DP3879 | The Effectiveness of Structural Policy in the European Union: An Empirical Analysis for the EU-15 during the Period 1995-2001

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The main aim of Structural Policy is to decrease the regional disparities within the European Union. In 2004 it is expected that ten new member countries join the EU. It is expected that this enlargement will cause strong regional disparities within the Union. For this reason the distribution of the financial support by Structural Policy will undergo drastic changes. In this study we considered two main themes. First, convergence of the current EU-member countries is empirically tested, for the period 1995-2002, and the effect of the Structural Funds in this context is identified. Structural Funds seem to have had a positive impact and poorer countries (like Greece) seem to have caught up with the richer countries. The importance of the Structural Funds in this respect can therefore not be neglected. Second, we touch upon the problem of moral hazard and the substitution effect. It may be expected that receivers of Structural Funds in some cases are not really eligible and may therefore use the Funds inefficiently. Our first and preliminary results seem to indicate that the less clean countries (or as we measure it, more ?corrupt? countries) of the current EU-15 do not gain less economic growth from the Structural Funds. The hypothesis that Structural Funds contributed to less interregional disparities within the current 15 European countries cannot be rejected. This might mean the intended plans of channelling a big share of the Funds to the candidate countries in 2007-13 will probably contribute to higher economic growth in these countries.