Regional growth and absorption speed of EU funds: when time isn’t money

ABSTRACT

This paper discusses the effects of European Union (EU) funds on gross domestic product growth by analysing the causal impact of regional absorption speed. The analysis is conducted using a regression discontinuity design approach with heterogeneous treatment on NUTS-2 regions during the period 2000–16. We show that faster absorption of EU funds in the Objective 1 regions, especially the Mediterranean ones, is associated with worse economic outcomes from the Objective 1 treatment. However, this pattern is not observed in the non-treated regions. Regarding policy implications, this study suggests that incentives to increase absorption speeds should be removed in Objective 1 regions.

KEYWORDS:

• regional economic growth
• European Cohesion Policy
• absorption capacity
• regression discontinuity design

JEL:

• E62
• H50
• R58

ACKNOWLEDGEMENTS

The author thanks the anonymous reviewers, Thi Kim Cuong Pham, Meixing Dai, Phu Nguyen-Van and the ERMEES research team for their helpful suggestions. The author is also grateful to Emilien Veron for his very valuable help on some technical aspects of this paper.

DATA AVAILABILITY

Data for this manuscript are available via the following private link: https://figshare.com/s/86248080da4c6581f694/.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the author.

Notes

1. From the Programme of the Commission for 1989. Address by Jacques Delors, President of the European Commission, to the European Parliament, and his reply to the debate. Strasbourg, 16 February 1989.

2. Final report – ERDF and CF expenditure. Contract No. 2007.CE.16.0.AT.036.

3. The financial implementation of the EU Funds is even updated daily by the European Commission; see https://cohesiondata.ec.europa.eu/overview#.

4. The n + 2 rule states that a sum committed to a programme must be claimed by the end of the second year following a given programming period. Therefore, because of the European authorities’ processing time, last payments are executed three years after the end of a given programming period (2002 for 1994–99, 2009 for 2000–06, and 2016 for 2007–13).

5. See, for instance, the EU Council Regulations 595/2006 and 189/2007.

6. This is not problematic for the programming period 2007–13 as the latest payments are made in 2016.

7. Another potential jump visible at around 60% of the European average per capita GDP could be pointed out. Such a jump is observed in other related studies (e.g., Becker et al., 2010; Gagliardi & Percoco, 2017; Percoco, 2017); however, this is out of the scope of studying the impact of the Objective 1 treatment on regional growth, since we are focused on the 75% threshold.

8. For brevity, the test values are not reported. They are available from the author upon request.