1.Dr John MoffatRichard Price Building, Room F49Email: J.D.Moffat@swansea.ac.ukOffice Hours: Tuesday & Friday, 1:30-2:30pm

2. Learning Outcomes Students should be able to answer the followingquestions: Describe current disparities in economic performanceacross the EU Is there a case for an EU-wide regional policysuperimposed upon a set of national regional policies? What are the current objectives and instruments of EUregional policy? Has EU regional policy had an impact?2Topic 3: EU Regional Policy 3. Readings Armstrong & Taylor, chapter 11 (note that some parts of this arerather outdated) Armstrong, H. (2011), Regional Policy in El-Agraa, A, TheEuropean Union: Economics and Policies, 9th ed. Cambridge:Cambridge University Press EU (2011), The urban and regional dimension of Europe 2020:Seventh progress report on economic, social and territorialcohesion, Available from:http://ec.europa.eu/regional_policy/sources/docoffic/official/reports/interim7/interim7_en.pdf Gripaios, P., Bishop, P., Hart, T. & McVittie, E. (2008), Analysingthe impact of Objective 1 funding in Europe: a review,Environment and Planning, Available from:http://www.envplan.com/abstract.cgi?id=c64m3Topic 3: EU Regional Policy 4. GDP Per Head (PPS), 2008Source: EU (2011)4Topic 3: EU Regional Policy 5. Change in GDP Per Head(PPS), 20002008Topic 3: EU Regional Policy 5Source: EU (2011) 6. Unemployment Rates, 2010Source: EU (2011) 6Topic 3: EU Regional Policy 7. Change in UnemploymentRates, 2007-2010Topic 3: EU Regional Policy 7Source: EU (2011) 8. Coefficient of Variation: GDP perhead, NUTS 2 regionsTopic 3: EU Regional Policy 8Source: Monfort (2006) 9. EU Regional Policy According to Armstrong (2011) there are five mainarguments for an EU regional policy: The vested interest argument The financial targeting argument The coordination argument The effects of EU integration argument The effects of other EU policies argument9Topic 3: EU Regional Policy 10. The Vested Interest Argument The economic well-being of citizens in one member state isdependent on the prosperity of other member states This is because greater prosperity in other members stateswill lead to: Greater demand from other regions Reduced congestion A more controversial argument in favour of a regionalpolicy is that individuals in a given member state benefit ifother regions are prospering because this helps theEuropean project of greater economic integration10Topic 3: EU Regional Policy 11. The Financial Targeting Argument The disadvantaged EU regions are not evenlydistributed among member states Those countries with the most deprived regions (suchas Poland and Greece) will have the greatest difficultyin financing a proper regional policy while countrieswith less severe regional problems (such as Germanyand the UK) can afford generous regional policies The EU can facilitate the necessary transfers acrosscountries so that assistance can be targeted on thoseregions where it is most required11Topic 3: EU Regional Policy 12. The Coordination Argument The EU, as the highest tier of government in EUcountries, is best placed to coordinate policy It can help to avoid: Duplication of effort by different agencies within a givenregion Competition for mobile investment between EU regionswhich provide the same net gain to the EU, regardless ofwhere the investment eventually goes12Topic 3: EU Regional Policy 13. The Effects of EU IntegrationArgument For this to be a justification for the existence of EUregional policy, we must accept that EU integrationwill cause divergence This may happen due to: Lower costs in areas of concentrated economic activity(that arise due to agglomeration externalities) which arelikely to appear in areas with large home markets Selective labour migration worsening the position of theperipheral regions Loss of macroeconomic powers in peripheral memberstates, particularly the ability to use exchange rate policy13Topic 3: EU Regional Policy 14. The Effects of Other EU PoliciesArgument Certain EU policies benefit the prosperous regions ofthe EU more than the poorer regions and thereforeexacerbate regional differences in economicperformance Examples are: The Common Agricultural Policy (CAP) Value Added Tax (VAT) a major source of EU revenues The best solution would be to change the policies withthe divergent impact but this is not always possible14Topic 3: EU Regional Policy 15. Centralisation VersusDecentralisation of Regional Policy But none of these arguments imply that EU regionalpolicy should wholly replace UK regional policy This is because decentralised regional policy hascertain benefits. For instance, it allows: Local knowledge and experience to be used in thedesign of policies Diversification and experimentation in policy Greater accountability in regional policyTopic 3: EU Regional Policy 15 16. History of EU Regional Policy The Treaty of Rome (1958) stated that:(Member states of the) European Economic Community areanxious to ensure their harmonious development by reducingthe differences existing between the various regions and thebackwardness of the less favoured regions The Directorate-General for Regional Policy of theEuropean Commission was established in 1968 The UK joined the European Economic Community in 1973 EU regional policy began in earnest in 1975 with thecreation of the European Regional Development Fund(ERDF)16Topic 3: EU Regional Policy 17. History of EU Regional Policy Initially, EU regional policy did similar things toregional policy in member countries so, in the UK, itmostly provided capital subsidies in the same way asthe RSA scheme (see last lecture) EU regional policy was fundamentally reformed in1989 and, since then, money has been spent not on aproject-by-project basis but on programmes ofassistance The accession of 10 relatively poor countries in 2004led to a large increase in expenditure on regionalpolicy17Topic 3: EU Regional Policy 18. Organisation of EU Regional Policy Currently, EU regional(or cohesion) policy hasthree objectives andthree funds with whichto achieve theseobjectives Johannes Hahn (right) isthe current EUcommissioner forregional policySource: EURegional 18Topic 3: EU Regional Policy 19. EU Regional Policy Principles Concentration Of resources - on the poorest regions Of effort - on the knowledge economy in 2007-13 Of spending - by the end of the second year after their allocation Programming Cohesion policy funds multi-annual, multi-project, multi-partnerprogrammes on the basis of an Operational Programme Document Partnership Each programme is developed through a collective processinvolving authorities at European, regional and local level, socialpartners and organisations from civil society Additionality Financing from the European structural funds may not replacenational spending by a member countryTopic 3: EU Regional Policy 19 20. EU Regional Policy Objectives Convergence solidarityamong nations RegionalCompetitiveness andEmployment European territorialcooperation The pie chart shows theamount of money (billion) allocated to eachobjective for 2007-2013283.3558.7ConvergenceRegional Competitiveness & EmploymentEuropean Territorial Cooperation20Topic 3: EU Regional PolicySource: EU (2011) 21. EU Regional Aid MapSource: EU (2011)21Topic 3: EU Regional Policy 22. Cohesion Policy Spending (2007-2013) by Country ( million)Source: EU(2012) 22Topic 3: EU Regional PolicyAustria, 1,461 Belgium, 2,258 Bulgaria, 6,853Cyprus, 640Czech Republic, 26,692Germany, 26,340Denmark, 613Estonia, 3,456Spain, 35,217Finland, 1,716France, 14,319Greece, 20,420Hungary, 25,307Ireland, 901Italy, 28,812Lithuania, 6,885Luxembourg, 65Latvia, 4,620Malta, 855Netherlands, 1,907Poland, 67,284Portugal, 21,511Romania, 19,668Sweden, 1,891 Slovenia, 4,205Slovakia, 11,588United Kingdom, 10,613 23. Convergence Support provided under the convergence objective helpsthose regions where per capita GDP is less than 75% of theEU average Some regions in the EU are only above the 75% thresholdbecause average EU GDP has fallen as a result of theaddition of the newest member countries. Such regionswill receive phasing out support until 2013 The types of project funded under this objective includeprojects for improving basic infrastructure, helpingbusinesses, water and waste treatment, high-speed internetconnection, training, job creation23Topic 3: EU Regional Policy 24. Regional Competitiveness andEmployment This objective covers all regions in Europe not covered bythe convergence objective. Support is intended to: help the richer regions perform even better with a view tocreating a knock-on effect for the whole of the EU to encourage more balanced development in these regions byeliminating any remaining pockets of poverty Support provided under this objective creates jobs bypromoting competitiveness and making regions moreattractive to businesses and investors The types of project funded under this objective are thedevelopment of clean transport, support for researchcentres, universities, small businesses and start-ups, training, job creation24Topic 3: EU Regional Policy 25. European Territorial Cooperation Support provided under this objective aims toencourage cooperation across regions and countries The types of project funded are those that involveshared management of natural resources, riskprotection, improving transport links, creatingnetworks of universities, research institutes25Topic 3: EU Regional Policy 26. Instruments of EU Regional Policy There are three main EUregional policy funds: European RegionalDevelopment Fund(ERDF) European Social Fund(ESF) Cohesion Fund The pie chart showsamount of money (billion) allocated to eachfund for 2007-20132017670European Regional Development FundEuropean Social FundCohesion Fund26Topic 3: EU Regional PolicySource: EU (2011) 27. Instruments of EU Regional Policy The following table shows which funds support whichobjectives:Topic 3: EU Regional Policy 27Objectives Structural Funds and InstrumentsConvergence ERDF ESF Cohesion FundRegional Competitivenessand EmploymentERDF ESFEuropean TerritorialCooperationERDF 28. European Regional DevelopmentFund The ERDF aims to strengthen economic and socialcohesion in the European Union by correcting imbalancesbetween its regions It finances: direct aid to investments in companies (in particular SMEs) tocreate sustainable jobs infrastructures linked notably to research and innovation,telecommunications, environment, energy and transport financial instruments (capital risk funds, local developmentfunds, etc.) to support regional and local development and tofoster cooperation between towns and regions technical assistance measures28Topic 3: EU Regional Policy 29. European Social Fund The ESF sets out to improve employment and jobopportunities in the European Union The ESF supports actions in Member States in thefollowing areas: adapting workers and enterprises: lifelong learningschemes, designing and spreading innovative workingorganisations access to employment for job seekers, theunemployed, women and migrants social integration of disadvantaged people and combatingdiscrimination in the job market strengthening human capital by reforming education systemsand setting up a network of teaching establishments29Topic 3: EU Regional Policy 30. Cohesion Fund The Cohesion Fund is aimed at Member States whoseGross National Income (GNI) per inhabitant is lessthan 90% of the Community average The Cohesion Fund currently concerns thosepredominantly Eastern European countries whichjoined in 2004 and 2007 alongside Greece andPortugal The Cohesion Fund finances activities under thefollowing categories: trans-European transport networks environment30Topic 3: EU Regional Policy 31. Plans for 2014-20202007-2013 2014-2020Objectives Funds Goals Category ofRegionsFundsConvergenceERDFESFCohesion FundInvestment inGrowth and JobsLess DevelopedRegionsERDFESFTransition RegionsCohesion FundRegionalCompetitivenessandEmploymentERDFESFMore DevelopedRegionsERDFESFEuropeanTerritorialCooperationERDFEuropeanTerritorialCooperationERDFTopic 3: EU Regional Policy 31Source: EU (2011) 32. Plans for 2014-2020Topic 3: EU Regional Policy 32Source: EU (2011) 33. Impact of EU Regional Policy Despite receiving EU regional aid, GDP per capita inthe Valleys and West Wales has fallen further behindthe EU average Across the EU as a whole, in 2000-2006, GDP percapita in the Objective 1 regions grew from 66% of theEU-25 average in 2000 to 71% of the EU-25 average in2006 (see also charts on slides 5, 7 and 8) But we should be careful before interpreting this asevidence that EU regional policy has been effective assuch convergence may have happened without EUregional policyTopic 3: EU Regional Policy 33 34. Impact of EU Regional Policy Gripaios et al. (2008) review the academic literature on theimpact of Objective 1 (now called Convergence) fundingand conclude that it has had remarkably littledemonstrable impact (p.499) De la Fuente (2002) finds evidence of regional employmentand GVA convergence in Spain for the period 1994-1999,with EU regional funding increasing the rate ofemployment growth among assisted regions by 0.4percentage points per year Jones and Skilton (2011) find that gaps in employment ratesbetween Objective 1 regions and other regions narrowed in1995-2005 in the UK but that this cannot be attributed tothe impact of EU regional policyTopic 3: EU Regional Policy 34 35. Summary There are very large disparities in economicperformance across the EU There is a case for EU regional policy in addition toregional policy at the national level Current EU regional policy has three objectives(convergence, regional competitiveness andemployment and European territorial cooperation)and three funds to achieve these objectives (ERDF, ESFand the Cohesion fund) On balance, the empirical evidence suggests that EUregional policy has not had a significant impact35Topic 3: EU Regional Policy 36. Next topic:DEVOLUTION36Topic 3: EU Regional Policy