Although the EU is growing ever closer as a single economic entity, the difference in wealth and economic power among its member nations – from Germany and France to Romania and Bulgaria – is still enormous. This is despite the European Union’s continuous efforts to reduce welfare differences between its member states since its foundation in 1958: The long-term objective of the EU is a convergence of income and GDP per capita levels within the entire Union. This policy is known as European cohesion policy, which nowadays accounts for more than one third of the EU’s total budget.
The vast financial importance of the cohesion policy naturally begs two questions: Are structural funds effective in promoting economic growth? And if so, do they promote income and welfare convergence within the EU? Yet most studies so far have merely yielded fragmented results, as they only focus on single EU member states, or consist of data for short time periods.
In contrast, this study captures long-term effects of structural funds in the recent past and delivers accurate and meaningful empirical results. It focuses on data for the European Regional Development Fund since this is the most important item of cohesion policy which financially supports projects that aim to foster convergence directly.
In this book:
- European cohesion policy;
- structural funds;
- European Regional Development Fund;
- economic convergence;
- Solow-Model;
- growth theory
Table of Contents
4 Introduction
5 European Cohesion Policy – Policy Background
5.1 The Evolution of Cohesion Policy and the ERDF
5.2 The Practice
6 European Cohesion Policy in the Light of Current Literature
6.1 Neoclassical Growth Theory
6.2 Endogenous Growth Theory
6.3 Further Theoretical Approaches
6.4 Evaluation Literature
7 Empirics
7.1 The Effectiveness of Structural Funds
7.2 ERDF Support and Convergence
7.3 Policy Implications
8 Conclusion
Research Objectives & Key Themes
This study investigates the effectiveness of the European Regional Development Fund (ERDF) in promoting economic growth and income convergence within the European Union by utilizing an extended neoclassical Solow-model and panel data covering the years 1961–2015.
- Evaluation of the long-term impact of ERDF support on GDP per capita growth.
- Analysis of how the institutional environment (e.g., corruption, openness, quality of institutions) conditions the effectiveness of structural funds.
- Examination of whether European cohesion policy successfully fosters income convergence among member states.
- Comparison of findings with established literature, including the approach by Ederveen et al. (2006).
- Assessment of the role of rent-seeking and moral hazard in diluting policy effectiveness.
Excerpt from the Book
3.1 Neoclassical Growth Theory
The neoclassical growth theory still is of considerable importance today. Its basis lies in the Solow-model (Solow, 1956) that is built on two major equations: the production function with constant returns to scale but a diminishing marginal product of each input and the capital accumulation function. The Solow-model explains economic growth as a process of capital accumulation towards an equilibrium of investment and depreciation with an increasing capital stock resulting from higher savings per period. The following simple algebraic derivation illustrates the mechanisms of the rudimentary Solow-model with technical progress to give a first impression on how neoclassical growth theory might interact with increasing public investments from cohesion policy.
An economy is in a steady state when the per capita capital stock is such that the capital-output ration remains constant. The exogenous variables of the model – the savings rate, population growth rate or the depreciation rate- do not determine the long-run growth rate of per capita income, but the level of the steady state (Ray et al., 1998, p.69). Figure 1 illustrates this pattern. The intersection of sy(t) and δk defines the steady state levels of output yA^SS and capital per worker kA^SS. The model makes an essential statement when returning to the topic of structural funds. An increase in public investment can be seen as an increase in the model’s savings rate to a higher level s' shifting the steady state levels of output yA^SS and capital stock kA^SS upwards.
Summary of Chapters
4 Introduction: The introduction outlines the research motivation regarding the effectiveness of European cohesion policy and presents the core objective of evaluating whether structural funds promote growth and convergence using a long-term data panel.
5 European Cohesion Policy – Policy Background: This chapter details the historical evolution and practical implementation of the ERDF, highlighting its role as the most significant financial program within the European cohesion policy.
6 European Cohesion Policy in the Light of Current Literature: This section reviews relevant growth theories—including neoclassical and endogenous approaches—and evaluates existing literature on the empirical outcomes of structural funds.
7 Empirics: This chapter presents the core empirical analysis, using an augmented Solow-model to estimate the conditional effectiveness of ERDF support across member states and discussing policy implications for future institutional reforms.
8 Conclusion: The conclusion synthesizes the findings, noting that while cohesion policy has potential, its effectiveness is largely conditional on a favorable institutional environment in recipient countries.
Keywords
European Cohesion Policy, ERDF, Solow-model, economic growth, conditional convergence, institutional quality, corruption, structural funds, regional development, EU enlargement, rent-seeking, institutional framework, panel data analysis.
Frequently Asked Questions
What is the core focus of this research?
The research examines the effectiveness of European cohesion policy, specifically the ERDF, in fostering economic growth and reducing income disparities between EU member states.
Which theoretical framework is applied?
The work utilizes an extended neoclassical Solow-model, augmented to include human capital and institutional variables, to analyze growth dynamics.
What is the main research question?
The study asks whether structural funds are effective in promoting growth in GDP per capita and whether they successfully foster income and welfare convergence within the EU.
How is the effectiveness of structural funds measured?
The author uses panel data regressions across 13 EU member states from 1961 to 2015 to estimate implied semi-elasticities of growth in response to structural fund allocations.
What role does the institutional environment play?
The study finds that the effectiveness of structural funds is conditional; countries with good institutional quality, lower corruption, and high openness benefit, while those with poor institutional environments do not.
Which findings distinguish this study from previous research?
By using a significantly longer time span (up to 2015), the research captures long-term impacts of the late 1990s budget expansions and provides more precise analysis regarding post-socialist new member states.
Why are structural funds sometimes perceived as "harmful"?
The empirical results suggest that in countries with poor institutional quality, structural funds may foster rent-seeking or moral hazard, which can negatively impact growth instead of promoting it.
Does the ERDF promote convergence between member states?
The study concludes that the policy target is often missed; since richer countries also attract funds and poorer countries often face structural inefficiencies, the welfare gap is frequently widened rather than closed.
- Arbeit zitieren
- Thomas Craemer (Autor:in), 2017, The European Cohesion Policy and European Regional Development Fund. Conditional Effectiveness and Convergence in the Solow-Model, München, GRIN Verlag, https://www.grin.com/document/379200
