Quality of Local Economic and Regional Development: The European Union Cohesion Policy

Abstract

The European Cohesion Policy is probably the largest of all development programs, aiming to promote the development of lagging regions and, hence, long-term convergence. However, the effectiveness of the policy has been increasingly scrutinized in the literature, and the findings point to a heterogeneous impact on economic growth. This article aimed to assess cohesion policies on the quality of local economic and regional development of European Union (EU) countries. The research methodology was built on correlation and regression analysis, propensity score matching (PSM) techniques to analyze unique data across different EU countries that received funding for regional development projects during 2014-2020 from The Cohesion Fund (ESIF, 2014-2020). This research analyzed the impact of Cohesion Policy on economic growth in the member states of Gross domestic product (GDP) less than 90% of the GDP of the EU 27, finding heterogeneity in terms of economic structure as well as the development strategy adopted by regional governments. The heterogeneity in the financing of projects within the Cohesion Policy and regional economic development is determined by the structure of the economy and the growth potential of the country. It was found that the amount of funding from the Cohesion Fund is directly related to GDP and gross value added of the countries, with a 1% increase in investment GDP will increase by 0.4228%, the unit labor cost will decrease by -0.0457%, and gross value added will increase by 0.4258%. This heterogeneity is also a consequence of the smart specialization approach to regional development policy, which is now being discussed in the European Commission. Smart specialization of countries is extremely important in the context of the strategic role of sectors and economic growth.