What are the Likely Macroeconomic Effects of the EU Recovery Plan?

Abstract

We examine the macroeconomic effects of two EU regional structural funds. ERDF has positive short term average consequences on all regional variables, but gains typically dissipate within three years. ESF has insignificant average impact effects, but medium-term multipliers are positive and economically important. There are differential regional transition paths and outlooks for economic transformation. Location, level of development, EU tenure, Euro area membership, and national borders account for the asymmetries. We interpret the facts with an equilibrium model of a monetary union featuring endogenous growth. Structural features and public administration characteristics can explain the observed asymmetries. The policy implications for the Recovery and Resilience facility are discussed.

Keywords: countercyclical policies, Externalities, R&D and human capital investment, Recovery and Resilience fund, Regional inequalities

JEL Classification: C32, E27, E32, H30