Cohesion Policy and Economic Growth in EU Regions

Abstract EU Cohesion Policy (CP) absorbs roughly one-third of the EU budget. This article reviews the causal evidence on the effects of CP on the economic growth and convergence of EU regions. The verdict is positive but modest: GDP multipliers are around one euro of output per euro spent, on average. Heterogeneities are substantial, however: positive effects concentrate in regions with adequate institutions and human capital, and largely dissipate once funding stops, pointing to demand-side rather than structural transformation effects in most recipient areas. A key finding from recent work is that CP funds crowd out national public investment while crowding in private investment, yielding a total investment multiplier of well above one which is, however, concentrated in non-tradeable sectors. These findings collectively argue for a reformed CP focused on well-targeted investment spending in fiscally constrained regions with credible implementation capacity.