An assessment of EU Cohesion Policy in the UK regions: direct effects and the dividend of targeting. LEQS Discussion Paper No. 135/2018 June 2018

With the prospective exit of the UK from the European Union, a crucial question is whether EU Structural Funds have been beneficial for the country and which aspects of Cohesion Policy should be maintained if EU funds are to be replaced. This paper addresses this question through a twofold investigation, assessing not only whether but also how EU funds have contributed to regional growth in the UK over three programming periods from 1994 to 2013. We document a significant and robust effect of Cohesion Policy in the UK, with higher proportions of Structural Funds associated to higher economic growth both on the whole and particularly in the less developed regions of the country. In addition, we show that the strategic orientation of investments also plays a distinct role for regional growth. While concentration of investments on specific pillars seems to have no direct growth effects, unless regions can rely on pre-existing competitive advantages in key development areas, we unveil clear evidence that targeting investments on specific areas of relative regional need has a significant and autonomous effect on growth. These findings have important implications for the design of regional policy interventions in Britain after Brexit

Poorer UK regions have benefited from EU Cohesion Policy and would lose out from Brexit

In recent years, the European Commission has disbursed a large amount of financial resources to UK regions, aiming to promote economic development and employment. Drawing on recent research, Marco Di Cataldo demonstrates that the most economically disadvantaged areas have made good use of these funds and reduced the share of unemployed people more than other areas. The interruption of financial aid – one of the potential consequences of a Brexit – would be likely to undermine the labour market and economic gains achieved during the period of highest financial support

It’s not about the money! EU funds, local opportunities, and the Brexit vote. LEQS Paper No. 149/2019 November 2019

Growing Euroscepticism across the European Union (EU) leaves open questions as to what citizens expect to gain from EU Membership and what influences their dissent for the EU integration project. This paper looks at EU Structural Funds, one of the largest and most visible expenditure items in the EU budget, to test the impact of EU money on electoral support for the EU. By leveraging the Referendum on Brexit hold in the United Kingdom, a spatial RDD analysis offers causal evidence that EU money does not influence citizens’ support for the EU. Conversely, the analysis shows that EU funds contribute to mitigate Euroscepticism only where they are coupled with tangible improvements in the local labour market conditions. In order to gain support from its citizens, the European Union needs to produce tangible impacts, generating opportunities at the local level where these are felt the most by voters

Regional needs, regional targeting, and regional growth: an assessment of EU Cohesion Policy in UK regions

With the prospective exit of the UK from the European Union (EU), a crucial question is whether EU Structural Funds have been beneficial for the country and which aspects of Cohesion Policy should be maintained if EU funds are to be replaced. This paper addresses this question through a twofold investigation, assessing not only whether but also how EU funds have contributed to regional growth in the UK from 1994 to 2013. It documents a significant and robust effect of Cohesion Policy in the UK, with higher proportions of Structural Funds associated with higher economic growth both on the whole and particularly in the less developed regions of the country. In addition, it is shown that the strategic orientation of investments also plays a distinct role for regional growth. While concentration of investments on specific pillars seems to have no direct growth effects, unless regions can rely on pre-existing competitive advantages in key development areas, clear evidence is unveiled that targeting investments to specific areas of relative regional need has a significant and autonomous effect on growth. These findings have important implications for the design of regional policy interventions in Britain after Brexit

Organized Crime, Captured Politicians, and the Allocation of Public Resources

What is the impact of collusion between members of criminal organizations and politicians on local public finances, in contexts in which organized crime is well-rooted? This article addresses this question by focusing on local governments of Southern Italy, over the period 1998–2016. In order to capture the presence of organized crime, we exploit the enforcement of a national law allowing the dissolution of a municipal government upon evidence of collusion between elected officials and the mafia. We measure the consequences of this infiltration of mafia groups within local governments by using data on local public finances at the municipality level. Difference-in-differences estimates reveal that captured municipalities commit on average more resources for investments in construction and waste management and are less effective in collecting taxes for waste and garbage. This indicates that organized crime groups exploit the collusion with local politicians in order to distort the allocation of public resources toward key sectors of strategic interest for the criminal busines

The local impact of closing undersized schools

The availability of public education services can influence residential choices. Hence, policies aiming to ‘rationalise’ service provision by reducing the number of undersized nodes in the public school network can lead to population decline. This paper examines the demographic and income effects of primary school closures by exploiting an Italian education reform that resulted in a significant contraction of the school network. We assess whether school closures impact households’ residential choices, on top and beyond preexisting negative population trends that motivate school closures. To address endogeneity, we combine a Two-Way Fixed Effects model with an instrumental variable approach, constructing the IVs based on institutional thresholds for school sizing adopted by some Italian regions. Our findings suggest that municipalities affected by school closures experience significant reductions in population and income. The effect is driven by peripheral municipalities located far from economic centres and distant from the next available primary school. This evidence indicates that school ‘rationalisation policies’, by fostering depopulation of peripheral areas, have an influence on the spatial distribution of households and income, thus affecting territorial disparities

What drives employment growth and social inclusion in EU regions

The European Union promotes development strategies aimed at producing growth with “a strong emphasis on job creation and poverty reduction”. However, whether the economic conditions in place in EU regions are ideal for the generation of high- and low-skilled employment and labour market inclusion is unclear. This paper assesses how the key factors behind EU growth strategies – infrastructure, human capital, innovation, quality of government – condition employment generation and labour market exclusion in European regions. The findings indicate that the dynamics of employment and social exclusion vary depending on the conditions in place in a region. While higher innovation and education contribute to overall employment generation in some regional contexts, low-skilled employment grows the most in regions with a better quality of government. Regional public institutions, together with the endowment of human capital, emerge as the main factors for the reduction of labour market exclusion – particularly in the less developed regions – and the promotion of inclusive employment growth across Europe

Regional and local development in Europe: public policies, investment strategies, institutions

The development strategies being promoted in the EU – Europe 2020 and the 2014-2020 Cohesion Policy – aim to supersede the presumed incompatibility between efficiency and equity through a policy approach tailoring interventions to the key specificities of all territories, including the most disadvantaged. In this view, the socio-economic progress of lagging regions would help keeping under control any increase in inequalities potentially associated with the economic development process. However, the idea of promoting spatially-targeted interventions in economically backward areas has been conceptually questioned, and the effectiveness of the Cohesion Policy programme in poorer regions is yet to be convincingly proven. In the policy framework underpinning EU strategies, a key role is assigned to the quality of regional and local government institutions. Public institutions are conceived as instrumental for identifying and solving the bottlenecks inhibiting economic growth and perpetuating social exclusion in poorer places. Nevertheless, local governments may also be responsible for wastes and misallocations of financial resources. While theoretical contributions on the importance of government institutions for regional and local development abound, empirical evidence on their functioning is scarce. Through which mechanisms they influence the design and outcomes of public policies is unclear. Drawing from cross-country investigations and case-studies in the European context, the four quantitative studies composing this Thesis contribute to shed light on these related issues. Focusing on the United Kingdom, the first paper evaluates the economic and labour market impact of EU Cohesion Policy. Counterfactual analyses demonstrate that EU regional policies may have a beneficial impact on the labour market and growth path of peripheral regions. The study warns over possible negative repercussions of a discontinuation of EU financial support to poorer areas, a result of obvious relevance for the country after ‘Brexit’. By exploiting panel samples of EU regions, the second and third papers shed light on the role of government institutions for the returns of regional investments and for labour market and social conditions in Europe. The second paper examines the link between institutional quality, transport infrastructure investments, and economic growth. It shows that improvements in secondary (local) roads are conducive to a better economic performance only in presence of sound regional governments. The third paper investigates the extent to which the factors at the centre of European growth strategies – institutions, innovation, human capital and transport infrastructure – contribute to the generation of employment and to social inclusion in EU regions. The evidence produced suggests that regional government institutions have been essential to mitigate social exclusion issues in EU regions. The fourth paper focuses on Southern Italy to examine how public finances are distorted by ‘local governments captures’ operated by organised crime. Collusions between mafia and local politics have a significant impact on the selection of investments and on the collection of fiscal revenues. The local policy agenda is modified to the advantage of the interests of organised crime. Overall, the evidence emerging from this Thesis suggests that policy interventions have the potential to boost the economic and labour market performance of the less developed EU regions. However, any favourable policy outcome (both in terms of efficiency and equity) is conditioned by the competence and the goodwill of government institutions responsible for defining development targets and enforcing investment plans. When politicians are conditioned by illegal pressures from criminal groups, investment decisions follow special interests rather than general welfare goals. In turn, inadequate governance harms the economic impact of selected interventions. The results are particularly relevant for the lively debate, within economic geography, on the pre-conditions and policy measures enabling ‘smart and inclusive’ development at the sub-national level

Eurosceptic votes are less likely when EU interventions visibly boost local job markets

Anti-systemic political movements have emerged in recent years in a large number of countries across the globe. These parties generally fuel their public support with anti-elite and anti-establishment rhetoric, which in Europe often translates into a strong critique to the European Union and its institutions. The EU is regarded by the supporters of anti-system movements as distant from the real, day-to-day, economic challenges and as a binding constraint to the capacity of national governments to deliver a more equitable distribution of prosperity. The inability of mainstream politics – of which the EU is seen as a natural expression – to deliver timely and credible answers to the economic needs of large strata of the electorate has been linked to electoral behaviour by a growing body of research (e.g. Rodrik, 2018; Guiso et al., 2018). However, it remains unclear how the EU can practically make a difference to the economic prospects of millions of EU citizens and, through its visible impact, influence their electoral preferences

Knowledge economy, internal migration, and the effect on local labour markets

Knowledge-intensive activities may generate significant multiplicative effects at the local level. In particular, inflows of workers in knowledge-related sectors may contribute to make local labour markets more attractive for other kind of workers as well. This paper assesses how the employment growth and inflow of workers in knowledge-intensive sectors affect wage, employment, and probability of outmigration of local workers in other sectors. We focus on Italy during the 2005-2019 period, taking advantage of matched employer-employee social-security data, which allows to track workers’ histories across jobs and locations. To address the identification concerns of sorting and idiosyncratic shocks, we implement a two-step procedure combined with a shift-share IV strategy. We separately identify the contribution of sorting and spillovers to labour market outcomes. Our results suggest that the employment growth and inflow of workers in knowledge-intensive sectors have multiplicative effects on employment, increasing the number of days worked by local workers, and they also seem to reduce the probability of outmigration. Nominal wages of localworkers seem unaffected, while house prices increase producing a negative effect on local real wages