The Elusive Quest for the Holy Grail of an Impact of EU Funds on Regional Growth

34 Pages Posted: 20 Dec 2019

See all articles by Jan Fidrmuc

Jan Fidrmuc

Brunel University - Department of Economics and Finance; University of Angers - Lille - Economics & Management (LEM) - Centre National de la Recherche Scientifique (UMR CNRS 8179); CESifo (Center for Economic Studies and Ifo Institute); Global Labor Organization (GLO); Institute for Strategy and Analysis, Government Office of the Slovak Republic

Martin Hulényi

Government Office of the Slovak Republic

Olga Zajkowska

Warsaw University of Life Sciences

Date Written: 2019

Abstract

We analyze the impact of EU structural and cohesion funds on economic growth of European regions, using 2SLS to tackle the potential problem of endogeneity, and estimating a spatial model to account for inter-regional spillovers. We use the presence of environmentally protected areas (under the European Union's Natura 2000 program) as instruments for the receipts of funds from the EU Cohesion Policy. We find that the European funds have a significant and positive effect on regional economic growth in the EU. The inter-regional spillovers in the effect of Cohesion Policy on regional growth are found to be important: most of the effect takes place outside of the recipient region rather than inside. However, there is considerable heterogeneity in the effect of Cohesion Policy across individual EU member states: the effect is stronger in the new member states, and weak or negative in the countries hit by the recent austerity measures. Finally, our results confirm the positive impact of institutional quality: improvements in economic development across the EU do not necessarily require only redistribution: institutional reform can also help boost growth performance.

Keywords: regional aid, growth, environmental conservation, 2SLS, spatial model

JEL Classification: C210, C360, F360, E620, O110, P480

Suggested Citation

Fidrmuc, Jan and Fidrmuc, Jan and Hulényi, Martin and Zajkowska, Olga, The Elusive Quest for the Holy Grail of an Impact of EU Funds on Regional Growth (2019). CESifo Working Paper No. 7989, Available at SSRN: https://ssrn.com/abstract=3507260 or http://dx.doi.org/10.2139/ssrn.3507260

Jan Fidrmuc (Contact Author)

Brunel University - Department of Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom
+44 1895 266 528 (Phone)
+44 1895 269 770 (Fax)

University of Angers - Lille - Economics & Management (LEM) - Centre National de la Recherche Scientifique (UMR CNRS 8179) ( email )

France

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Global Labor Organization (GLO) ( email )

Collogne
Germany

Institute for Strategy and Analysis, Government Office of the Slovak Republic ( email )

Bratislava
Slovakia

Martin Hulényi

Government Office of the Slovak Republic ( email )

Úrad vlády Slovenskej republiky
Námestie slobody 1
Bratislava, 813 70
Slovakia

Olga Zajkowska

Warsaw University of Life Sciences ( email )

ul. Nowoursynowska 159
Warsaw, 02-776
Poland

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