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EU structural funds and regional income convergence: A sobering experience

Philipp Breidenbach (), Timo Mitze () and Christoph Schmidt

No 608, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: 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.

Keywords: EU regional policy; Solow growth model; spatial spillovers; panel data (search for similar items in EconPapers)
JEL-codes: C21 R12 R58 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-eur, nep-geo and nep-ure
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