The Impact of Cohesion and Rural Development Policies 2007-2013: Model Simulations with QUEST III

Cohesion policy is the Union's main instrument to promote regional development and reduce disparities among the Union's Member States and regions. It concentrates its support in the fields of R&D, support to SMEs, education, or transport, telecommunication, social and environmental infrastructure.

Cohesion funding is allocated to all Member States and regions in the EU but relative to their GDP the amounts accruing to the less developed ones are much higher than elsewhere. In some countries, it represents more than 3% of GDP, financing a substantial part of public investment.

The EU rural development policy supports rural areas in tackling their economic, environmental and social challenges. Its main strategic objectives are to foster the competitiveness of agriculture, to ensure the sustainable management of natural resources and to promote a balanced territorial development of rural areas. For the 2007-2013 programming period, the EU allocated €347 billion for cohesion policy and €96 billion for rural development. Member States allocations were divided into annual amounts which must be spent within two or three years, depending on the country, over the period 2007-2015.

This paper provides an assessment of the potential impact of cohesion and rural development policies for the programming period 2007–2013 using QUEST. The model simulates the impact of policy interventions on a large number of economic variables relevant to cohesion and rural development policies such as GDP, employment, wages, productivity, or corporate investment.

Simulations show that cohesion and rural development policies affect many key economic variables. Overall, the simulations shows that the interventions improve the structure of the EU economies and hence their competitiveness. In particular, they have a positive and significant impact on the productivity of factors of production, as result of direct investment in technology but also of enhanced business conditions encouraging investment in tangible and intangible assets.

As a result, interventions substantially increased GDP, in particular in the Member States which are the main beneficiaries of the policies. The highest impact is found in Hungary (+ 5.3%) and Latvia (+ 5.1%) as well as in Poland (+4.3%). The impact is also substantial in EU-15 Member States like Greece (+2.2%), Portugal (+1.8%) and Spain (+0.7%) which benefited from support of the Cohesion Fund.

Finally, cohesion and rural development policies yield high value for money. As expected from policies supporting investments in key engines of growth, a substantial part of their effects progressively increases over time and only emerge in the long run. However, once they produce their full impact, the interventions prove to benefit to the whole Union even if they are concentrated in its less developed places.