Modelling European Regional Policy 2007–2013: Applied General Equilibrium Analysis of the Economic Impact on the Madrid Region

Abstract

The main purpose of this study was to present an applied general equilibrium model to the economy of the Madrid region. The model developed is considered a neoclassical version of the Walrasian equilibrium, modelling production sectors on perfect competition, full use of production factors and the clearing of all markets of goods. The model thus enables the second objective of the study: to estimate the impact of the 2007–2013 Structural Funds received on the economy of the Madrid region. The effects resulting from the injection of the funds are quantified by simulations performed using the developed model. This analysis of the quantification of effects is extremely important, as the priority objectives of the European Regional Policy have changed with respect to the previous period. In the current operational programme, the Madrid region comes under the regional competitiveness objective, which focuses on the priorities of innovation, research, the information society and business development. The sectors that have traditionally benefited, mainly infrastructure, therefore give way to others and the injection of funds into the Madrid economy is to be through other areas. In addition, there has been a reduction of the European aid received by our Region, as compared with previous Programmes.