Original publication: May 2017
Authors: Christian VANDERMOTTEN, Gilles VAN HAMME (IGEAT, Université Libre de Bruxelles)
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Indicators in Cohesion Policy

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Gross (Regional) Domestic Product per capita is presently the only criterion of eligibility for the less developed or intermediate regions in the framework of the European Structural and Investment Funds. However, this indicator considers implicitly that any economic production has a positive contribution to regional development and does not take into account the transfers of income between regions (as Gross Regional Income should do, but is unavailable). It reflects also a purely economic conception of the development and it doesn’t measure the standard of living nor the well-being of the population.

This study suggests to replace the use of Gross (Regional) Domestic Product by total (i.e. private and public) Final Consumption Expenses (FCE), also computed by EUROSTAT. In addition, a full eligibility statute is proposed for all the regions in countries with a very  low level of investment (Greece and Cyprus; Gross Capital Formation less than 15 % of the GDP). Indeed, the very low level of investment in some areas is an obstacle to future development. Another, and probably better solution is to produce a more inclusive indicator taking into account, aside FCE, four other dimensions: physical wellness; social vulnerability; educational and technological development; population dynamics. Using these four dimensions is coherent with the aims of the Europe 2020 strategy, though it may raise issues of data availability. Hence, it is proposed to build a synthetic index which takes into account indicators for each of these dimensions. In most cases, ideal indicators are not available in the EUROSTAT data bank, and it is necessary to rely on proxies, although some of these are not fully satisfactory:

  • for physical wellness, male life expectancy at birth, since more contrasts are observed between regions for males;
  • for social vulnerability, an average between the share of the young adults with a low graduation level, the percentage of young people not in work, education or training, unemployment and long-lasting unemployment;
  • for the educational and technological development, a weighted average of male and female population with a high level of education on one side and three indicators of the technological development on the other side (intra-muros RD expenses in % of the GRP, RD manpower and researchers in % of the active population and patents asked in relation to the active population);
  • for the regional attractiveness, the migratory balance.

The study proposes also not to include the environmental dimension at this scale, since the regional scale is not the best one for identifying environmental issues. Of course, environmental issues could evidently be included in actions financed through structural funds.

Despite it is not in theory the best geographical division to consider the allocation of structural funds, in practice, NUTS 2 seems to remain the best geographical level for considering the eligibility of the regions, surely if GRP is replaced by FCE or by a synthetic indicator.

By comparison to the present eligibility criteria, using FCE instead of GRP leads to reduce the intra-national disparities, in relation with the internal transfers and in particular the disparities between metropolitan cores and surrounding regions. By comparison to FCE only,  using the synthetic indicator reintroduces more intra-State variations, like North vs. South in France, East vs. West in Germany,  and the North-South dichotomy in Italy and to a lesser extent in Spain. The synthetic index also reveals the “transition statute” of Ireland, in contrast to GDP figures which positions this country at very high levels but doesn’t consider the very high amount of financial transfers outside the country.

Measuring the impact of the UK referendum on the future of the structural funds is a difficult and very conjectural exercise. A lot of scenarios could be built, including increasing contributions of the remaining EU27 countries. It was not possible to examine all the scenarios in the framework of this study. Only keeping the contributions of the countries at their present level has been considered. In this case, the reduction of the total available budget should be very significant: the UK contributes for 15.6% to the European budget and receives only less than 3.5 % of the allocations for the structural funds. So, if one considers a linear reduction of all the European budgets, the expenses for the structural funds will be reduced by 12.1 %. Another consequence to consider is that the absolute value of the European average GDP per capita will decrease: regions that are now below the 75 % or the 90 % thresholds could exceed the same thresholds computed on the basis of the “new” average.

Combining in a scenario the use of the new averages, the reduction of the total budget and using FCE instead of Gross Regional Product, with the same 90 % and 75 % levels as now, should mean a strong loss of allocations for the big Western European countries where the intra-national transfers of income are important (from the North to the South in Italy, from Paris to the rest of the country in France, from Western to Eastern Germany). Conversely, the losses should be more limited in Central-Eastern European countries. Considering the use of the synthetic index, the losses for the Western European countries would be even higher than for FCE, as well also for the Czech Republic, and lower for the other Central-Eastern European countries and the Mediterranean countries. Spain should  become the second recipient of the allocations in volume after Poland, due to the weight of its social vulnerability and its negative migratory balance. Finally, the report also pleads for a special attention paid to Greece and Cyprus, in relation with their very low investment rate.

Link to the full study: http://bit.ly/601-976

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