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The effect of EU structural funds on regional growth: assessing the evidence from Greece, 1990–2005

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Abstract

This paper brings empirical evidence on the impact of EU structural policy on regional income growth. The case of Greece over the period 1990–2005 is taken as an example. This period is characterized by the acceleration of the European integration process, with a central role assigned to the EU structural support to less prosperous regions. Regional growth is approached through the estimation of β-convergence equations using panel methods of estimation. The empirical results reveal a positive impact of structural funds support on regional growth while income convergence is enhanced. In addition, a significant influence of spatial income and unemployment spillovers on regional income growth is evidenced, illustrating the recent growth performance in Greece. Our results leave ample room for European regional policy to operate for the promotion of growth and the reduction of regional disparities.

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Notes

  1. See the review in Ederveen et al. (2003).

  2. Benos and Karagiannis (2008) estimate convergence equations for Greece (1971–2003) and they detect a positive impact on growth of a dummy variable for the period 1992–2003 intending to capture the process of the Greek preparation for the EMU.

  3. The structural funds mainly include the regional development fund, the social fund, the agricultural guidance and guarantee fund, and since 1993 the cohesion fund.

  4. See the literature review by Abreu et al. (2004), also Rey and Janikas (2005).

  5. The coefficient of variation of regional per capita income (y) is the standard deviation of (y) divided by the average (y). The coefficient of variation for the rate of unemployment is weighted by the population.

  6. Note that Cerra and Saxena (2008) investigate growth performance, at country level, for a great number of countries since the 1960s and find that economic crises and negative shocks lead to absolute divergence and lower long-run growth, whereas economic expansions lead to absolute convergence.

  7. The period 1995–2003 is described in a cohesive data set (European System Accounts 95, with no particular revisions) and is characterized by a uniform policy stance implemented by a single governing party.

  8. The 13 regions of Greece are Eastern Macedonia-Thrace, Central Macedonia, Western Macedonia, Thessaly, Epirus, Ionian Islands, Western Greece, Central Greece, Attica, Peloponnesus, Northern Aegean, Southern Aegean and Crete.

  9. According to the Fourth report of Economic and Social Cohesion (European Commission 2007), the Greek real per capita GDP in PPPs in 2005 was close to 88% of the EU-27, compared to 74% in 1995.

  10. However, the first attempt to support the less developed regions was through the Integrated Mediterranean Programmes in the second half of the 1980s, directed to the South-European countries.

  11. For a presentation of the inflow of EU funds to Greece, see Manassaki (1998).

  12. See, inter alia, Lolos et al. (1995), Christodoulakis and Kalyvitis (1998). For a review, see Lolos (2001) and Ederveen et al. (2003).

  13. For example, Ederveen et al. (2003) in their study for European regions allocated structural support of national coverage between regions approximately, using the population of each region. In a subsequent study, Ederveen et al. (2006) restricted their attention to those SF categories where reliable data exists (like the European regional development fund) and made inferences about the whole SF support.

  14. This detailed calculation has been carried out by a number of researchers who estimated the regional allocation of each of the sectoral programmes of the Greek CSF 2000–2006 over the first 4 years of implementation (2000–2003), taking also into account the realization of the CSF 1994–1999. Thus, the regional distribution of the national component of structural support from the mid 1990s to the early 2000s was estimated, which was then added to the regional component in order to obtain the total SF support to regions. This measure is used in the empirical analysis for the period 1990–2005. For a detailed presentation of the procedure, see Lolos (2009).

  15. In constructing the row-standardized matrix D, the following procedure is used. First, the co-ordinates for the capital city of each region are selected. Next, the two co-ordinates (latitude X and longitude Y) are transformed into decimal employing the following formula: decimal = degrees + minutes times 0.01666667 + seconds times 0.00027778. Then, the arc distance d ij between two regions i and j is calculated.

  16. The speed of convergence is given by b = −ln [1 + T(β 1)]/Τ.

  17. See, Tsionas (2002): 2% for the period 1982–1993; Michelis et al. (2004): about 1% for the 1981–1991 period.

  18. See, the (σ and β) convergence studies by Giannias et al. (1997), Petrakos and Saratsis (2000), Tsionas (2002), Fotopoulos et al. (2002), Liargovas et al. (2003), Michelis et al. (2004). See, also Petrakos and Psycharis (2003) that detect stability in regional inequalities. Regional income convergence is also found by Alexiadis and Tomkins (2004) using time series methods and by Christopoulos and Tsionas (2004) investigating the evolution of the output labour ratio.

  19. See, Benos and Karagiannis (2008), Siriopoulos and Asteriou (1998), Siriopoulos et al. (1997). The existing empirical evidence on regional polarization in Greece is inconclusive. See, the studies by Fotopoulos (2006), Tsionas (2002), Fotopoulos et al. (2002), Benos and Karagiannis (2008).

    In our view, a major reason for somewhat conflicting results of the various regional studies, especially those investigating longer time periods (apart from differences in regional sample coverage and methodology), is the non cohesive data set being used. Note that Greek regional data are often revised, sometimes substantially.

  20. It goes without saying that the beneficial impact of regional policy on growth is related to the effective implementation of cohesion policies. See the official European commission reports (e.g. European Commission 2004, 2007).

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Acknowledgments

Thanks are due to an anonymous referee for valuable comments and suggestions. All errors and omissions remain mine.

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  1. Department of Economics and Regional Development, Panteion University, 136 Sygrou Ave, 176-71, Athens, Greece

    Sarantis E. G. Lolos

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Lolos, S.E.G. The effect of EU structural funds on regional growth: assessing the evidence from Greece, 1990–2005. Econ Change Restruct 42, 211–228 (2009). https://doi.org/10.1007/s10644-009-9070-z

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