DP11210 EU Structural Funds and Regional Income Convergence - A Sobering Experience

Author(s): Philipp Breidenbach, Timo Mitze, Christoph M Schmidt
Publication Date: April 2016
Keyword(s): EU Regional Policy, panel data, spatial spillovers
JEL(s): C21, R12, R58
Programme Areas: Public Economics, International Trade and Regional Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11210

The European Structural and Investment Funds (ESIF) are the prime instrument of EU regional policy. European policy makers place considerable hope into their growth stimulating funding measures to overcome current economic stagnation. Consequently, there is a strong need for credible evidence regarding the programs' effectiveness. Based on an empirical identification strategy linked to modern growth theory, we find that the disbursement of EU structural funds is negatively correlated with regional growth. Incorporating spatial dynamics and decomposing this correlation into a direct and a spatially-indirect component, it is particularly the latter which determines this "sobering"? finding. Regarding the economics behind these results, the obtained negative spatial effect may reflect the role played by policy-induced spatial competition among neighboring regions. It could also highlight the backwardness in technological endowment and economic structures of highly funded regions. In any case, EU structural funding does not seem to contribute effectively to foster income convergence across regions.