Productivity Dynamics across European Regions: the Impact of Structural and Cohesion Funds

Abstract

This paper analyzes the impact of the European Union regional policy of the three programming periods 1975-1988, 1989-1993 and 1994-1999 on the dynamics of productivity of European regions. On average, funding had a positive, but concave, effect on productivity growth. In particular, a share of funds on GVA of 10% GVA is estimated to raise the regional growth rate of about 0.9% per year. However, by separately considering the three programming periods and the composition of the funds according to the objectives defined by the EU, we find that: i) only the funds allocated in the second and third programming periods, when they remarkably increased, had a significant impact; and ii) only Objective 1 and Cohesion funds played a significantly positive impact, while funds devoted to Objectives 2, 3, 4 and 5 had a negative or non significant impact. The results are robust to potential endogeneity of funds and spatial dependence.