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EU support funds: "subsidy hopping" or sensible investment promotion - is more transparency needed?

Author

Listed:
  • Christa Thoben
  • Hartmut Schauerte
  • Markus Pieper
  • Christoph M. Schmidt

Abstract

Nokia's decision to close its plant in Bochum caused public indignation in Germany and raises the question of the pros and cons of subsidies for private enterprises. Is investment promotion in the form of public subsidies a sensible regional location policy or does it encorage subsidy hopping? Christa Thoben, Economics, SME and Energy Minister of North-Rhine Westphalia points out a fundamental dilemma: On the whole, the aim of binding companies to a region in the long term is not achieved and often firms are encouraged to subsidy hop. Hartmut Schauerte, parliamentary undersecretary at the Federal Ministry for Economics and Technology, looks at the payments that Deutschland receives from the EU Structural Funds: "In the current support period 2007-2013, approximately €26.3 billion will flow to Germany from the EU Structural Funds." The European Commission also affirmed that Nokia received no EU Structural Funds. A "subsidy race" in which one region attempts to outdo the other by offering even better investment conditions is not the intention of EU Cohesion Policies. Markus Pieper, member of the European Parliament, underlines the need for transparency. Unfortunately, because of the very general documentation that member states must provide, the success of subsidies is difficult to monitor. Christoph M. Schmidt, RWI economic research institute in Essen, stresses that there are other, less cost-intensive and more sophisticated ways to encourage firms to locate in a region than direct promotion. For example, many firms have the need to have concrete and approachable contacts in the corresponding ministries. Also very promising is investment in the development of a qualitatively high-level educational and research infrastructure.

Suggested Citation

  • Christa Thoben & Hartmut Schauerte & Markus Pieper & Christoph M. Schmidt, 2008. "EU support funds: "subsidy hopping" or sensible investment promotion - is more transparency needed?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 61(05), pages 03-15, March.
    • Handle: RePEc:ces:ifosdt:v:61:y:2008:i:05:p:03-15
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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