Too Much of a Good Thing? On the Growth Effects of the EU's Regional Policy
Sascha O. Becker
University of Warwick; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA); Ifo Institute for Economic Research
Peter H. Egger
Ifo Institute for Economic Research - International Trade and Foreign Direct Investment; Ludwig-Maximilians University of Munich; CESifo (Center for Economic Studies and Ifo Institute for Economic Research
Maximilian Von Ehrlich
Ludwig Maximilian University of Munich - Center for Economic Studies (CES)
CEPR Discussion Paper No. DP8043
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.
Number of Pages in PDF File: 33
Keywords: EU regional policy, Generalized propensity score estimation, Quasi-randomized experiment, Regional growth
JEL Classification: C21, H50, O40, R11
Date posted: November 22, 2010
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