34
U. Fratesi and G. Perucca
regional policy is aimed, in the first place, at reducing economic disparities within
the EU, by increasing income in lagging-behind regions.
The methodological approach was similar to the one described in Sect. 2. Territorial capital for all EU NUTS3 regions was measured, jointly with data on Cohesion
Policy funding across different axes of expenditure. Then, an empirical model was
estimated, where GDP growth in the years after the end of the Programming Period
2000–2006 is assumed to be a function, among other characteristics, of the territorial capital of regions, the funds they received and the interactions between the two
elements. This analysis allowed us to check whether Cohesion Policy investments
had an impact on regional economic growth and if this impact was differentiated
for regions with different endowments of territorial capital. Given the structural differences between eastern and western EU countries, the analysis was carried out
separately for the two groups of nations.
In eastern EU countries (Fratesi and Perucca 2014), policy investments in immaterial assets (boxes d, e and f in Fig. 1) are characterized by increasing returns, i.e.,
they tend to be more effective where regions are more endowed. For instance, labor
market policies are only effective when in the region there is a presence of high-value
functions. Similarly, policies on workforce flexibility, entrepreneurship, innovation
and ICT are only effective when the regions are endowed with human capital.
On the other hand, the effect of investments in tangible assets (boxes a, b and c
in Fig. 1) is mediated mainly by regions’ level of urbanization and agglomeration
economies. In this case, decreasing returns emerge, since intermediate urban areas
(and neither metropolitan nor rural areas) gain from those where Cohesion Policy is
most effective. In general, the fact that Cohesion Policy is more effective in correspondence to higher endowments of territorial capital, implies that investing policy
funds in regions that already more developed can pay more than investing them
in weaker regions. This suggests the existence of a potential trade-off between the
effectiveness of policies and the achievement of territorial cohesion.
Evidence from western EU countries (Fratesi and Perucca 2019), where data depth
allows a more systemic analysis, suggests different and more complex mechanisms
compared with those presented above. First of all, the idea that policies tend to
have larger effects where territorial capital assets are present remains because many
policies have higher impacts in regions which are rich in territorial capital, while
some decreasing returns also exist in areas such as R&D and telecommunication
infrastructure.
Even more interesting is the observation that policies which invest in assets which
are complementary to those already present in regions. For example, areas characterized by high levels of collective goods, human capital and behavior exhibit lower
returns than other clusters in fields making intense use of assets of this kind. Finally,
areas which are very poorly endowed with territorial capital tend to have lower returns
in all assets but those, such as SMEs, directly related to the private firm establishment, most likely because firms in areas lacking territorial capital are more in need
of assistance than firms elsewhere.
The way in which support to firms interacts with territorial capital has been further
investigated in Bachtrögler et al. (2019), thanks to collaboration with the Vienna
U. Fratesi and G. Perucca
regional policy is aimed, in the first place, at reducing economic disparities within
the EU, by increasing income in lagging-behind regions.
The methodological approach was similar to the one described in Sect. 2. Territorial capital for all EU NUTS3 regions was measured, jointly with data on Cohesion
Policy funding across different axes of expenditure. Then, an empirical model was
estimated, where GDP growth in the years after the end of the Programming Period
2000–2006 is assumed to be a function, among other characteristics, of the territorial capital of regions, the funds they received and the interactions between the two
elements. This analysis allowed us to check whether Cohesion Policy investments
had an impact on regional economic growth and if this impact was differentiated
for regions with different endowments of territorial capital. Given the structural differences between eastern and western EU countries, the analysis was carried out
separately for the two groups of nations.
In eastern EU countries (Fratesi and Perucca 2014), policy investments in immaterial assets (boxes d, e and f in Fig. 1) are characterized by increasing returns, i.e.,
they tend to be more effective where regions are more endowed. For instance, labor
market policies are only effective when in the region there is a presence of high-value
functions. Similarly, policies on workforce flexibility, entrepreneurship, innovation
and ICT are only effective when the regions are endowed with human capital.
On the other hand, the effect of investments in tangible assets (boxes a, b and c
in Fig. 1) is mediated mainly by regions’ level of urbanization and agglomeration
economies. In this case, decreasing returns emerge, since intermediate urban areas
(and neither metropolitan nor rural areas) gain from those where Cohesion Policy is
most effective. In general, the fact that Cohesion Policy is more effective in correspondence to higher endowments of territorial capital, implies that investing policy
funds in regions that already more developed can pay more than investing them
in weaker regions. This suggests the existence of a potential trade-off between the
effectiveness of policies and the achievement of territorial cohesion.
Evidence from western EU countries (Fratesi and Perucca 2019), where data depth
allows a more systemic analysis, suggests different and more complex mechanisms
compared with those presented above. First of all, the idea that policies tend to
have larger effects where territorial capital assets are present remains because many
policies have higher impacts in regions which are rich in territorial capital, while
some decreasing returns also exist in areas such as R&D and telecommunication
infrastructure.
Even more interesting is the observation that policies which invest in assets which
are complementary to those already present in regions. For example, areas characterized by high levels of collective goods, human capital and behavior exhibit lower
returns than other clusters in fields making intense use of assets of this kind. Finally,
areas which are very poorly endowed with territorial capital tend to have lower returns
in all assets but those, such as SMEs, directly related to the private firm establishment, most likely because firms in areas lacking territorial capital are more in need
of assistance than firms elsewhere.
The way in which support to firms interacts with territorial capital has been further
investigated in Bachtrögler et al. (2019), thanks to collaboration with the Vienna