Econometric assessments of Cohesion Policy growth effects: How to make them more relevant for policy makers?

Summary:

In recent years, a number of papers have made use of econometric approaches to address the impact of Cohesion Policy funds on economic growth and convergence. The purpose of this paper is to assess the relevance of these studies from the policy makers’ perspective. Most of the analysed studies are based on a neoclassical growth model, which in many cases has been enriched substantially. In particular, spatial econometric methods have been used to capture spillover effects between regions; and progress has been made with regard to endogeneity of variables. In addition, new econometric methods such as regression discontinuity design provide strong evidence of the impact of Cohesion Policy funds. In spite of this progress, some remaining weaknesses reduce the relevance of econometric studies for policy analysis. In particular, only a number of studies use good quality data on Cohesion Policy transfers, while the other studies use a dummy variable instead of actual payments. The parameters of spatial dependence are still very simple in comparison to the complex flows between regions. Some important variables, such as national policies or quality of governance, are largely excluded from the regressions. Finally, the conclusions for Cohesion Policy drawn by these studies are not well developed and sometimes contradictory between the studies. The paper concludes with some suggestions for econometric research in the coming years, as the European Commission will release a new set of Cohesion Policy transfer data in 2015.

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