The Impact of European Structural Funds in Objective 1 Regions: Between Cohesion Policy and Lisbon Agenda

The aim of the paper is to evaluate the effects of European regional support in increasing productivity of 434 NUTS- 3 Objective 1 regions of EU-25 over the period 2000-2006 . These regions, below the 75% threshold of the European Union (EU) average Gross Domestic Product (GDP) per capita, absorb the majority of the development funds whose aim is achieving greater economic and social cohesion and reducing disparities within the EU. The programming period 2000-2006 was characterized from the Lisbon Agenda, an action devised in 2000 that aimed to make the EU “the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion” (European Council, 2000), by 2010. The priority of the Lisbon Agenda is, then, to increase the aggregate rate of growth in the European Union, and it is in contrast, at least partially, with the objective of the Structural Funds, that is cohesion . These funds have an important spatial dimension since they support a balanced development among regions concentrating resources in areas defined either by relative poverty, peripherality or structural economic weaknesses. Furthermore, the formulation of operational objectives of Lisbon Agenda is mainly centralized but with weak governance instruments because of its non-binding character. At the contrary, the operational objectives of the Structural Funds are decided at a decentralized level and operationalized with strong governance instruments. The two approaches, if not coordinated, can lead to uneven results in term of economic growth and, in general, of economic performances. If we consider that convergence is in act also because a 17% of these regions show a negative labour productivity growth, we can consider this result as a lack of success for both Lisbon Agenda and European regional policy. Under the first point of view we have that, among Objective 1 regions, many are not able to increase their productivity levels and then their competitiveness, and, with respect to cohesion dimension, we observe that convergence is due, at least partially, by a negative growth of some territories. The question that surges from this evidence is if Lisbon Agenda and European regional support have really sustained regional development and in which extent they have worked in the same or opposite direction. At this regard, the apparent trade-off between the two policies (i.e. efficiency vs. equity) can be bridged by maximizing the growth effects of the European financial support, which means the determination of the composition and geographical allocation of the investments in such a way as to focus on the growth potentials of the regions to which they are devoted. In order to reach this aim a heteroscedasticity robust fixed effects panel data analysis is used. The analysis focuses on the evaluation of the impact of funds for Objective 1 devoted to three precise axis: productive environment, human capital and infrastructure . The evaluation is performed with respect to the growth of labor productivity, defined as Gross Values Added (GVA) per employee, because this is conceived as the main source of a durable economic development. In order to know how much the link between the regional structure and the Structural 46 Funds is strict, to contextualize the results of the analysis of the effectiveness of the Structural Funds, a cluster analysis in which various regional characteristics are considered is performed. At this regard, a first set of variables is related directly to the Cohesion Policy and/or to the Lisbon Agenda, while another set, the context variables, to the general economic structure. The first results show that for the Objective 1 regions, despite the low concentration of funds on human capital, the returns are positive and strongly significant and last over time. Support to infrastructure, despite the large amount of resources, is less significant than the previous funds and its effect deeply depends on the characteristics of the regions to which it is devoted. Finally, support for productive environment shows affect only in industrialized regions. The reasons of these inhomogeneous findings have to be sought in the allocation of the funds and then in the failure, or success, to balance the requirements of the cohesion approach and Lisbon Agenda. This demonstrates that, to exploit the growth potentials of each territory, it is essential to understand deeply its socioeconomic structure to tailor policies with respect to its particular necessities. In this extent, in the new programming period, to fulfill the Europe 2020 objectives, we need to construct a modus operandi that, looking at the general policy objectives, has to be flexible enough to fit the needs of each region, starting from its endogenous potential. This approach requires to do not fall into the paradigm “one size fit to all”, which is the easier approach, but surely, as demonstrated, not the most effective.