Regionale Entwicklung, Entwicklungskonvergenz, Wirtschaftspolitische Wirkungsanalyse, EU-Staaten, Regional development, Economic convergence, Economic policy analysis, EU countries

Nicola De Michelis

English

Research Papers in Economics

REGIONAL CONVERGENCE:
A RELEVANT MEASURE OF
POLICY SUCCESS?
NICOLA DE MICHELIS*
European cohesion policy is governed by Articles 2
and 4, and Title XVII of the Treaty establishing the
European Community. In particular, Article 158
determines that the Community “shall aim at reduc-
ing disparities between the levels of development of
the various regions and the backwardness of the
least favoured regions or islands, including rural
areas”. Article 160 further adds that the “European
Regional Development Fund is intended to help
redress the main regional imbalances in the
Community through participation in the develop-
ment and structural adjustment of regions whose
development is lagging behind and in the conversion
of declining industrial regions”.
The draft Treaty which is currently being ratified by
Member States does not fundamentally change
these provisions, though by introducing the notion
of territorial cohesion it opens up potentially new,
important dimensions to the understanding and
implementation of European cohesion policy. This
is why the European Commission intends to pub-
lish in autumn 2008 a Green Paper on territorial
cohesion.
An important question is, therefore, how to measure
the effectiveness of European cohesion policy in ful-
filling the objectives set down in the Treaty.Since the
inception of the policy in the late 1980s,convergence
of regional GDP has been the key measure to deter-
mine its success.A large body of literature has devel-
oped since then to assess whether regional conver-
gence has occurred. Although regional disparities
have shown a tendency to gradually decrease over
the long run, the process of convergence among
European regions has slowed down considerably in
recent decades despite the fact that important
growth differentials still characterize the European
landscape somewhat undermining certain tenets of
neoclassical theories.
Certain strands of the economic literature underline
the positive effects of European cohesion policy on
regional growth and convergence. For example, a
recent paper by Puigcerver-Peñalver (2007) esti-
mates a hybrid growth model which allows for
endogenous and exogenous factors of growth over
the period 1989 to 2000 for 41 Objective 1 regions.
Apart from finding convergence,she also finds a sig-
nificant and positive impact of Structural Funds,
which, however, was stronger in the programming
period 1989 to 1993 than in the period 1994 to 2000.
Successive reports on economic and social cohesion
have also attempted to estimate the degree of
regional convergence. By comparing the top and
bottom quintiles of NUTS2 regions,the report shows
that the ratio of the average level in the top regions
to that in the bottom regions has declined from 4.1 to
3.4 between 1995 and 2004 (European Commission
2007). Previous work by Leonardi (2006) shows that
beta convergence is positive in all the studies which
have presented comparative analyses of beta and
sigma convergence.
Other studies, however, provide a more mixed pic-
ture suggesting that there is not a unique develop-
ment path. Depending on the characteristics of the
regions, the development trajectories differ due to
different capacities to catch up and to take up tech-
nological opportunities. For example, Cappelen et
al. (2002) investigate the long-term effects of
Structural Funds on growth at the regional level
over the period 1980 to 1997 and found evidence
that the effect differs according to different types of
regions.While in general EU regional support has a
significant and positive impact on the growth per-
formance of EU regions, the effect is much stronger
in more developed environments. They highlight
that for less-favoured European regions, the
unfavourable industrial structure, which is dominat-
ed by agriculture and the lack of R&D capabilities,
CESifo Forum 1/2008 10
Focus
* Directorate General for Regional Policy at the European
Commission. Views expressed in this article are the sole responsi-
bility of the author and do not necessarily correspond to those of
the European Commission.CESifo Forum 1/2008 11
Focus
may hamper growth. They conclude that in these
regions the support needs to be accompanied by
policies improving the competence of the receiving
environments (for instance by facilitating structural
change and increase R&D capabilities in poorer
regions). A related investigation is taken up by
Dall’erba (2003) who studies the relationship
between the spatial distribution of regional income
and of regional development funds over 1989-99
using an exploratory spatial data analysis. Results
show global and local spatial autocorrelation in the
distribution of regional per capita incomes, reflect-
ing the fact that rich (poor) regions tend to be clus-
tered close to other rich (poor) regions, and in the
distribution of regional growth rate and regional
funds. The analysis also reveals a negative correla-
tion between growth and initial income,which tends
to indicate beta convergence.A positive relationship
between regional growth and European cohesion
policy is also identified in this work, though it clear-
ly emerges that the funds are not the only variable
to control for the various growth rates among
European regions. A closer look at the economic
structure, the accessibility, the institutional aspects
of each region as well as the type of projects that
Structural Funds finance in these regions and their
neighbouring regions could help explain why these
regions display greater/smaller development
progress than their neighbours even if they receive
similar amounts of structural funds.
Finally, other economists argue that it is unclear
whether European cohesion policy by itself accounts
for the bulk or only a minor part of the growth pro-
duced. For example, Santos (2008) finds a weak link
between Structural Funds and growth and maintains
that European cohesion policy is pursing conflicting
objectives by allocating resources to regions where
returns on capital are less productive.
In conclusion,it may be argued that – while research
on regional convergence and on the role of Euro-
pean cohesion policy in explaining it should contin-
ue to improve its analytical tool kit – so far the
results remain inconclusive.
One may ask, therefore, whether regional conver-
gence is the most relevant measure of success of
European cohesion policy. There are few reasons to
actually consider that it is not,at least if taken in iso-
lation.
First of all, there are problems of a technical nature
which are linked to issues of relevance, responsibili-
ty and measurability. One of the lessons which can
be drawn from the literature is that it is very difficult,
if not altogether impossible, to isolate the effects of
European cohesion policy from other factors that
interfere with the operation of the policy: adminis-
trative capacities;macro-economic framework;func-
tioning of labour and financial markets;and “institu-
tional thickness”. Moreover, one of the most over-
looked dimensions of the debate on the effectiveness
of European cohesion policy is its interaction and
coordination with other public investment policies at
national and regional levels.For example,it has been
shown (European Commission 2007) that compared
to the initial distribution proposed by the European
Commission, Member States operate significant
adjustments in the allocation of financial resources
between sectoral and regional programmes, and
among regional programmes.While this is a result of
the multi-level governance system of European
cohesion policy,it obviously has effects on the devel-
opment perspectives of regions. And this without
considering national investment decisions other than
those linked to European cohesion policy. For the
period 2007 to 2013,there is only one country – Italy
– that has presented to the European Commission a
national strategic reference framework which con-
solidated in one single, coherent document the
entirety of the investment in support of regional
development.
In any case, even if it were possible to isolate the
effects of European cohesion policy, it would
remain extremely difficult to establish a causal link
between the policy instrument and changes in
macro-economic variables.This is why,for example,
during the negotiations of the legislative frame-
work for European cohesion policy for the period
2007 to 2013, the large majority of Member States
refused to accept the performance mechanism pro-
posed by the European Commission (the so-called
performance reserve) linked to the improvement of
GDP growth. This reflects a typical problem of
responsibility, where the achievement of a given
objective depends on several agents (public and
private) and policies, making it impossible to bind
agents to the target.
Finally, the recent literature on the empirics of
growth focuses on the variables which are impor-
tant determinants of growth in a variety of differ-
ent models. A first difficulty is linked to the fact
that, given the open-ended nature of growth theo-
ries which are not mutually exclusive or even com-patible to each other, choosing a particular model
implies a rather strong imposition of prior informa-
tion. And these priors are often very different
depending on whether they are linked to research
or to policy-making. A second difficulty which ex-
plains some of the scepticism and mistrust to
growth regressions is related to the potential
collinearities of regressors which might affect the
results, to potential parameter heterogeneity which
might seriously affect the results of growth regres-
sions, and to the potential endogeneity of the vari-
ables included in a regression and the difficulty in
finding proper instruments to tackle this problem.
Several studies using different statistical tech-
niques showed, for example, that the assumption of
parameter homogeneity is incorrect in most cases
(see Durlauf and Johnson 1995; Desdoigts 1999;
Pritchett 2000).
There is, however, a second group of reasons of
more of a policy nature which argue for re-think-
ing the way in which policy impact and effective-
ness is measured. Measuring the effect of
European cohesion policy by exclusively looking
at regional GDP convergence means in fact look-
ing at one dimension – albeit important – of the
rationale of the policy.
European cohesion policy has historically addressed,
in a more or less explicit way, three main objectives:
• Promoting European legitimacy, by enhancing
rights and opportunities throughout the Union,
• Improving competitiveness, by reducing in all ter-
ritories the underutilization of resources, and
• Increasing equity, by improving citizens’ capabili-
ties according to the features of their territorial
context.
The policy has done so, by using three separate
“modes” of operation:
• Compelling Member States to implement
“regional policies”, or, more generally, public
capital spending, according to common EU
principles;
• Setting conditionality rules coherent with turning
regional policy into a “new paradigm” as devel-
oped by the discussion within the OECD on ter-
ritorial policies (roughly defined as a policy which
has evolved from subsidies compensating disad-
vantage to investment supporting regional oppor-
tunities; from sectoral approaches to multi-sec-
toral place-based approaches; from a dominant
role of certain levels of government to a multi-
level governance approach involving coordina-
tion of national, regional and local governments
and other stakeholders); and
• Redistributing resources across Member States to
be put at the disposal of “regional policy” or,
more generally, capital public spending.
By concentrating on growth of regional GDP, the
debate has de facto limited the analysis of European
cohesion policy to its equity objective and its redis-
tributive instruments. Excessive reliance on macro-
analysis where causation cannot be proved and
where counterfactuals are not developed have pre-
vented the debate on European cohesion policy both
from learning about its results, from discriminating
between good and bad actions, and from identifying
the elements of the policy which need genuine
improvement.
Subsequent evaluations have shown that European
cohesion policy has contributed to improve the
standard of living and economic opportunities in
regions, by supporting institutional convergence
and administrative modernisation; by improving
accessibility to and from the regions;by establishing
linkages between research institutions, universities
and the business community; by improving skills
and employability; by providing advanced services
to small and medium-sized businesses. In other
words, European cohesion policy has adhered to
the mandate set in primary EU law to redress terri-
torial imbalances and improve regional develop-
ment perspectives rather than compensating for
disadvantage.
This pleads for a serious re-consideration of the
instruments needed to correctly assess the impact of
European cohesion policy with a view to comple-
ment and enrich the still much needed analysis of
macro-trends.Meso- and micro-level indicators need
to be developed and tested that are verifiable, mea-
surable and directly linked to the interventions co-
financed by European cohesion policy, while recog-
nising that success is context dependent.
Advancing on this front would also open up inter-
esting possibilities to address one of the most diffi-
cult criticisms addressed at the policy and well cap-
tured by the recent report of the OECD on the
European Union (OECD 2007): how to make the
policy more performance-based? As long as the
CESifo Forum 1/2008 12
FocusCESifo Forum 1/2008 13
Focus
effectiveness of European cohesion policy is only
assessed on the basis of regional GDP performance,
it will be extremely difficult to introduce condition-
ality and incentive mechanisms which would make
all the actors involved responsible and accountable
for its success.
References
Cappelen,A. et al. (2002),“The Impact of EU Regional Support on
Growth and Convergence in the European Union”, Journal of
Common Market Studies 41, 621–644.
Dall’erba,S.(2003),“Distribution of Regional Income and Regional
Funds in Europe 1989-1999: An Exploratory Spatial Data
Analysis”, The Annals of Regional Science 39, 121–148.
Desdoigts,A. (1999),“Patterns of Economic Development and the
Formation of Clubs”, Journal of Economic Growth 4, 305–330.
Durlauf, S. and P. Johnson (1995), “Multiple Regimes and Cross-
Country Growth Behaviour”, Journal of Applied Econometrics 10,
365–384.
European Commission (2007), Growing Regions, Growing Europe,
Fourth Report on Economic and Social Cohesion, Brussels:
European Commission.
Leonardi, R. (2005), “The Impact and Added Value of Cohesion
Policy”, Regional Studies 40, 155–166.
OECD (2007), OECD Economic Surveys: European Union, Paris.
Pritchett, L. (2000), Patterns of Economic Growth: Hills, Plateaus,
Mountains and Plains, Washington DC:World Bank.
Puigcerver-Peñalver,M.-C.(2007),“The Impact of Structural Funds
Policy on European Regions’ Growth:A Theoretical and Empirical
Approach”, The European Journal of Comparative Economics 4,
179–208.
Santos, I. (2008), Is Structural Spending on Solid Foundations?,
Bruegel Policy Brief 2008/02, Brussels: Bruegel.

(2002),“The Impact of EU Regional Support on Growth and Convergence in the European Union”,

Dall’erba,S.(2003),“Distribution of Regional Income and Regional Funds in Europe 1989-1999: An Exploratory Spatial Data Analysis”,

Growing Regions, Growing Europe, Fourth Report on Economic and Social Cohesion, Brussels: European Commission.

Is Structural Spending on Solid Foundations?, Bruegel Policy Brief 2008/02,

Multiple Regimes and CrossCountry Growth Behaviour”,

OECD Economic Surveys: European

of Economic Development and the Formation of Clubs”,

Patterns of Economic Growth: Hills, Plateaus, Mountains and Plains,

Puigcerver-Peñalver,M.-C.(2007),“The Impact of Structural Funds Policy on European Regions’ Growth:A Theoretical and Empirical Approach”,

The Impact and Added Value of Cohesion Policy”,

Regional convergence: A relevant measure of policy success?

http://www.cesifo-group.de/portal/page/portal/DocBase_Content/ZS/ZS-CESifo_Forum/zs-for-2008/zs-for-2008-1/forum1-08-focus2.pdf

Regional convergence: A relevant measure of policy success?

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