The Impact of regional support on growth and convergence in the European Union

Abstract

The tendency towards regional convergence that characterised most of the member states of the European Union from the 1950s onwards came to an end around 1980. To the extent that there has been any tendency towards convergence since then, it has been at the country level, related to the catch up by the relatively poor Southern countries that joined the EU during the 1980s. Within countries, however, there has at best been a standstill. A particularly challenging question is to what extent regional support from the EU , designed to help catch-up by relatively poor regions, has had a real impact on this situation. The EU Structural Funds were reformed in 1989. The objective was to make the funds more effective in reducing the gap between advanced and less-advanced regions and strengthening economic and social cohesion in the European Community. Since 1989 the financial resources allocated to these funds have doubled in real terms. The evidence presented in this paper suggests that this reform may have succeeded in improving EU regional policy so that it becomes more effective in its aim, to generate growth in poorer regions and contribute to greater equality in productivity and income in Europe. However it needs to be emphasised that there also are diverging factors at play. For instance, the estimates obtained for the empirical growth model used in this paper suggest that growth in poorer regions is greatly hampered by an unfavourable industrial structure (dominated by agriculture) and lack of R&D. Hence, to get the maximum out of the support, this needs to be accompanied by policies that facilitate structural change and increase R&D capabilities in poorer regions. Such policies must necessarily be of a long-term nature.