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:
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.
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.
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.