EU Structural Funds: Do They Generate More Growth?

Key points in this Briefing Paper:

•The European Union's budget negotiations are a constant source of disagreement. Spending on the Regional Policy makes up more than one-third of the budget and has the primary aim of fostering convergence between poor and rich regions within the EU.

•To assess the effectiveness of the Regional Policy, a focus on the Convergence Objective is instructive as it provides transfers to disadvantaged regions of member states and these are assigned by a clearly defined rule: NUTS2 regions, whose GDP per capita is less than 75% of the EU average, are eligible.

•The Objective 1 programme, on average, is successful at fostering growth in recipient regions, but there is considerable variation. Regions with low levels of education and poor governance fail to make good use of EU transfers, pointing to the need for a degree of conditionality when earmarking future transfers.

•For EU Structural Funds as a whole, more funds do not mean more growth. A point is reached where returns begin to decline and additional funds do not lead to higher growth, transfers to regions should not therefore exceed maximum desirable levels if inefficiency and misuse are to be avoided.