DP13712 Institutional change and the development of lagging regions in Europe

Author(s): Tobias Ketterer, Andrés Rodríguez-Pose
Publication Date: May 2019
Keyword(s): Economic Growth, EU, Government quality, Institutional Change, regions
JEL(s): R11, R50
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13712

In this paper we assess whether both the levels and the degree of change in government quality influence regional economic performance in the European Union (EU) and, in particular, in its lagging regions. The results of the econometric analysis, covering 249 NUTS2 regions for the period between 1999 and 2013, suggest that: a) government quality matters for regional growth; b) relative improvements in quality of government are a powerful driver of development; c) one-size-fits-all policies for lagging regions are not the solution; d) government quality improvements are essential for low growth regions; and e) in low income regions basic endowment shortages are still the main barrier to development. In particular, low growth regions in Southern Europe stand to benefit the most from improvements in government quality, while in low income regions of Central and Eastern Europe, investments in the traditional drivers of growth remain the main factors behind successful economic trajectories.