Special Issue Monográfico 2014 'Rhomolo and The European Cohesion Policy'



Jesús López-Rodríguez, Andrés Faíña

Rhomolo and other methodologies to assess The European Cohesion Policy

The funds committed to cohesion policy are the second highest category of expenditure in the European Union budget and this policy is among the most evaluated. There are different tools and methodologies to carry out the evaluation each of them with their own merits and also their flaws and biases. This special issue explores the three main types of approaches, theory-based evaluation, counterfactual (econometrics) and macroeconomic models, to assess cohesion policy by presenting a set of contributions within these methodologies. The first set of contributions focus on the assessment of cohesion policy by means of macro models putting a special emphasis on the European Commission newly developed model RHOMOLO. The second set of contributions is linked to the econometric evaluations of different aspects of cohesion policy and finally a theory-based evaluation exercise closes this special issue.

Andries Brandsma, Francesco Di Comite, Olga Diukanova, d’Artis Kancs, Jesús López-Rodríguez, Damiaan Persyn, Lesley Potters

Assessing policy options for the EU Cohesion Policy 2014-2020

In this paper we analyse the possible impact of Cohesion Policy 2014-2020, putting together the investments supported by EU funding in all NUTS2 regions and running a set of simulations. We make use of RHOMOLO, a spatial CGE model tailored for economic analysis at the subnational level, which is described in the paper. We do so by first considering infrastructure investment, human capital development and innovation climate support, including environmental amelioration, separately and then run a combined simulation of the three categories to give an impression of the pattern and time profile of the overall effect. The results of the simulation show substantial heterogeneity in the effects across the regions, which are not a mere image of the differences in input. The concentration of EU funding on the less developed regions, and on energy saving, innovation and social inclusion in the more developed regions receiving support, could be a fruitful mix for lifting the standards of living in the whole of Europe.

Francesco Di Comite, Lesley Potters

Modelling knowledge creation, investment decisions and economic growth in a spatial CGE setting

The expansion of knowledge is commonly understood as a key driver of economic growth. Yet, while knowledge production and economic growth have been extensively studied in isolation, few studies have tried to formalise the mechanism connecting the two elements from a spatial general equilibrium perspective. To fill this gap, in this paper we propose a model of knowledge creation building upon the multiregional spatial CGE model RHOMOLO to allow for endogenous knowledge production and investment decisions at the regional level. The innovation process is modelled through the interaction between researchers, investors and final good producers. Specifically, researchers in each region use their human capital together with local R&D-embedded capital and intermediates to produce ideas, enhanced by knowledge spillovers crossing regional borders. These ideas are then purchased by local investors and combined with their human capital and intermediate goods to be turned into new R&D-embedded capital, which adds up to the existing stock after having replaced the obsolete one. Lastly, after having paid a fixed entry cost, in each region firms produce goods for final and intermediate consumption by renting local R&D-embedded and human capital and combining it with an interregional bundle of intermediate goods, their productivity being enhanced by the availability of local public goods and services. The model is designed to be calibrated using a regionalised version of standard Social Accounting Matrices, such as the ones provided by the World Input Output Database.

Damiaan Persyn, Wouter Torfs, d’Artis Kancs

Modelling regional labour market dynamics: Participation, employment and migration decisions in a spatial CGE model for the EU

This paper outlines how regional labour market adjustments to macroeconomic and policy shocks are modelled in RHOMOLO through participation, employment and migration decisions of workers. RHOMOLO, being a multisectoral, inter-regional general equilibrium model, is complex both in terms of its dimensionality and the modelling of spatial interactions through trade flows and factor mobility. The modelling of the labour market is therefore constrained by the tractability and computational solvability of the model. The labour market module consists of individual labour participation decisions, including the extensive margin (to participate or not) and the intensive margin (hours of work). Unemployment is determined through a wage curve and inter-regional labour migration decisions are modelled in a discrete-choice framework, with backward-looking expectations.

Olga Diukanova, Jesús López-Rodríguez

Regional Impacts of non-R&D Innovation Expenditures across the EU Regions: Simulation Results Using the Rhomolo CGE Model

In the EU, a sizable part of innovation is attributed to the activities other than R&D such as purchases of advanced machinery, licenses, patents and minor modifications in products or processes. These non-R&D innovation activities receive substantial funding from the European cohesion policy (ECP). In this paper we applied the dynamic spatial computable general equilibrium model RHOMOLO to evaluate the ex-ante short and long run economic impacts of 2014-2020 non-R&D innovation subsidies allocated to the EU27 NUTS2 regions. The results of computer simulations show that the most notable welfare improvements (GDP, production and household consumption) were observed in the Eastern EU regions that receive the largest share of funding. Such outcome is in line with the goals of the European Cohesion Policy of stimulating economic convergence of the least developed regions. As was expected, the magnitude of macroeconomic impacts positively correlates with the amount of non-R&D subsidies allotted to the regions.

Julián Ramajo Hernández, Miguel Ángel Márquez Paniagua, Francisco Javier De Miguel Vélez

Economic impact of the European Funds in Extremadura during the period 2007-2013

Although the evaluation of European Union regional policy is necessary to improve the effectiveness of the operational programmes, it is not usual to find studies comparing the efficiency of two programming periods for the case of a particular region. This could be explained by the fact that, at regional level, the study of the efficiency of the European funds during two different programming periods faces many different problems; for example, it entails the consideration of both adequate and homogeneous data, and similar methodology. The goal of this paper is twofold. The first goal is to estimate the economic impact of the European Union structural and cohesion funds received by Extremadura, a Spanish convergence objective NUTS II region, during the programming period 2007-2013. To this end, it is provided a multipliers analysis based on a Social Accounting Matrix (SAM) of Extremadura for the year 2000. Secondly, the paper will compare the returns obtained in terms of output and employment by the European funds received in Extremadura during the periods 2000-2006 and 2007-2013. Our results allow quantifying the effects of the EU regional policy, showing and comparing the efficiency for these two programming periods.

María Teresa Álvarez-Martínez

The Effects of European Structural Funds in the Spanish Regions Using CGE Models: a review

This paper reviews the few regional studies on the impact of European Structural funds in Spain using Computable General Equilibrium (CGE) Models. While the models in these studies are widely used to evaluate the effects of very different public policies, they rarely have been used to quantify the impact of the Structural funds. In the pioneer papers elaborated for Madrid and Andalusia, the effects of the funds have been simulated through an exogenous change of final demand. I suggest avoiding any accounting of exogenous shocks in final demand of non-affected sectors by more-realistically splitting investment into various capital goods and evaluating the short-run effects of increasing investment in them.

Adolfo Maza, José Villaverde, María Hierro

Should cohesion policy focus on fostering R&D? Evidence from Spain

Over the last decades, there has been a vast amount of literature on the subject of Research and Development (R&D) expenditure as a main driver of economic growth, both at national and sub-national levels. This being so, the main purpose of this manuscript is to investigate the role played by R&D as a cohesion instrument. To accomplish this aim, the paper assesses the link between patents (as a proxy for R&D) and economic growth across the Spanish provinces (NUTS3) over the period 1995-2010. In other words, we want to evaluate whether provinces with high patent production grow at a higher rate than those with low innovative performance. In addition, we want to test for the presence of spatial spillovers, and to assess if the effect of patents on economic growth depends on the development degree of provinces. The results show, firstly, that patents act as a growth driver. Secondly, that there is no evidence of spatial spillovers. And, thirdly, that the effect of patents on growth seems to be higher for developed than for less developed provinces. In view of these findings, major efforts should be devoted to promote a cohesion policy focused on R&D investment in the less developed territories.

Ugo Fratesi, Giovanni Perucca

Territorial Capital and the Effectiveness of Cohesion Policies: an Assessment for CEE Regions

On May 1st 2004, 10 Central and Eastern European (CEE) countries joined the EU and became fully eligible for communitarian financial support. While the conditions for eligibility are the same, at regional level CEE territories are characterized by very different socioeconomic settings. In particular, different regions are differently endowed with what has been labelled “territorial capital’, so that the endowment of public and private, material and immaterial assets significantly varies across regions, including infrastructure, private capital, human and social capital. This set of territorial conditions, enabling economic development to take place, is here assumed to impact the outcome of cohesion policies as well. This paper is hence aimed at assessing the role of specific territorial conditions on the efficient implementation of cohesion policies in CEE NUTS3 regions. The analysis points out the mechanisms through which the endowment of specific territorial assets affects the outcome of Cohesion policies. It appears that for a large number of territorial capital assets, increasing returns are present and regions more endowed with specific types of territorial capital are more able to gain from policy investment in related fields.

Teodora Dogaru, Martijn Burger, Frank van Oort , Bas Karreman

The Geography of Multinational Corporations in CEE Countries: Perspectives for Second-Tier City Regions and European Cohesion Policy

The largest regional disparities in CEE countries are between capital and non-capital city regions. MNCs invest in these regions for various reasons, contributing to regional development exogenously. In this paper we analyse location decisions of FDI investments in the period 2003-2010. We find that the most important location factors for FDI are market accessibility, strategic assets, institutional quality and agglomeration, in the post-crisis era even more than before. Presently, second-tier city regions are not capable of offering all these factors simultaneously. For improving their opportunities and contribution to European cohesion and convergence, more substantial and direct investments are needed. Without these, the recently suggested competitiveness opportunities of second-tier city regions are difficult to obtain.

Isidoro Romero, José Fernández-Serrano

The European Cohesion policy and the promotion of entrepreneurship. The case of Andalusia

This paper discusses the significance, trends and achievements of the entrepreneurship and small and medium-sized enterprise policy in Andalusia developed with the support of the European Regional Development Fund (ERDF). The lack of entrepreneurial culture and business environment conditions unfavourable to entrepreneurship have traditionally acted as structural obstacles to regional development in Andalusia. In order to face this problem, the role of the entrepreneurship policy within the strategy for regional development has increased over the programming periods of the European Cohesion policy. This article proposes some recommendations for a more effective and efficient design of the Cohesion policy in this field drawing on the analysis of the experience of Andalusia.