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Quality of Government and the Returns of Investment: Examining the Impact of Cohesion Expenditure in European Regions

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  • Andrés Rodriguez-Pose

    (London School of Economics)

  • Enrique Garcilazo

    (OECD)

Abstract

This paper sets out to examine the impact of the quality of local and regional governments on the returns of investment, focusing on the returns of EU structural and cohesion funds. Despite the widespread belief that the quality of government affects the returns of public investments, whether this is effectively the case has seldom been proved. Using primary data on quality of government collected by the Quality of Government Institute, combined with World Bank Global Governance Indicators data, we conduct a two-way fixed effect panel regression model for a total of 169 in European regions during the period 1996 to 2007. The results of the analysis underline the importance of the quality of government both as a direct determinant of economic growth, as well as a moderator of the efficiency of structural and cohesion funds expenditure. Our analysis finds that both EU investments targeting regions and quality of government make a difference for regional economic growth, but that above a significant threshold level of expenditure, the quality of government is the key factor determining the returns of public investment. In many of the regions receiving the bulk of structural funds, greater levels of cohesion expenditure would, in the best case scenario, only lead to a marginal improvement in economic growth, unless the quality of government is significantly enhanced.

Suggested Citation

  • Andrés Rodriguez-Pose & Enrique Garcilazo, 2013. "Quality of Government and the Returns of Investment: Examining the Impact of Cohesion Expenditure in European Regions," OECD Regional Development Working Papers 2013/12, OECD Publishing.
  • Handle: RePEc:oec:govaab:2013/12-en
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    File URL: http://dx.doi.org/10.1787/5k43n1zv02g0-en
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    Cited by:

    1. Andreas P. Kyriacou & Leonel Muinelo-Gallo & Oriol Roca-Sagalés, 2018. "The efficiency of transport infrastructure investment and the role of institutions: an empirical analysis," Working Papers. Collection B: Regional and sectoral economics 1802, Universidade de Vigo, GEN - Governance and Economics research Network.
    2. Di Cataldo, Marco & Rodríguez-Pose, Andrés, 2016. "What drives employment growth and social inclusion in EU regions," LSE Research Online Documents on Economics 68510, London School of Economics and Political Science, LSE Library.
    3. Hassink, Robert & Gong, Huiwen, 2017. "Sketching the Contours of an Integrative Paradigm of Economic Geography," Papers in Innovation Studies 2017/12, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
    4. Cataldo Ferrarese & Guido Nannariello, 2016. "Fondi strutturali: un’analisi della concentrazione degli interventi su base regionale," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2016(1), pages 57-76.
    5. Álvaro Pina, 2016. "Making public finances more growth and equity-friendly in the euro area," OECD Economics Department Working Papers 1316, OECD Publishing.
    6. Andrés Rodríguez-Pose & Tobias Ketterer, 2018. "Institutional change and the development of lagging regions in Europe," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1806, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    7. repec:ces:ifofor:v:19:y:2018:i:1:p:10-15 is not listed on IDEAS
    8. Tobias D. Ketterer & Andrés Rodríguez‐Pose, 2018. "Institutions vs. ‘first‐nature’ geography: What drives economic growth in Europe's regions?," Papers in Regional Science, Wiley Blackwell, vol. 97(S1), pages 25-62, March.
    9. repec:gam:jsusta:v:9:y:2017:i:8:p:1432-:d:108228 is not listed on IDEAS
    10. Nicola Matteucci, 2015. "Il divario digitale infrastrutturale delle Marche," PRISMA Economia - Società - Lavoro, FrancoAngeli Editore, vol. 2015(1), pages 98-121.
    11. Nicholas Charron & Lewis Dijkstra & Victor Lapuente, 2015. "Mapping the Regional Divide in Europe: A Measure for Assessing Quality of Government in 206 European Regions," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 122(2), pages 315-346, June.
    12. Marco Di Cataldo, 2016. "Gaining and losing EU Objective 1 funds: Regional development in Britain and the prospect of Brexit," LEQS – LSE 'Europe in Question' Discussion Paper Series 120, European Institute, LSE.
    13. Cerqua, Augusto & Pellegrini, Guido, 2018. "Local policy effects at a time of economic crisis," MPRA Paper 85621, University Library of Munich, Germany.
    14. Philip McCann & Attila Varga, 2015. "The Reforms to the Regional and Urban Policy of the European Union: EU Cohesion Policy," Regional Studies, Taylor & Francis Journals, vol. 49(8), pages 1255-1257, August.
    15. repec:kap:jgeosy:v:19:y:2017:i:4:d:10.1007_s10109-017-0249-y is not listed on IDEAS
    16. Andrés Rodríguez-Pose & Julie Courty, 2018. "Regional lobbying and structural funds. Do regional representation offices in Brussels deliver?," Papers in Evolutionary Economic Geography (PEEG) 1809, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Feb 2018.

    More about this item

    Keywords

    European Union; investment; quality of government; regional development and growth; regions;

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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