Assessing the impact of the EU’s Recovery and Resilience Facility on institutional quality: a Bayesian synthetic control approach

The Recovery and Resilience Facility (RRF), launched in 2021, aims to promote long-term economic growth in EU Member States by incentivising structural reforms and investments. This paper explores a related supply-side transmission mechanism: improvements in institutional quality, as measured by the Worldwide Governance Indicators. Using a Bayesian synthetic control model and data up to 2024, we find robust and economically meaningful RRF-induced improvements in institutional quality in Italy. For other main RRF beneficiary countries, the evidence of such an effect ranges from suggestive to limited. We show that this cross-country variation is broadly consistent with the implementation of the national Recovery and Resilience Plans in terms of implementation speed and reform mix. While it is too early to draw firm policy conclusions, the findings lend support to the view that conditional, reform-linked financing instruments of the RRF type can improve institutional quality and, thereby, long-term growth prospects – provided that the reforms are well designed and effectively implemented. JEL Classification: C11, E02, E65, O43