Impact of EU subsidies on subregions

Abstract

In recent years, evaluating EU co-funded programmes has grown in importance. This paper is a first attempt at analysing the impact of subsidies paid by the European Union towards upgrading rural areas between 2002 and 2008, using a two-stage approach.

In the first stage, we construct a multi-dimensional index measuring the overall level of regional development and quality of life in individual regions of Hungary. In the Regional Development Index (RDI), the development domains are represented by 132 partial socioeconomic, environmental, infrastructural and administrative indicators/variables at LAU1 level. The weights of these economic, social and environmental domains are derived empirically from an econometrically estimated, interregional migration function after selecting the “best” model from various alternative model specifications. The RDI was empirically applied to the regional development in individual rural areas of Hungary in the years 2002–2008. Due to its comprehensiveness, RDI is suitable for analysing the overall level of development of rural areas and also for evaluating the impacts of various structural programmes at a regional level.

In the second stage, we apply a propensity-score-matching approach to evaluate the impact of regional subsidies on the RDI. Estimations reveal four main findings. First, calculations suggest that EU subsidies concentrate where there have been previous EU subsidies. Second, some convergence of support can also be observed. Third, we find considerable variation in terms of the level of subsidies during the period analysed. This indicates that there has been a chance for poorly subsidised regions to improve their relative position or weaken their position further. Finally, our results imply that it is very difficult to identify any impacts of subsidies, because estimations are highly sensitive on the chosen parameters. The significance of identified effects is rather low and its direction can be both positive and negative. We conclude that, irrespective of estimated coefficients, the impact of regional subsidies is negligible. As a consequence, further research is needed to explore impacts mechanisms of subsidies.