The impact of European Cohesion Policy: a spatial perspective

Cohesion Policy is one of the core policy areas of the European Union and one of the largest expenditure items in its budget. Its impact is the subject of intense academic and policy debate, but its effectiveness is an empirical question still open. This article contributes to this debate by performing a region-specific investigation of the direct and indirect impact of Structural Funds expenditure. We employ a heterogeneous panel data model, which accommodates the spatial dependence in a heterogeneous setting and measure heterogeneous spatial spillover effects, both inward and outward. We also consider different channels of spatial spillovers with respect to standard geographical closeness. In particular, the introduction of new measures of proximity that explicitly consider economic linkages between regions is a novel contribution to the literature. The results clearly indicate that the impact of Cohesion Policy, while positive overall, is highly heterogeneous and the Structural Funds expenditure generates substantial heterogeneous spatial spillovers: the positive effects do not remain confined to the target regions. Finally, strong spillover effects are channelled by value-added trade connections, particularly in regions belonging to the so-called “Central European Manufacturing Core"