A Significant Part of EU Regional Policy Funds Do Not Enhance Long-Term Economic Growth

Negotiations on the new EU financial framework for 2014 to 2020 are well underway. Due to the tense budgetary situation of many EU Member States, each budget item needs to be re-examined. EU regional policy, which currently makes up about 36 per cent of EU’s total budget expenditure, offers considerable savings potential. This is the central finding of an analysis conducted by the Centre for European Economic Research (ZEW) in Mannheim on behalf of the German Federal Ministry of Finance.

One key objective of the EU’s regional policy is to promote economic growth. It is often tacitly assumed that the projects and measures financed under the Structural and Cohesion Funds have long-term effects on growth. ZEW questioned this assumption and examined numerous projects on the basis of various indicators in nine different regions of eight EU Member States from 2007 to 2013. It was found that up to 22 (from an optimistic point of view) to 63 per cent (from a pessimistic point of view) of the funds spent in particular regions under EU regional policy generate no long-term growth effects. These results indicate that EU regional policy possesses significant savings potential, which also holds true for both regions in Germany considered in the study.

The ZEW analysis also showed substantial regional differences concerning the growth effects of EU regional policy. From an optimistic point of view, almost all EU funds are likely to have a positive impact on growth in three regions. The share of expenses without such growth effects, however, lies between two and eight per cent in three regions and at about 15 per cent in two other regions. In one region, the expenses without growth effects even cover approximately 22 per cent. From a pessimistic point of view on the funded projects in nine regions, at best 16 per cent of the expenses in one region fail to enhance growth, whereas in seven regions, the share of unsuccessful spending lies between 20 and 54 per cent. In one case, it even makes up more than 63 per cent.

In the course of the analysis, ZEW scrutinised about 3,600 individual projects focussing on nine different regions of eight EU Member States: Bavaria and Bremen in Germany, Lower Normandy in France, Yorkshire and The Humber in Great Britain, Molise in Italy, the Algarve in Portugal, Ceuta in Spain and all projects in Malta and Slovakia. These projects were classified on the basis of specific indicators. The employed indicators include the project’s topic, the type of payee (public, non-profit or private) and the project type. For the latter category, projects aiming at the provision of public goods on the one hand and projects aiming at the provision of private goods on the other hand were distinguished. Each possible combination of indicators was allocated to ‘zero’, ‘mid-sized’ and ‘major’ growth effects based on widely accepted results from the academic literature. A project’s impact on growth is thus determined by the combination of these indicators. The chosen regions represent comparably poor and rich regions, old and new Member States as well as troubled and economically strong countries.

For further information please contact

Florian Misch, PhD, Phone +49 621/1235-394, E-mail misch@zew.de