Center for Regional Economic Development (CRED)

Location dynamics and regional economic policy 

Core competence: Regional policy

Regional cohesion is a core objective of regional policy in Switzerland as well as the European Union. The underlying principle is that temporary transfers of funds trigger a self-sustaining mechanism in the recipient regions, reducing regional disparities. 

Our research analyzes the effectiveness and efficiency of these structural and regional policy measures. We are confronted with two main challenges: 

  • Regional development programs are often geared towards structurally weak regions, such that a direct comparison of regions receiving different levels of transfers does not allow us to infer the effectiveness of these measures.
  • Regional development policy in a specific region always leads to spillover effects to economically closely connected (e.g., neighboring) regions. If regional policy measures lead to a shift in economic activity, we do not only have to consider the direct effects in the recipient regions but also the indirect effects in the neighboring 

In order to account for these challenges in our analyses, we use econometric methods and quantitative economic geography models. In particular, we identify the partial causal effects of redistributive programs by making use of (quasi-experimental) discontinuities in the allocation rules. These parameter values are used in a second step for the calibration of our general equilibrium models. This allows us to reliably quantify the effects of regional policy on aggregate economic activity.

How could EU structural and cohesion policy be optimized?

The volume of regional redistributive programs in Europe is significant. Public spending allocated to structural and regional policy amounts to ca. 30 percent of the EU’s overall budget. Figure 1 illustrates the regional allocation of these funds. In a recent research project, we analyze the impact of regional policy measures on the spatial equilibrium in the EU. This means, our analysis of the effectiveness of these programs does not only look at the direct effects on the recipient regions in the EU but also considers the overall dynamic across all EU regions. 

CRED: Struktur- und Regionalpolitik / Regional policy
Figure 1: Distribution of per-capita transfers from the EU structural and cohesion funds. Regions in dark green receive the highest level of transfers.

Based on this analysis, we infer the criteria for “optimal” regional policy, which maximizes the efficiency of EU structural policy according to our model. This shows that the optimal combination of different types of transfers varies by region. If the EU were to systematically adapt the share of transfers spent for wage subsidies, investments in regional production amenities (e.g., via R&D subsidies) and investments in transportation infrastructure according to the characteristics of the recipient regions, substantial efficiency gains in the use of EU transfers could be generated. 

Current projects

Working title Research question
On the Optimal Design of Place-Based Policies: A Structural Evaluation of EU Transfers What is the efficient regional distribution of different types of EU transfers?
Yashar Blouri, Maximilan von Ehrlich
The Persistent Effects of Place-Based Policy: Evidence from the West-German Zonenrandgebiet
What are the long-run effects of regional policy on the spatial distribution of economic activity? 
Maximilan von Ehrlich, Tobias Seidel (Uni Duisburg-Essen)