EU Cohesion spending: policy can deliver what economic research cannot
The EU uses about one third of the EU Budget for cohesion policy. Those that are now fighting for a smaller EU Budget are also questioning the importance of Structural and Cohesion Funds and the extent to which they are truly growth-generating (and welfare-improving). The criticism is not unwarranted. For example, the empirical literature that […]
The EU uses about one third of the EU Budget for cohesion policy. Those that are now fighting for a smaller EU Budget are also questioning the importance of Structural and Cohesion Funds and the extent to which they are truly growth-generating (and welfare-improving).
The criticism is not unwarranted. For example, the empirical literature that has attempted to measure the growth effects of these funds is rather inconclusive, not least because the estimation is plagued with a number of methodological and practical problems.
But macroeconomic simulations show that EU funds generate economic growth, something the empirical literature does not always pick up. This is by itself an indication of the fact that Structural and Cohesion Funds are potentially useful for growth but they are either badly allocated or badly managed or used for the wrong investments, or a combination of all three.
The truth is that a fully-fledged assessment of the effectiveness of cohesion spending has never been done at the EU level. The European Commission proposal for a more performance-oriented Cohesion Policy in 2014-2020 goes in the right direction, also because the assessment can be rather qualitative and does not encounter the methodological and practical problems of most macroeconomic research.
One other important limitation of existing research is that EU-financed investments are always studied in isolation and never in association with other policies that affect regional development ranging from national redistribution schemes to approved state aid and other industrial policy initiatives.
And yet, these aspects are normally quite relevant. In a recent Bruegel publication* it is shown that national governments do take care of regional disparities. The evidence produced in the Report indicates that European countries and regions have been converging in terms of GDP per capita, but regional disparities within countries have increased over the last decade. At the same time, when looking at the dispersion of regional disposable income in each country (after taxes and benefits), the divergence pattern disappears suggesting that national governments do deliver on geographical redistribution.
This may be taken to indicate that there is scope for devoting a larger share of the EU Cohesion Budget to countries at any stage of development, also with the purpose of preserving consistency or even exploiting synergies between EU funding and other national regional development strategies.
What macroeconomic research can say about the growth effects of EU Cohesion Policy is any case limited. It is important that the initiative is taken at the policy level. The European Commission in association with the Member States and the regions should indeed make a decisive effort to determine ex ante the expected outputs of each EU-funded investment initiative and then run a thorough assessment at the end of each project. This must be done in a systematic and transparent fashion. It is a simpler qualitative analysis than goes beyond anything macroeconomic research may be able to achieve and a necessary institutional step before any decision on the size of the Cohesion Budget is taken.
* Benedicta Marzinotto, “The Growth Effects of EU Cohesion Policy: a Meta-Analysis”, Bruegel Working Paper 2012/14.
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