An assessment of the impact of EU funds through productivity boosts using CES functions

ABSTRACT

The economic effects of European Funds on recipient countries are not without controversy. We propose to study this issue focusing on the productivity coefficients of CES production functions in a multisectoral, interdependent general equilibrium model. We adopt the calibration techniques typically used in computational general equilibrium modelling to estimate a numerical improvement in the productivity coefficients of the CES functions. The array of different funds belongs to two broad categories associated with the two types of primary factors, labour and capital, that determine the output. Once we estimate the change in productivity coefficients in labour and in capital, we introduce them into a computable general equilibrium model and simulate their effects, all else being equal, in order to quantify their likely economy-wide effects.

KEYWORDS:

• CES technologies
• productivity boost
• CES calibration

JEL CLASSIFICATION:

• C63
• C67
• C68

Acknowledgment

The first author thanks project JRC/SVQ/2015/J.1/0038/NC from the European Commission; the second author thanks SEJ-4546 from the Andalusian Regional Government and MINECO ECO2012/35430; the third author thanks MINECO ECO2017/83534P and Universidad Loyola Andalucía.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ http://herminonline.net.

² In partial equilibrium econometrics, on the other hand, the selection of the most appropriate production function is a well-known relevant issue (Bhatti and Wu 1994).

³ For notational simplicity, we leave out the index that would identify the different sectors.

⁴ De Miguel, Llop, and Manresa (2014) use Cobb−Douglas production functions to study the effects of a Hicks neutral productivity improvement that applies to both labour and capital at the same rate and in all sectors.

Additional information

Funding

This work was supported by the Spanish Ministry of Economy [MINECO ECO2012/35430,MINECO ECO2017/83534P]; the Andalusian Regional Government [SEJ-4546]; Universidad Loyola Andalucía; European Commission [Project JRC/SVQ/2015/J.1/0038/NC].