I will survive! The impact of place-based policies when public transfers fade out

Are place-based policies capable of taking lagging areas to a higher growth trajectory permanently? We answer this key question by investigating what happens when strongly subsidised regions suddenly experience a substantial reduction in external funding. We analyse an extensive database and estimate the average causal impact of exiting the convergence region status of the EU regional policy via the mean balancing approach, an econometric technique created appositely to fully exploit time-series cross-sectional data. Such an approach also allows us to investigate the heterogeneity of the impact concerning relevant covariates. We find that regions which experienced a considerable reduction in funding in a period of economic expansion did not suffer from the loss of such funding. On the other hand, we find that the sharp reduction in funding during the crisis led to a negative, but not statistically significant, impact on economic growth. However, the impact varies with the features of the regions and the local economic context. These findings differ from previous literature and signal a long-term positive effect of the EU funds on growth and employment.