EU structural funds and GDP per capita: spatial VAR evidence for the European regions

This paper focuses on the impact of EU structural funds (SFs) on the GDP per capita of 183 European NUTS2 regions from 1990 to 2016. To allow for the endogeneity of funds allocation to regions, we estimate a bivariate structural panel VAR model, controlling for unobserved heterogeneity through a broad array of deterministic variables. Our main identifying restriction is rooted in the widely documented long lags affecting the implementation of the EU’s Cohesion Policy. Through a spatial VAR specification, we also estimate spillovers from local SF expenditure on other areas. We find significant multipliers measuring the local response of GDP to an exogenous shock in local SF expenditure, with a long-run value settling at 2.6. Spillovers for GDP from an exogenous shock to SFs are also positive and significant, but much smaller (about one fifth of within-region responses). When partitioning our sample according to features suggested by the literature (stage of development, EU funding regimes, size), we find that within-region multipliers are higher in lagging regions, especially in recipient countries of the Cohesion Fund, and in regions with a larger population. Spillovers are also heterogeneous across different groups of regions, turning out to be negative in regions in countries that are not recipients of the Cohesion Fund. All this evidence is validated in qualitative terms by robustness checks on model specification and the choice of spatial weights.