In an essay published in 2016, Baron, David and De Blasio (2016) show that in the period following the exit from the Objective-1, the GDP per capita in Abruzzo grows weakly and less than it would have been if Abruzzo maintained its pre-existing status. In other words, the income of residents does not show a self-sustained growth, in the sense that EU funds did not trigger endogenous growth mechanisms.
This evidence may be generalised in order to understand better the relationship between structural funds and economic growth. It noteworthy to say that it is not limited to Abruzzo, but, in the substance of things, it is in line with many other studies that analyse the impact of funds on the economic convergence across regions at EU or single state level (see, i.e., Boldrin and Canova 2001). The synthesis of this strand of literature is that the EU regional policy has a mere redistributive effect but do not contribute to reducing the productive divide between the rich and the poor regions, especially in Italy (Aiello and Pupo, 2012). In other words, in many southern Italian regions, structural funds are ineffective in terms of changing the productive features affecting the transition to long-run growth. It is a very counter-intuitive outcome because the main motivation of EU regional policy is to stimulate the eradication of constraints and to bridge the structural deficits in lagging regions in order to boost a development path without external aid.
While it is clear that these policies work well only in redistributive terms, it seems useful to reflect on how long must the aid scheme last. In what follows, I explicitly refer to the structural funds, but the same arguments may be extended to any public intervention to southern Italian regions, whatever the source (national or EU budget).
The aid should be temporary and not lasting, basically because it is unlikely that somebody finances regional development in an infinite time horizon. Moreover, much research clearly proves that the persistence of external assistance works against market efficiency. This said, it is trivial to point out that the gains must be maximised in the policy implementation phase, thereby allowing regions to grow alone in subsequent periods.
If structural funds removed the causes of underdevelopment, thereby triggering aid to virtuous growth mechanics, regional economic systems would benefit from it permanently. In reality, the effect exerted by these funds is limited to the period of their implementation and is simply linked to the provision of the resources they mobilise in each programming cycle.
An emblematic case concerns Calabria: the closure of the 2007-2013 cycle has accelerated the expenditure in 2015 and this has fuelled, at some extent, the regional GDP growth observed in 2015 compared to 2014 (around 1%) (Bank of Italy, 2017). In general, one can say that consumption is the component of aggregate demand most urged by these policies. It is clear that there is a benefit if you are part of a call, as resources are available for funded projects (“redistributive effect”), but if the activities and the investments funded by EU are, on average, useless, it is equally clear that at the end of the project all goes back to the initial trap-dependence. Employment and investment are temporary: all at home after the project.
It is only in very rare cases that the activities continue after the project. This vicious circle of public spending fuelling consumption or poor-quality investments characterises the implementation of EU policies in the Mezzogiorno of Italy: contrary to the narrative efforts of the institutional documentation of any region, it is clear that these policies are useless in terms of the impact they exert for helping regions to achieve a self-sustained long-run equilibrium.
What we have learnt is that the dynamics of GDP per-capita is heavily dependent on the presence of EU spending, suggesting that the redistributive mechanism of EU policies works well. Given this, the question “where are we heading?” becomes a key policy issue. Two scenarios are likely.
The first scenario is that the Mezzogiorno of Italy will continue to receive external aid: there will always be a mass of funds that will fuel the components of the aggregate demand with the lowest impact on regional growth, that is the consumption, especially of imported goods, and the low-quality public and private investments. It is a hypothesis that seems unworkable even for the most loyal supporters of cohesion policy (few economists and all the entourage of the institutional chain glued to the structural funds from Brussels to the peripheries). Indeed, on the one hand, public finance is subject to restrictions on both the levels and (finally) the quality of spending and, on the other hand, no one could argue that it is a good thing to have an economy that perpetually depends on unsuccessful public aid.
The second scenario is that each region will receive less EU resources. Three reasons make it realistic. The hypothesis of centralising the development aid at national level implies that less money will be managed by local authorities. Similarly, if EU budget cuts the resources for regional policy, then regions will obtain less funds than in the past. Finally, revising the criteria for allocating resources to EU states may result in less aid for southern Italian regions. If this is the case, what will we do with less (or without) EU funds? Perhaps it would be a good opportunity for increasing the quality of public investments even in the South of Italy and for adopting a development model based on private investments rather than remaining anchored to unproductive public resources. Less but more productive and selective State intervention may break the trap dependence on external aid. It is certainly a good thing.
Aiello F., Pupo V. (2012) “Structural funds and the economic divide in Italy,” Journal of Policy Modeling, 34(3), 403-418
Barone G., David F. e de Blasio G. (2016) “Boulevard of broken dreams. The end of EU funding (1997: Abruzzi, Italy)”, Regional Science and Urban Economics, 60, 31-38
Bank of Italy (2017), L’economia della Calabria, Bank of Italy (Branch of Catanzaro), Catanzaro (Italy)
Boldrin M., Canova F. (2001) Inequality and convergence in Europe’s regions: reconsidering European regional policies , Economic policy, 16, 32, 206-253