Evaluating the impact of European Union Cohesion policy in less-developed countries and regions

Abstract

Bradley J. (2006) Evaluating the impact of European Union Cohesion policy in less-developed countries and regions, Regional Studies 40, 189–199. The expansion of Structural Funds since the late 1980s presented European Commission and domestic policy-makers with design and impact evaluation challenges. Such policies moved beyond demand-side stimulation, and were aimed at the promotion of real convergence, mainly through productivity-enhancing, supply-side mechanisms. Research suggests that the ‘macro-models’ are potentially capable of extracting the pure Structural Funds policy impacts from the background of all the other domestic and external shocks that affect the economy at the same time. However, such results only provide imprecise, ballpark impact estimates, and the challenge remains of reconciling bottom-up microanalysis with top-down macroanalysis.

Macro-evaluation Macro-economic models HERMIN models Ex-ante impacts

Bradley J. (2006) Evaluer l'impact de la politique de cohésion de l'UE dans les pays et les régions en voie de développement, Regional Studies 40, 189–199. Le développement des Fonds structurels depuis la fin des années 1980 a représenté un challenge à la Commission européenne et aux décideurs nationaux quant à la conception et à l'impact d'évaluation. De telles politiques vont au-delà des incitations par la demande, visant plutôt la promotion de la convergence réelle, largement à partir des mécanismes qui améliorent la productivité par l'offre. La recherche laisse supposer qu'en principe les modèles macro-économiques sont susceptible de dégager les impacts purs de la politique des Fonds structurels dans un contexte de chocs intérieurs et externes qui pourraient conjointement toucher l'économie. Cependant, de tels résultats ne fournissent que des estimations d'impact imprécises approximatives, et il reste à concilier l'analyse micro-économique ascendante avec l'anayse macro-économique descendante.

Macro-évaluation Modèles macro-économiques Modèles HERMIN Impacts ex-ante

Bradley J. (2006) Evaluierung der Auswirkung der Kohäsionspolitik der EU in weniger entwickelten Ländern und Regionen, Regional Studies 40, 189–199. Die Ausweitung des Strukturfonds seit den späten achtziger Jahren stellte Policy-maker der europäischen Kommission und der einzelnen Mitgliedstaaten vor Probleme bezüglich der konzeption und Auswirkung von Evaluierung. Policies dieser Art gingen über Ankurbelung der Nachfrageseite hinaus, da sie auf Förderung echter Konvergenz abzielen, hauptsächlich durch Produktivität erhöhende Mechanismen der Angebotseite. Untersuchungen legen nahe, dass die “Makromodelle” potentiell in der Lage sind, die reinen Auswirkungen der Strukturfondspolitik vom Hintergrund aller anderen internen und externen Schocks zu isolieren, welche die Wirtschaft gleichzeitig beeinflussen. Derartige Ergebnisse vermitteln jedoch nur ungenaue Gesamtauswirkungsberechnungen, während die Forderung bestehen bleibt, bottom-up Mikroanalyse und top-down Makroanalyse abzustimmen.

Makroevaluierung Makroökonomische Modelle HERMIN Modelle Ex-ante Auswirkungen

Bradley J. (2006) La evaluación del impacto de la política de cohesión de la UE en las regiones y los países menos desarrollados, Regional Studies 40, 189–199. Con la expansión de los Fondos Estructurales desde finales de los ochenta, la Comisión Europea y los políticos tuvieron ante sí el reto de las evaluaciones de dis[etilde]no e impacto. Estas políticas constituyen algo más que un estímulo de la demanda porque están destinadas a fomentar la convergencia real, principalmente por el lado de la oferta para mejorar la productividad. Los estudios realizados indican que los ‘modelos macro’ son capaces de extraer los efectos puros de la política de los Fondos Estructurales a partir del contexto de los otros choques nacionales y externos que a la vez afectan a la economía. Sin embargo, tales resultados solo aportan datos imprecisos y cálculos aproximados y el reto sigue siendo reconciliar los análisis micro de abajo arriba con los análisis macro de arriba abajo.

Evaluación macro Modelos macroeconómicos Modelos HERMIN Impactos ex-ante

Acknowledgements

The original research reviewed in this paper was often carried out in collaboration with colleagues, at the ESRI and elsewhere across the EU. Their contributions and friendship are warmly acknowledged and recorded more formally in the joint publications listed in the References. The inputs of the two referees also improved the original draft immeasurably, and I thank them for their criticisms, advice and suggestions.

Notes

1. Typically, SF expenditures have ranged from about 1% of GDP annually in the case of Spain to over 3% in the case of Greece and will reach up to 4% of GDP in the case of the new EU Member States of Central and Eastern Europe. In addition to micro-evaluations of individual projects, the macro-consequences are clearly important.

2. Tinbergen's (1958) early contribution to the literature on the design and evaluation of supply-side policies still reads remarkably well after more than 45 years.

3. EU Cohesion policy is implemented through multi-annual national or regional development plans made up of SFs and Cohesion Funds. For convenience, the present paper uses the term ‘Structural Funds’ somewhat inaccurately to embrace both.

4. For 1994–99, 11 areas were designated Objective 1: three countries (Greece, Ireland and Portugal); a significant part of a country (Spain); three large (macro) regions (East Germany, the Italian Mezzogiorno and Northern Ireland); and four small regions distributed among the rich nations (France, Belgium, the Netherlands and Austria). All the new Member States of the CEE region are classified as Objective 1.

5. With carefully designed macro-models, one can examine the difference between performance ‘with’ SFs and performance ‘without’. By ‘carefully designed’ is meant structural models where policy-induced changes in structure are explicitly modelled. Such models are less susceptible to the so-called Lucas critique of reduced form time-series models (Lucas, 1976).

6. Fischer (1991) suggested that identifying the determinants of investment and the other factors contributing to growth would probably require a switch away from simple, cross-country regressions to time-series studies of individual countries.

7. The origins of HERMIN lay in the complex, multi-sectoral HERMES model developed by the European Commission from the early 1980s (D'Alcantara and Italianer, 1982). It was intended to learn from HERMES, incorporate many of its structural features, but be of more modest scale. In other words, it was a minimal version (HERmes MINimal).

8. For technical details of the HERMIN model, see Bradley et al. (2004a).

9. Elements of public policy are endogenous, but these can be handled in terms of policy feedback rules rather than behaviourally.

10. Many macro-models continue to use separate employment and investment equations, with no cross-equation constraints imposed. For the study of policy shocks that influence medium-term structural development, integrated joint-factor demand equations are essential.

11. For the Polish W8-2000 model, data for 1960–98 are used (Welfe et al., 2002).

12. The panel approach is used within the CEE models contained in the NIGEM model of the world economy developed by the London-based NIESR (Barrell and Holland, 2002).

13. Since research does not always exist for the lagging Objective 1 and CEE countries, one is forced to use results from analogous or more advanced economies. However, sensitivity analysis can be carried out over a plausible range of values of the externality elasticities.

14. For a discussion of how the SF investments lead to accumulated stocks of infrastructure and human capital, see Bradley et al. (2004b).

15. For full details, see Bradley et al. (2004c). This report also contains a full set of references to SF evaluations using the HERMIN models since 1989.

16. The assumption of equal SF design and implementation efficiency for all countries is clearly unrealistic based on examination of SF studies carried out since the late 1980s. It is merely made in order to isolate the underlying economic structure aspects of each country/region that will condition SF impact efficiency into the medium-term. A sensitivity analysis on the externality elasticities can be used to explore the consequences of differences in design and implementational effectiveness.

17. The ‘no SF’ baseline usually assumes that the domestic authorities do not implement a domestically financed alternative. Other more realistic baselines could be used.

18. The stocks on physical infrastructure and human capital eventually decay due to depreciation, but this is a second order effect. For a discussion of ‘level’ versus ‘growth rate’ impacts of investment in human capital, see Sinaesi and Van Reenen (2002).

19. For the report prepared for DG-REGIO, see the Commission website (Bradley et al., 2004c).