Funds and Games: The Economics of European Cohesion Policy. ENEPRI Occasional Paper No. 3, October 2003

Ederveen, Sjef and Gorter, Joeri and Mooij, Rudd de and Nahuis, Richard. (2003) Funds and Games: The Economics of European Cohesion Policy. ENEPRI Occasional Paper No. 3, October 2003. UNSPECIFIED.

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Abstract

[Executive Summary]. How effective is European cohesion policy in reducing regional welfare differences? Can the political game concerning the distribution of funds be consistent with an effective policy? And how should it be reformed if a number of Central and Eastern European Countries (CEECs) Cohesion support comprises the Structural Funds and the Cohesion Fund. After the Common Agricultural Policy it is the second largest item on the EU-budget: between 2000 and 2006, more than €200 billion will be allocated to regions and member states that lag behind in development, have industries in decline or face high unemployment. This amounts to more than 40% of the EU budget. It makes the distribution of funds subject to vigorous negotiations, which will only gain importance with the upcoming enlargement of the EU by twelve relatively Though the goal of cohesion policy lacks precision in official documents, it is to be interpreted as a way to reduce the welfare differences among European regions. Views differ as to whether cohesion policy is successful. On the one hand, the view of the European Commission is positive: in its Second Report on Economic and Social Cohesion it praises the effectiveness of current cohesion policies (EC, 2001b). On the other hand, some commentators take a more pessimistic view. Boldrin and Canova (2001) for example, claim that cohesion policy is ineffective because it is primarily motivated by political considerations other than the reduction This study contributes to the discussion on the effectiveness of cohesion policy in two ways. First, it comprehensively reviews case studies, simulation models and econometric estimates, something that has not been done previously with the same degree of thoroughness. From this review, we conclude that there is certainly scope for improvement in the effectiveness of cohesion policy. Second, the study makes use of the best-available data sources on cohesion policy to assess its impact upon redistribution and growth. This contributes to the relatively meagre body of econometric evidence. The results confirm some degree of redistributive efficiency: poor regions get more than rich regions. The extent to which cohesion support affects convergence remains, however, unclear. Some econometric analyses suggest that the funds have a negligible or even a negative impact on convergence, while others imply a significant positive impact. The study also makes use of a unique data set on national regional policy to estimate the extent of crowding out, i.e. the adverse impact of European funds on national regional support. This turns out to be an important phenomenon. How can cohesion policy be made more effective? The study considers various dilemmas that policy-makers face when thinking about cohesion policy reform. It also elaborates on how these dilemmas will change with the enlargement of the EU, and puts forward a number of directions for reform.

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