1. The work that the OECD Rural Working Party has carried out in the previous years has led to the conclusion that traditional top-down approaches and sectoral subsidies to rural areas have not given the expected results and that there is a need for place-based policies which can capture the diversity of rural areas and respond quickly to their new challenges. Developments in a fast changing international environment continue to demonstrate the necessity to re-think rural development policies. Globalisation, changes in the public financing of the agriculture sector and the emergence of important non-farm niche markets put rural regions in direct competition confronting them with threats and opportunities that require new policy instruments and skills at the national and sub-national level. Changes do not affect only markets and economic actors but question the role of institutions, private actors and the civil society in rural development. Moreover, processes of administrative, political and fiscal decentralisation put more emphasis on the capacity of local actors and renewed horizontal and vertical relations.
2. Against this background, policy makers increasingly recognise that traditional rural development policies need to be upgraded and, in many cases, phased out and substituted with more appropriate instruments capable of dealing with externalities, valorising local amenities and, in a context of asymmetric information, making good use of the knowledge shared by different actors. To adapt to such a scenario several countries have begun to design new policies and to introduce innovative forms of vertical and/or horizontal co-ordination.
3. Inspired by an integrated, bottom-up approach to rural development, the LEADER programme represents one of the better known programmes implemented in the European Union to date. Introduced in 1991 and after having been reconducted for three terms (LEADER I, II and LEADER +) the initiative should disappear in 2007 to be mainstreamed into a new overall policy framework of EU rural development.
4. One country that has implemented the LEADER programme is Spain. This case study analyses the programme's effectiveness in the Extremadura region. The paper is divided into three parts. Part I outlines the most defining characteristics of the LEADER programme, from its functioning to its financing, and discusses the main elements of the LEADER "method". Part II provides an overview of the characteristics and policy challenges of the Extremadura region. This part highlights the variety of interconnected challenges calling for a shift from a purely sectoral approach towards a more place-based approach to rural development. Part III sets out the most critical issues related to the implementation of LEADER in Extremadura. It discusses possible directions for its improvement and issues to be considered in the discussion on the future "mainstreaming" of LEADER.