EU regional policy and local economic growth: Does banking development matter?

In this paper we investigate the role of EU structural funds in promoting economic growth of Italian provinces (NUTS 3), and whether a more developed local banking sector may expedite the process. We focus on total value added growth for the period 2000–2019, and employ a panel growth regression approach where a measure of funds coming from EU public programs, and spent in a given province, is interacted with a variable measuring local banking development. Our empirical results show that areas receiving structural funds have relatively higher value added growth rates when local banking markets are more developed. This evidence is robust to alternative model specifications, and holds even when we employ spatial panel models so as to account for geographic spillovers between provinces. • We study how EU structural funds and banking development promote value added growth of Italian provinces. • A panel growth regression approach is employed over the period 2000–2019. • Areas receiving structural funds show higher growth rates when local banking markets are more developed. • This evidence holds even when we employ spatial panel models so as to account for geographic spillovers.