Does EU cohesion policy work? Theory and evidence

This paper evaluates the effectiveness of European Cohesion Policy in the regions of 12 EU countries in the period 1991-2008, on the basis of a spatial growth model, which allows for the identification of both direct and indirect effects of EU funds on GDP per worker growth. We find that Objective 1 funds are characterized by strong spatial externalities and a positive and concave effect on the growth of GDP per worker, which reaches a peak at the ratio funds/GDP of approximately 3 percent and becomes non-significant after 4 percent. Objective 2 and Cohesion funds have nonsignificant effects, while all the other funds exert a positive and significant effect, but their size is very limited. EU Cohesion Policy, moreover, appears to have increased its effectiveness over time. In the period 2000-2006 Objective 1 funds are estimated to have a median multiplier equal to 1.52, and to have added 0.37 percent to the GDP per worker growth. Overall, in the period 1991-2008, funds are estimated to have added 1.4 percent to the median annual growth, and to have reduced regional disparities of 8 basis points in terms of the Gini index.