Regional Policies and Economic Growth in the EU

The expression ‘structural and regional policy’ denotes, in the parlance of the European Union, industrial, fiscal, and labour policies aimed at supporting economic activity either in a territorial area or an economic sector deemed to be in need of public assistance. In the language of economics, structural and regional policies (I use the two terms as synonymous from now on), are transfers to a subset of protected firms and workers, aimed at either reducing their costs (often, the cost of capital) or supplementing their market revenues. Structural policies have been the hallmark of the European Union since its inception in the 1950s as a customs union for coal and steel. Indeed, during its fifty years of history, the EU has characterized itself for this double-edged approach: eliminating trade restrictions and other barriers to the free movement of labour and capital within the Union, while at the same time increasing its intervention in almost every sector of economic activity. In this chapter I look at both the theoretical underpinnings and the practical outcomes of the structural policies, as they have been implemented in the EU since the middle 1970s. I argue two points. First, that the empirical support for the class of economic models implying such policies is, to say the least, weak; in fact, most of the evidence of which I am aware argues against such models. Secondly, that in the data there is no detectable positive impact of EU subsidies on economic growth at the regional level; in fact, the evidence suggests that these policies may even be detrimental to the long-run development of the recipient regions.