DP16669 What are the likely macroeconomic effects of the EU Recovery plan?

Author(s): Fabio Canova, Evi Pappa
Publication Date: October 2021
Date Revised: November 2021
Keyword(s): countercyclical policies, Externalities, R&D and human capital investment, Recovery and Resilience fund, Regional inequalities
JEL(s): C32, E27, E32, H30
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16669

We examine the macroeconomic effects of two EU regional structural funds. ERDF has positive short term average consequences on all regional variables, but gains typically dissipate within three years. ESF has insignificant average impact effects, but medium-term multipliers are positive and economically important. There are differential regional transition paths and outlooks for economic transformation. Location, level of development, EU tenure, Euro area membership, and national borders account for the asymmetries. We interpret the facts with an equilibrium model of a monetary union featuring endogenous growth. Structural features and public administration characteristics can explain the observed asymmetries. The policy implications for the Recovery and Resilience facility are discussed.