The Macroeconomic Effects of EU Regional Structural Funds

I examine the macroeconomic effects of two EU regional structural funds. The European regional development fund (ERDF) has positive short term average consequences, but gains typically dissipate within three years. The European Social Fund (ESF) has insignificant average short term effects, but the medium term effect is positive and economically important. There are regional heterogeneities in terms of location, level of development, EU tenure, Euro area membership, and national borders. The reaction of regional government expenditure to shocks in the structural funds accounts for the differences. The implications for the EU Recovery and Resilience Facility are discussed. (JEL: C32, E27, E32, H30.)

Keywords: Federal fiscal policy, regional government expenditure, R&D and human capital investment, regional inequalities.