGN / 1 busy 2009 GDP BGN / 1 busy 2018 BDS BGN / 1 busy 2018

Source: own calculations based on NSI data

According to both presented indicators, GDP / 1 employed and GVA / 1 employed district of Yambol stands out with labor productivity (LF) below the national average both at the beginning and at the end of the period. It should be noted that for the period 2009 - 2018 the PA in the district increases and in 2018 reaches BGN 25,344 GDP / 1 employed and BGN 21,967 GVA / 1 employed, and in 2019 the level of indicators for PA continues to increase - GDP / 1 employee (BGN 26,446) and GVA / 1 employee (BGN 22,826). The general understanding that the increase of labor productivity is a sign of modernization of production and introduction of innovations and modern technologies in Yambol district cannot be stated categorically, because the visible leading factor is a decrease in the number of employees, with an increase in gross domestic product and gross value added. A clear idea of the dynamics of foreign direct investment is given by the FDI indicator for the period 2009 - 2018 (Figure 3.3). There is an increase in CPN / CN in the observed time interval, but further measures are needed in this direction.

18 Figure 3.3. FDI / person in Yambol district in the period 2009 - 2018

473 525 516 638 419 462 462 261 421 445

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: own calculations based on NSI data

• Labor market The reported increase in economic activity for the period 2009-2018 (of the population between 15-64 years) by 1.1 percentage points and the employment rate by 1.5 percentage points. is mainly related to the decrease in the population by 19532 people for the observed period. The fact is, however, that the unemployment rate decreased by 0.6 percentage points. (Table 3.2)

Table 3.2. Main indicators characterizing the labor market in Yambol district in the period 2009 - 2018 Growth rate 2009 2018 Absolute % Labor force (thousand) 59.40 49.90 -9.50 84.01 Busy (thousand) 53.90 45.80 -8.10 84.97 Unemployed (thousand) 5.40 4.20 -1.20 77.78 Economic activity rate% 66.90 68.00 1.10п.п. Employment rate% 60.80 62.30 1.50п.п. Unemployment rate % 8.80 8.20 -0.60 Average annual salary (BGN) 5701 10815 5114 189.70 Source: own calculations based on NSI data

The state of business in the district is also characterized by business demography. One of the main characteristics of the business is the relative share of enterprises according to the number of employees in them. An analysis of the observed period in the region shows a gradual increase in the turnover of non- financial corporations, production indicators and value added, as according to RSO- Yambol the growth is about 10%. Throughout the observed period, the share of micro enterprises with up to 9 employees is the largest - 92.9% for 2018, and it should be noted that they are the only group with an increase in the relative share. This is one of the indicators of the nature of economic development in the region. Next is the share of small enterprises (employing 10 to 49 people), which show a declining trend over time. Medium-sized enterprises with between 50 and 249 employees have a relatively constant share, and the lowest and unchanged for the observed period is the relative share of large enterprises with over 250 employees - 0.1%.

19 3.2. Specialization and concentration of the regional economy in Yambol district  General specialization approach To analyze the specialization in Yambol district, this section defines the indicators related to the "general specialization" approach, as well as the basic multiplier method, which refers to the "export specialization" approach. The indicators for specialization and concentration for the region at the beginning and at the end of the observed period 2009 - 2018 are calculated. To determine the indicators for specialization and concentration it is necessary to know the structure of the employed by economic activities, according to the second level of CEA-2008 aggregation. , calculating the relative shares at regional level.

Figure 3.4. Structural analysis of employees by economic activities for Yambol district - 2018 0.81 1.34 Agriculture, forestry and fishing 6.49 Mining industry 0.75 5.02 Manufacturing industry 8.05 8.53 Production and distribution of electricity 1.98 Water supply, sewerage services, waste management Construction 0.95 Trade, car repair 0.76 Transport, warehousing and post office Hotels and restaurants 1.65 33.90 Creation and dissemination of information, telecommunications Financial and insurance services 0.54 Real estate operations 3.27 Professional activities and research 4.23 Administrative and support service activities 14.13 Government Education 0.65 Human health and social work 4.90 Culture, sport and entertainment 2.06 Other activities Source: own calculations based on NSI data

In order to establish whether the indicated structure forms the specialization of the regional economy, the coefficients of absolute and relative specialization are determined. Absolute specialization According to the data on employment in Yambol district, the Herfindahl indices for 2009 and 2018 are calculated. They show the existence of specialization or diversification of economic activities in the region. For 2009 the Herfindahl index for Yambol district is 0.156, which determines a diversified economy and lack of specialization. Therefore, despite the dominance of 2-3 sectors, mainly the Manufacturing sector, there is a lack of specialization. From the calculated index for 2018 it is clear that its value has almost no change (0.162) and is again closer to zero than to one. This shows the presence of diversification of economic activities and again the absence of specialization. The district stands out with its multi-sectoral economy and each sector has a small share of total employment. The Manufacturing industry has a relatively higher number of employees compared to other economic

20 activities in the region, but this does not make the region absolutely specialized. Whether it is relatively specialized is established by determining the localization coefficients of the individual economic activities. Relative specialization In addition to the analyzed data on the structure by economic activities during the observed period in the district, in the relative specialization the structure of the district is compared with the share of each branch at national level. In this way, the economic activities with potential for development at the local level and the need for investments in these sub-sectors in the regional economy stand out more clearly. The method applied below is the localization coefficient (LQ) and accordingly the ranking of the industry groups is made by descending value of the coefficient (Figure 3.5) in the top 5 industries with LQ> 1.

Figure 3.5. Top 5 of the activities by level of localization coefficient in 2018 with LQ> 1 2.78 3.00 2.50 1.51 2.00 1.29 1.15 1.50 1.08 1.00 0.50 0.00

Source: own calculations based on NSI data

In the first three economic activities there is an increase in the value of LQ compared to 2009, which is why we believe that there are regional factors that form the special role of these industry groups in the economy of the Yambol region. There is also an increase in the value of the localization ratio of the Financial and Insurance Services sector for the observed period from 0.31 - 2009 to 0.67 in 2018 and a decrease in the values for Real Estate Operations and Construction. This trend should be traced over time to see if there is an interconnectedness of these economic activities. The high localization coefficient of "Manufacturing" is determined by the presence in the region of large enterprises, on which employment in the Yambol district mainly depends and which have a major contribution to the gross domestic product of the region.

Relative and absolute concentration An indicator of the specialization of a region is the geographical concentration of a sector on its territory, measured by the relative concentration, showing the contribution of the region to national employment in the industry. It is clear from the coefficients that Yambol district in 2018 has the largest contribution to employment

21 in the following industries: "Agriculture, forestry and fisheries" (0.0362), followed by "Manufacturing" (0.0197), "Water supply, sewerage, waste management and remediation activities (0.0168), education (0.0150), human health and social work activities (0.0141). In the first three economic activities, ie. without Education and Human Health, there is an increase in the value of LQ compared to 2009, which is why it is considered that there are regional factors that form the special role of these industry groups in the economy of Yambol.

Figure 3.6. Relative concentration by industry groups, 2009 and 2018

0.0400 0.0350 0.0300 0.0250 0.0200 0.0150 0.0100 0.0050 0.0000

Concentration 2009 Concentration 2018

Source: own calculations based on NSI data

With regard to the relative concentration, the following conclusions can be drawn for the period:  The specialization in the branch groups “Agriculture, forestry and fishing”, “Mining industry” and “Manufacturing industry” has been confirmed and increased;  There is a tendency to increase the specialization in the sector "Financial and insurance services";  There is a reduction in the specialization in the construction, construction, real estate and administrative activities activities;  The other economic activities do not have a significant difference at the beginning and end of the observed period.

From an analysis of absolute concentration, reasonable conclusions follow: Economic activity "Manufacturing" has the highest concentration in the local economy, followed by "Trade, repair of motor vehicles" and "Agriculture, forestry and fishing". In the branches of Industry and Agriculture there is also an increase in the concentration in the observed period, their share in the economy has increased. 22 The construction sector has a significant reduction in concentration. The other activities keep the values of the coefficient and do not demonstrate development in the region.

Shift-share анализ

In order to identify the presence of regional factors for the dynamics of employment by economic activities, a shift-share analysis was performed for the period 2009 - 2018 in Yambol district. From the analysis it should be noted that in the five economic activities with the highest LQ the effect of the regional effect is as follows:

 “Agriculture, forestry and fishing” are presented with better employment and better localization coefficient in 2018 mainly due to the favorable trends in this sector at national level and to a lesser extent due to local factors. The large share of arable agricultural land and the clean environment are prerequisites for the development of agriculture, including organic. This is complemented by accumulated experience and traditions in grain production, vegetable production, animal husbandry;

 “Manufacturing” does not overcome the negative influence of the national factor in employment during the observed period, despite a strong positive regional effect. Of the low-tech industries, Yambol region specializes in the "Food" sector - Production of food, beverages and tobacco products.

 "Trade, car repair" is an economic activity that is characterized by negative processes in employment in the country, in the industry at national and regional level;

-4

-51

-85

-45

-67

-38

266

129

210

-511

-239

-543

-290

-1387

nce

2009

2018-

Differe

-4

-51

-85

-45

-67

-38

266

129

210

-511

-239

-543

-290

-1387

local local

al and and al

effects

Sum of Sum

structur

national national

- -

-7

-1

-48

-52

-78

261

118

)

-104

-206

-225

-313

-146

-281

x (e x

Local effect Local

- -

-9

)

-16

-37

-29

193

104

101

210

-214

-228

-1005

x (Е x

Structural

of employees

-8

-9

-8

-5

-7

-16

-72

-87

-72

-30

-10

-36

-42

-17

-83

)-1

-170

-101

-371

Changes to2018 number2009

National

- -

0.004995

1.121113

0.023920

0.136799

0.093178

0.011218

0.364842

0.035478

-0.227636

-0.033208

-0.100720

-0.110986

-0.373688

-0.004944

-0.161036

-0.366697

-0.076526

-0.030273

-0.098071

Local effect Local

- -

0.150843

0.162253

0.094409

0.012110

0.123780

0.131842

0.055812

0.542837

0.074711

0.084546

0.160691

0.088612

-0.105816

-0.029259

-0.047345

-0.350584

-0.077784

-0.003477

-0.152464

Structural

)-1

-0.0353

Changes to2018 ratio2009

National

404

245

599

286

230

499

162

986

621

197

226

1958

2429

1516

1276

4266

1479

2575

30189

10235

2018

455

224

838

262

297

233

142

492

201

192

2043

2474

2027

1024

1189

4809

2866

2365

Yambol

32658

10525

2009

37459

37557

81616

24287

57100

95447

36904

30252

21219

71101

2018

138923

162463

111142

115768

120168

149981

377445

131140

519790

2319762

Bulgaria

33579

33326

74430

25963

55952

63313

32792

34109

26124

67502

2009

131169

166319

129402

106357

115611

142941

411447

213541

540756

2404633

Average list number of employees by economic activities for the period 2009 the period for 2018- of employees activities economic by number Average list

Economic activities Economic

Total ( N ) N ( Total

Other activitiesOther

entertainment

Culture, and sport

Human healthsocial work and Human

Education

Government

serviceactivities

Administrativesupport and

research

Professionalactivities and

Realestate operations

Financialinsuranceservices and

telecommunications

information,

Creation and disseminationCreation and of

Hotels and restaurants Hotels and

post officepost

Transport, warehousing and Transport,

Trade, car repair car Trade,

Construction

services,wastemanagement

Water supply, Water sewerage

electricity

Production and distributionProduction and of

Manufacturing industry Manufacturing

Mining industryMining

Agriculture,fishingforestry and

№ Source:own calculations based dataon NSI Table3.3.Shift-share analysis, Yambol district 2009 -2018

24  Of the other two sectoral groups with a high localization coefficient "Human Health and Social Work" demonstrates adverse effects of local factors, while "Education" has a slight positive effect in the region, due to which their overall development at the national level during the period fails to led to an increase in the number of employees in the Yambol district. If the trends continue and other things being equal, subsequent studies would probably show a lack of relative specialization.

 Export approach Due to the lack of the necessary data by enterprises, the only possible method for estimating the export specialization is the so-called basic employment and basic multiplier based on the localization coefficient.

Table 3.4.-A Basic employment for Yambol district (number), 2009 and 2018 in the leading branch groups with LQ> 1 Economic activities with LQ> 1 2009 2018 Agriculture, forestry and fishing 1448 1649 Manufacturing industry 3165 3457 Source: own calculations based on NSI data

The table shows the two industry groups with the highest localization coefficient, ie those that can be assumed to produce goods not only for consumption within the region, but also for export outside the region. Based on the data, the table below also defines the basic multiplier for each industry group.

Table 3.4.-B Basic multiplier by economic activities for 2009. and 2018 in the leading industry groups Economic activities with LQ> 1 2009 2018 14 12 Agriculture, forestry and fishing Manufacturing industry 3 3 Source: own calculations based on NSI data

The information that the basic multiplier gives us is how many jobs will be created with 1 basic job, ie. the impact of employment in the basic sector is assessed. The basic multiplier for both industry groups shows a contribution, creating more than one job in the non-basic sector at each basic job. This makes it possible to predict an increase in employment in non-basic economic activities in the region with a given increase in employment in the basic sector.

25 3.3. Smart specialization of the regional economy of Yambol district The innovation potential of a regional system is crucial both in terms of the inclusion of resource availability and the capacity of business and other regional structures to develop and implement significant innovations. This process of introducing innovations is long and its results are visible after a longer period of time, so the tracking of innovation capacity is difficult to measure.

 Structure of the population by educational status An analysis of the data in the district shows a tendency to increase the share of residents with higher education by 2.7 percentage points at the expense of reducing the share of those with secondary education. But it should also be noted that the share of primary and lower education is also increasing (from 20.3% in 2009 - to 23.4% in 2018). It is necessary to take measures to stop this negative trend . Regarding the share of the population with secondary education, there is a decrease over time.

 The enterprises in Yambol district, focused on smart specialization Yambol District contributes to the national economy with 1.9% of the production of food and beverages, 2.2% of the production of machinery and equipment for general and special purposes, and 2.2% of the production of furniture, not elsewhere classified production and repair and installation of machinery and equipment. These are the economic activities in the region with the highest weight in production. Investment and innovation activity should be targeted in these sectors.

Figure 3.7. Analysis of production, number of enterprises and employees in enterprises for production of food products, beverages, tobacco products in Yambol District Number of Number of Production, companies employees thousands BGN 145 2500 144.5 2000 200000 144 1500 150000 143.5 1000 100000 143 142.5 500 50000 142 0 0 2009 2018 2009 2018 2009 2018

Source: own calculations according to data from TSI - Yambol

Despite the decrease in the number of employed in this group of economic activities, the level of production increased - 138.38 (%). These data point to a conclusion about the implementation of technologies and innovations that have increased productivity and optimized the work process. The existing traditions in the

26 "Manufacturing" sector, especially in the processing of fruits and vegetables, as well as the favorable geographical position of Yambol district and the high share of agricultural land are a prerequisite for attracting investors. Regarding the innovative SMEs in Yambol district for 2008 - 2018, according to the information from the NSI, the set of the study includes different sectors and sections of (KEA-2008). With these clarifications for the data from the analysis, the results lead to some incompatibility in their absolute number, but the calculated% for innovation leads to the conclusion that for the period 2008 - 2018 there is a reduced% of innovative SMEs in the field. Additional statistics are needed to identify the causes and to address remedial measures at regional and national level.

 R&D costs and R&D staff Smart specialization is closely related to the dynamics of research and development. Following the indicators from the indicated Figure 3.8 for Yambol district, an increase in R&D expenditures stands out. The increase in the employed staff is 111 people (244%), and the increase of BGN 4436 thousand. in research (1099%) or 10 times increase, has the potential to develop innovation in the field. A sharp increase in spending in 2015 is driven by financial support from European funds. Further studies are needed on the type of innovations and industries to be implemented in the new programming period 2021-2027.

Figure 3.8. R&D and staff costs for the period 2009 - 2018 Bulgaria Yambol 1000000 6000 850457 828904 5443 800000 5000 4880 600000 4000 361060 400000 3000 200000 2000 21971 34610 444 1000 258 0 77 188 0 2012 2013 2014 2015 2016 2017 2018

R&D expenses (thousand BGN) R&D expenses (thousand BGN) ...... R&D staff (number) R&D staff (number) ......

Source: own calculations based on NSI data

In Yambol district the relative share of those employed in economic activity "Professional activities and research" according to NSI data and own calculations as of 2018 is 0.95%, and the share of those engaged in activity "Education" is 8.05%. For comparison, the relative shares of these activities in the country are respectively: 3.52% and 7%. To further inform, the contribution of those employed in the region to the national economy with science is 0.35% and those employed in education - 1.50%. The region has the potential to increase the academic community, given the existing Faculty of Engineering and Technology at the Trakia University, as well as for the active transfer of research results.

 Available innovative practices in the production of the thematic area "Industry for healthy living and biotechnologies"

The large share of arable land on the territory of Yambol district highlights the sector "Agriculture, Forestry and Fisheries" as a leader in the regional economy. There are traditions in the cultivation of wheat, barley, sunflower and other crops. There are good conditions for growing herbs in the area. The contribution of the agricultural sector in the GVA of Yambol district in 2018 amounts to 11.8%, which puts the district in seventh place out of 28 districts in terms of the sector's contribution to GVA. Prerequisite for successful organic farming is the ecologically clean territory and the absence of pollutants from heavy chemical industry. However, the contribution of Yambol region is still low (2.8%) in the total number of registered productions in the Organic Agriculture sector at national level. As of April 2020, according to the Ministry of Agriculture and Food, the number of producers, processors and traders of agricultural products and food produced in an organic way on the territory of Yambol district is already 142, which is twice more than in 2015. Despite the increased number of producers, the relative share at national level remains low. This shows the high pace at which this sector is developing and the need to stimulate and support companies in the industry. The following figures present data on registered farming practices certified for organic production in Yambol district.

Figure 3.9. Territorial structure of farming practices certified for organic production by municipalities in Yambol district, % 13% 21% Bolyarovo 21% Straldzha Elhovo Yambol 27% Tundzha 18%

Source: Own calculations based on data from the Ministry of Agriculture, 2020

Figure 3.9 shows a relatively even distribution of organic producers in the municipalities of Yambol district. The largest number of registered and certified organic producers is in the municipality of Yambol. Tundzha municipality and Straldzha municipality follow. The smallest number are organic producers from the municipality of Bolyarovo. The following figure proves the leading place in the cultivation of cereals, occupying 34% of all registered organic production in the area.

28 Figure 3.10. Relative share of all farming practices certified for organic production in Yambol district, % 4% 3% 18% 34% cereals herbs fruits nuts 11% pastures, alfalfa 13% bee products 17%

Source: Own calculations based on data from the Ministry of Agriculture, 2020

Herbs are represented with relatively low shares - 13% (concentrated in the municipalities of Straldzha and Elhovo) and nuts - 11% (represented in the municipality of Tundzha). The lowest number of certified producers are in the sectors of vegetable production and extraction of bee products. Figure 3.11 specifies the shares of registered organic producers in the subsector "Cereals" and emphasizes the role of the district in the cultivation of this type of organic food. The leading role is in the production of wheat and coriander (25% each of the certified producers in the sub-sector).

Figure 3.11. Structure of production in organic agriculture - subsector "Cereals", % 12% 4% 25% wheat barley coriander 19% sunflower 15% rapeseed spelt 25%

Source: Own calculations based on data from the Ministry of Agriculture, 2020

In addition to the Bio-agriculture sector, having in mind the activities in the thematic area "Industry for Healthy Living and Biotechnology", Yambol district is focused on development and production of energy from renewable energy sources. It is important to emphasize that in third place in the country Yambol district is represented by facilities from wind turbines, which are concentrated mainly in the municipality of Straldzha. There are 6 wind turbines and a wind farm for electricity production installed on the territory of the municipality. In general, the municipality of Tundzha has the largest number of installed RES capacities, followed by Straldzha. On the territory of the district there is a significant increase of the registered certified organic producers, which corresponds to the priorities in the

29 sector of bioeconomy and circular economy and becomes a leading bioeconomic direction in the local economy.

Main conclusions from chapter three:

1. Yambol District is among the districts with an average level of socio- economic development, which has made progress in key macroeconomic indicators during the observed period. Specific natural resources presuppose the development of certain economic activities.

2. Although there is no absolute specialization in Yambol district, ie the region is characterized by a diversified economy, the manifestation of relative specialization is typical.

3. The study of the three groups of factors determining the dynamics of the sectoral structure - national, structural and regional, leads to the identification of sectoral groups with leading regional effect: "Agriculture, forestry and fishing", "Manufacturing" and "Financial and insurance services “.

4. The established trends in the relative specialization of the region during the study period show that Yambol district is established in the recommended direction of smart specialization "Industry for Healthy Living and Biotechnologies" in the face of manufacturing and agriculture.

5. There is a contradiction between the large share of organic farming practices with pastures and the very low share of livestock in organic production, which creates the need for both further research on this issue and additional measures to use the available potential.

6. The very well-developed at the regional level innovative practices of Photovoltaic installations and Wind installations can expand their scope and realize a larger "green" growth by investing in RES for own consumption.

7. The cultural and historical resource of the region is in strong conflict with the negative trends in the thematic area "New technologies in the creative and recreational industries", which as a weak point carries a need for better research and targeted support measures.

8. Yambol District demonstrates potential in "Mechatronics and Clean Technologies", which is why for the new programming period it is important that these economic activities are included in the strategic planning documents, for the expansion of current production and for the development of new entrepreneurial activity.

30 9. The strengths in the priority areas in ISIS: Healthy living industry: "Research and development" by methods of clean production, technology; Business practices for: clean production, storage and processing of specific food and cosmetic (bio-) products, competitive organic products with medical and medical impact, organic farming, production of food and non-food organic products, export orientation of organic products.

Mechatronics and clean technologies: "Research and development" in technical sciences - mechanics, electronics, nanotechnology, control systems, software for clean technologies (eco-mobility), as well as energy storage and saving, Architectural and engineering activities.

Informatics and IR technologies: In