The Cohesion Policy on the EU’s Eastern and Southern Periphery: Misallocated Funds?

Abstract

The cohesion policy of the European Union has become its primary instrument promoting development in the peripheral member states. The enduring consequences of the 2007–2008 crisis and the economic governance agenda requiring fiscal discipline from the member states have raised the policy’s significance further. However, similar economic inequalities characterize the EU nowadays as several decades ago. The cohesion policy is by no means alone responsible for this, but the reasons for its ambiguous performance deserve further scrutiny. Empirical studies explain variation in fund performance with domestic institutional quality and absorption capacity, but the member states’ fund spending strategies have not been addressed so far. This is puzzling because they are important determinants of the economic effects of EU funds. The paper fills this gap by investigating the spending strategies of the Southern and the Eastern members in two recent programming cycles (2007–2013 and 2014–2020). Assessed on five expenditure categories, the paper reveals that physical infrastructure investments enjoyed priority over long-term growth-generating R&D and human capital projects and that the allocation of EU funds did not reflect domestic development needs.

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Notes

  1. 1.

    Since the 2014–2020 programming period, the funds of the EU’s cohesion policy are referred to as European Structural and Investment Funds (ESIF).

  2. 2.

    Expressed in Purchasing Power Standards

  3. 3.

    Austria, Belgium, Denmark, Finland, Germany, France, Netherlands, Sweden, and the UK. Luxemburg is excluded from the calculation because its extraordinarily high per capita GDP would lead to a misleading picture.

  4. 4.

    Without Ireland. Source: the author’s own calculation based on Eurostat data

  5. 5.

    According to the 2016 Worldwide Governance Indicators, the mean score for regulatory quality was nearly identical in the Southern (0.89) and the Eastern periphery (0.92), whereas in the most advanced EU economies (Austria, Belgium, Denmark, Finland, Germany, Luxembourg, the Netherlands, Sweden and the UK), the average score was nearly twice as high (1.70). Source: the author’s own calculation based on the WGI dataset (available at http://info.worldbank.org/governance/wgi/index.aspx#home).

  6. 6.

    For instance, in the 2007–2013 programming period 60% of the funds spent in the eligible least developed regions (convergence regions) had to be spent on the so-called Lisbon objectives, while this share was 75% for funds spent in the more developed, yet eligible regions (regional competitiveness and employment objective). The Lisbon expenditures included investments into knowledge and innovation, energy efficiency, improving the business potential of small- and medium-sized enterprises, and improving employability.

  7. 7.

    For further details on the process of planning and implementation of the cohesion policy, please consult the European Commission’s webpage: http://ec.europa.eu/regional_policy/how/index_en.cfm.

  8. 8.

    Calculating Pearson’s correlation coefficients for such a small number of observations (N = 15) would produce misleading results. For this reason, Kendall’s tau-b, which is a non-parametric test of association and is much more reliable for small samples, is applied.

  9. 9.

    Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia

  10. 10.

    The figures were calculated as the averages of the country-level shares of each spending category; thus, they are not biased by the spending strategy of those member states that received the highest amount of EU funds.

  11. 11.

    On the results of the eligibility mid-term review in accordance with Article 2 of the Council Regulation (EC) No. 1164/1994 establishing a Cohesion Fund. Commission of the European Communities, Brussels, 24 March 2004. Available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2004:0191:FIN:EN:PDF.

  12. 12.

    The country-level variation in the proportion of the Cohesion Funds from the total EU funds was low within the two country groups. For the eligible Southern countries the share of CF from the total funds ranged between 19 and 30% in 2000–2006 and between 10 and 18% in 2007–2013, while in the case of the Eastern periphery, this figure varied between 53 and 65% in 2000–2006 and between 33 and 36% in 2007–2013. In 2014–2020, the share of Cohesion Fund from the total EU funds is the lowest in Hungary (23%) and the highest in Bulgaria (33%) among the Eastern members.

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Acknowledgements

The author’s research was supported by the MTA Post-Doctorate Research Program of the Hungarian Academy of Sciences.

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Correspondence to Gergő Medve-Bálint.

Appendices

Appendix 1

Table 3 Shares of EU funds across the main spending categories by member states

Appendix 2

Table 4 Per capita EU funds on the main spending categories by countries

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Medve-Bálint, G. The Cohesion Policy on the EU’s Eastern and Southern Periphery: Misallocated Funds?. St Comp Int Dev 53, 218–238 (2018). https://doi.org/10.1007/s12116-018-9265-2

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Keywords

  • EU cohesion policy
  • Spending strategy
  • Fund allocation
  • Southern Europe
  • Eastern Europe