How does Cohesion Policy stimulate convergence in Labor Productivity? : A Panel data analysis of the European Regional Development Fund 2014-2020

This thesis examines the European Union's work to reduce disparities between less and more developed regions in the union, also called the cohesion policy. Namely, this study focuses on the effectiveness of the European Regional Development Fund (ERDF) in enhancing short-term labor productivity. Previous research has focused on the policy’s impact on income and employment and has yielded heterogeneous results. By focusing on labor productivity, this study assesses a short-run relationship. This study analyzes panel data for the period 2015-2022 to examine whether ERDF payments are positively related to higher productivity, potentially supporting long-term growth. The findings suggest that there is ongoing regional convergence in labor productivity within the EU, yet this convergence is conditional upon the level of tertiary education in the regional population. There is no strong evidence of positive influences of ERDF payments on labor productivity growth in the studied period. For policymakers, this study outlines that the ERDF payments did not show a significant relationship to productivity growth, indicating a low effectiveness of the policy. The findings suggest that policymakers should explore other strategies that are better tailored for the individual, less developed regions, preferably focused on education.