Which is the Right Dose of EU Cohesion Policy for Economic Growth?

The European Cohesion Policy aims at promoting economic and social cohesion by reducing the gap between the development levels of the various regions. The ultimate goal is to reach a convergence of regional GDP per capita. This is to be achieved through payments from the so-called "European structural funds", payments which are nationally co-financed. The econometric investigation of the impact of European Cohesion Policy on economic growth and/or convergence has been intensified over the last decade. However, the empirical results are not clear-cut. While some authors find evidence of a significant positive impact of structural funds on economic growth, others only find a weak impact, or none at all. There are several reasons for these mixed results, among others, the low quality of structural funds data (at the regional level) and a number of methodological problems. Against this background, this paper analyses the growth effects of EU structural funds by applying a relatively new econometric approach (the so-called “generalized propensity score"), which takes into account one of the methodological problems. More precisely, this method avoids functional form assumptions on the relationship between structural funds payments and economic growth to a large extent. Thus, we are able to reach results which are more robust with regard to this issue. Our method employs a new panel dataset of 122 NUTS-1 / NUTS-2 regions over the time period 1995-2005. Hence, in contrast to other studies, we extend the time period of investigation, using structural funds payments of the last Financial Perspective 2000-2006. Our results indicate that structural funds payments have a positive, but not statistically significant, impact on the European regions' growth rates. This implies that it does not matter which "dose" of SF payments a region receives.

Hagen, Tobias and Philipp Mohl (2008), Which is the Right Dose of EU Cohesion Policy for Economic Growth?, ZEW Discussion Paper No. 08-104, Mannheim.