Explaining the scarce returns of European structural policies from a New Economic Geography perspective

This chapter has analysed the impact of EU development policies in inducing greater economic cohesion in the EU, with special focus on Objective 1 regions. The evidence that convergence has happened at country level, but that lagging regions have generally failed to catch up has been investigated with particular attention paid to the effects of Structural Fund expenditure. The results have highlighted that the Objective 1 commitments have been unbalanced towards infrastructure and business support, and that the economic returns of these development axes have been limited. New economic geography models – despite their diversity – provide some potential explanations for this. Investment in transport infrastructure, in particular, is contributing to greater economic agglomeration, making any change to the present equilibrium situation difficult. Moreover, the improvement of transport infrastructure can itself be a reason for increasing agglomeration and disparities. NEG models point out that infrastructure linking different regions usually tends to favour those regions endowed with a stronger productive fabric, and thus further reinforce agglomeration. This also contributes to explain why the expenditure in human capital, which goes in the direction of providing local economies with better skills to overcome some of the endowment shortcomings of the periphery, has been the only axis to provide significant and durable growth effects in Objective 1 regions.