Achieving convergence within the European Union: The role of Structural Funds in the case of Greece

Abstract:

In the context of the European Union (EU) the process of real convergence is viewed as a prerequisite for economic and social cohesion and particular weight has been put on remedying structural deficiencies in less developed countries, such as Greece. The basic policy instrument for achieving cohesion within the EU is the inflow of Structural Funds, which aim at increasing the physical and human capital of each country. In the case of Greece, the aim of Structural Funds is to gear the economy onto a sustainable development course and, thus, enhance real convergence with other European economies. To capture the impact of Structural Funds’ inflows on the Greek economy, we assume that they operate in two parallel ways: first, they cause a rise in total demand, through domestic expenditure and personal income; second, in domestic supply by inducing a number of productivity externalities. The estimates show that Structural Funds can be of crucial importance for achieving real convergence with the rest of the European countries, while the magnitude of their effects depends on the size of assumed supply‐side externalities.