Too Much of a Good Thing? On the Growth Effects of the EU's Regional Policy

33 Pages Posted: 22 Nov 2010

See all articles by Sascha O. Becker

Sascha O. Becker

Monash University - Department of Economics; University of Warwick

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment; ETH Zürich; Ludwig-Maximilians University of Munich; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Maximilian von Ehrlich

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES)

Date Written: October 2010

Abstract

The European Union (EU) provides grants to disadvantaged regions of member states from two pools, the Structural Funds and the Cohesion Fund. The main goal of the associated transfers is to facilitate convergence of poor regions (in terms of per-capita income) to the EU average. We use data at the NUTS3 level from the last two EU budgetary periods (1994-99 and 2000-06). Using generalized propensity score estimation, we analyze to which extent the goal of fostering growth in the target regions was achieved with the funds provided and whether more transfers generated stronger growth effects or not. We find that, overall, EU transfers enable faster growth in the recipient regions as intended, but we estimate that in 36% of the recipient regions the transfer intensity exceeds the aggregate efficiency maximizing level and in 18% percent of the regions a reduction of transfers would not even reduce their growth. We conclude that some reallocation of the funds across target regions would lead to higher aggregate growth in the EU and could generate even faster convergence than the current scheme does.

Keywords: EU regional policy, Generalized propensity score estimation, Quasi-randomized experiment, Regional growth

JEL Classification: C21, H50, O40, R11

Suggested Citation

Becker, Sascha O. and Egger, Peter H. and von Ehrlich, Maximilian, Too Much of a Good Thing? On the Growth Effects of the EU's Regional Policy (October 2010). CEPR Discussion Paper No. DP8043, Available at SSRN: https://ssrn.com/abstract=1711056

Sascha O. Becker (Contact Author)

Monash University - Department of Economics ( email )

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Australia

University of Warwick ( email )

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Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment ( email )

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Germany
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ETH Zürich ( email )

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Switzerland

Ludwig-Maximilians University of Munich

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Munich, 80539
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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Maximilian Von Ehrlich

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, 80539
Germany

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