The Impact of Cohesion Policy on Sectoral Structure: A Focus on Tradable and Nontradable Activities

Abstract The Cohesion Policy of the European Union is the primary tool for reducing economic disparities among European regions. One of its main characteristics is that it produces heterogeneous effects due to several factors, particularly regional economic structures and institutional frameworks. Using panel data from 2000 to 2018 for the EU-28 NUTS2 regions, we investigate the impact of European Structural and Investment Funds on regional economic growth, focusing on regional productive structures, and more specifically, on the division of economic activities into tradable and nontradable sectors. A distinctive feature of this analysis is the modelling of the impact of European Structural and Investment Funds on tradable and nontradable activities through a multi-input multi-output transformation function, taken from production analysis. We uncover important and novel empirical findings. Our evidence indicates that European Structural and Investment Funds influence the tradable and nontradable partition across regions with notable differences. The Cohesion Fund is positively associated with nontradables in new accession countries. Conversely, the ERDF shows a bias toward nontradables in the lagging areas of former EU member States but favours tradables in new accession countries and in the more advanced regions of the EU.