European Union regional policy and development in Spain: capital widening and productivity stagnation over 1989–2010

ABSTRACT

Total factor productivity (TFP) in Spain over the period 1989–2010 has followed a decreasing trend. This paper explores to what degree the transport infrastructure investments financed with European Union Structural Funds (ERDF) and Cohesion Funds (CF) including the compulsory national cofunding (EUINFP) prevented TFP over this period from falling further. It estimates an augmented Mankiw–Romer–Weil model for the 17 Spanish regions over the period 1989–2010 and finds positive marginal contributions on the TFP growth rate for EUINFP, research and development, and the interdependencies between EUINFP and private capital. These factors partially offset the dismal TFP performance of Spain over this period.

KEYWORDS:

• regional development
• infrastructures
• European Regional Development Fund (ERDF)
• cohesion fund
• Spain
• total factor productivity

JEL:

• R11
• R12
• R13
• R14

ACKNOWLEDGEMENTS

The authors thank Geoffrey Hewings, Miguel Marquez-Paniagua, Mihai Mutascu, Alexandru Minea, Sandy D’Allerba, the editors, two anonymous referees, and the participants at seminars at the University of Extremadura, University of Seville, Loyola University (all Spain), University of Clermont-Auvergne-CERDI (France), Istituto Regionale Programmazione Economica della Toscana (IRPET) (Italy), University of Timisoara (Romania), Regional Economics Application Laboratory (REAL) (US), University of Antioquia (Colombia) and conferences (Simposio Analisis Económico, EDULOG (an education think tank founded by the Belmiro de Azevedo Foundation) international conference) for their comments and constructive criticisms to earlier drafts of this paper. The authors also thank Matilde Mas and the Valencian Institute for Economic Research (IVIE) for granting access to their database in order to carry out this research.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

ORCID

Andres Faiña http://orcid.org/0000-0003-2323-7521

Jesus Lopez-Rodriguez http://orcid.org/0000-0002-2142-3913

Paulino Montes-Solla http://orcid.org/0000-0002-5608-6080

Notes

1. NUTS level II areas in the Nomenclature of Territorial Units for Statistics developed by EUROSTAT with a GDP_pc < 75% of the European Union countries’ average. Objective 1 regions were the recipients of the highest amount of Structural and Cohesion support.

2. This process of jobs creation was put on hold with the onset of the so-called great recession (end of 2007/beginning of 2008).

3. This is in sharp contrast to the results on TFP growth over the same period for the United States (0.6%) and the EU (0.4%).

4. The EUINFP includes national funding from central and regional governments in transport infrastructure projects.

5. Even though there is a huge amount of research on agglomeration economies and how important are increasing returns to scale to model this phenomenon, for the Spanish economy, the assumption of a production function exhibiting constant returns to scale is compatible with estimations based on Spanish data (e.g., Escribá & Murgui, 2011).

6. For regions with poor endowments of transport infrastructures, transport infrastructure investments have significant effects on output growth and value added per worker. As regions approach adequate levels of transport infrastructure endowments, their capabilities to boost growth and value added per worker go through a decreasing path, eventually reaching a saturation point.

7. The authors thank a referee for suggesting the estimation of this third alternative.

8. See http://www.dgfc.sepg.hacienda.gob.es/sitios/dgfc/es-ES/ipr/Paginas/inicio.aspx/.

9. Following a suggestion made by a referee, we also defined another alternative metric for transport infrastructures capital stocks, $k_{infareait}$ (see the Appendix in the supplemental data online).

10. This value is computed by multiplying the estimated coefficient of ‘$rd$’ by the average for this variable.

11. Controlling for this interaction term, the $euinfp$ coefficient becomes not significantly different from zero, since its effect is captured and reinforced in the interaction (0.07% versus 0.30%).

12. The average unemployment rate for the period 1980–87 was 17.8%.

Additional information

Funding

The second author acknowledges the support received from the Spanish Ministerio de Economía y Competitividad (MINECO) and the European Regional Development Fund (ERDF) [grant number ECO2015-68597-P (MINECO/FEDER)]. The third author acknowledges the financial support received from the Jean Monnet Group on Competition and Development (C+D) during the research visit to REAL (US) during the summer of 2018. The usual disclaimer applies.