IMPACT OF STRUCTURAL FUNDS ON REGIONAL GROWTH: HOW TO RECONSIDER A 9 YEAR-OLD BLACK BOX

Abstract

Econometric estimations of the impact of structural funds on the growth process of the European regions started 9 years ago. However, it is striking to realize that all previous estimations in this field are based on some form of the neoclassical growth model. This model is still widely used despite the numerous critics it has raised and its lack of consideration for increasing returns to scale, which are at the heart of agglomeration and growth processes according to endogenous growth theories and new economic geography models. In addition, few estimations have paid attention to the nature of the cohesion objectives under study. For example, the expected impact of objec-tive 1 funds, devoted to public infrastructures, is indeed theoretically and empirically very different from the one of objective 3 funds devoted to long-term unemployed. As a result, the aim of this paper is to propose a careful assessment of the impact of structural funds on the manufacturing sector of 145 European regions in the context of a Verdoorn’s law for the period 1989-2004. First, the results are presented with total structural funds and funds differen-tiated by objective. Second, interregional linkages are included by means of spatial econometric techniques. Third, potential endogeneity of the explanatory variables is taken into account.GROWTH, REGIONAL POLICY, INCREASING RETURNS, EUROPE, SPATIAL ECONOMETRICS