EU funds and TFP growth: how the impact changed over time and space

The European Union’s (EU) Cohesion Policy aims to reduce regional disparities through the European Structural and Investment Funds (ESIFs). While previous research has documented the positive effects of ESIFs on GDP growth, the role of regional capital accumulation in the growth process remains underexplored. To address this gap, the present study investigates the impact of ESIFs on regional performance by focusing on total factor productivity (TFP) growth as the outcome variable. TFP is computed by accounting for the highly heterogeneous patterns of capital accumulation across 262 NUTS2 regions over the period 2000–2019. Using annualised regional expenditure data, we assess the influence of fund allocation independently of EU programming periods. Our empirical strategy accounts for temporal heterogeneity by distinguishing three distinct phases: pre-crisis (2000–2008), crisis (2008–2014) and recovery (2014–2019). It also considers spatial heterogeneity by classifying regions according to their level of economic development. Furthermore, we disentangle the effects of the main funds—namely, the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund (CF), and the European Agricultural Fund for Rural Development (EAFRD). The results indicate that ERDF is positively associated with regional TFP, particularly during the 2014–2019 period, contributing to the reduction of productivity gaps between Eastern and more advanced regions. EAFRD enhances agricultural TFP growth, although primarily in regions that already exhibit high productivity levels. The remaining funds do not show statistically significant effects. These findings underline the importance of accounting for investment heterogeneity when evaluating the effectiveness of ESIFs and contribute to the broader policy debate on regional development strategies within the EU.