European Cohesion Policy and the Spanish Economy: Macroeconomic Evaluation and Prospects for Convergence

Abstract

This paper offers an empirical evaluation of the economic effects of the European Structural and Cohesion aids (or Community Support Frameworks, CSF) received since 1989, or yet to be received until 2006, by Spain, amounting to a total of almost 100 billion euros at 1999 prices. To that end, we use the HERMIN-Spain model. Our results suggest that these CSF packages have contributed significantly to Spanish economic growth and to increase the levels of income and employment. The successive aid programmes received between 1989 and 2006 imply an average increase of almost 0.4 percentage points in the real annual growth rate of the Spanish economy with respect to the situation that would have ensued without the European grants. This translates into an average increase in per-capita income of 638 euros (at 1999 prices) over the entire period, and of 1027 euros per-capita if we refer to the period 2000 through 2006. Without the structural aids, in 2006, the Spanish per-capita income index relative to the average for EU-15 would be, ceteris paribus, almost six percentage points lower. As for the labour market, we estimate that the structural and cohesion funds have, in average terms over the period 1989-2006, generated and/or maintained 2.07 per cent more employment than what would have been the case without them, or some 300 thousand jobs, which implies an average reduction in the rate of unemployment of 0.2 percentage points over the same period. The paper ends with a simulation of the likely consequences to be expected from a reduction in structural and cohesion grants suffered by many Spanish regions that will cease to belong to the Objective 1 club after 2007 as a result of their natural or statistical convergence.

Keywords: European Union, Structural Funds, Cohesion Fund, Community Support Frameworks, Macroeconomic Evaluation

JEL Classification: C51, F02, H50, R58