The Impact of Institutional Quality and Efficient Cohesion Investments on Economic Growth Evidence from Italian Regions

Abstract

Literature stresses that efficient institutions are necessary to achieve the highest returns from public policies. It has been recognized by the European Union (EU) that regional institutions have a fundamental role in obtaining the highest results from Cohesion and Structural investments, which represent the main fiscal and anticyclical instruments available for the regions. The paper aims at analyzing the impact of the quality of regional governments, and their management of EU cohesion funds on the economic growth of Italian regions. In order to measure the quality of institutions, we have combined the Institutional Quality Index (IQI) with a set of efficiency indexes, calculated in order to evaluate the ability of regional policymakers to manage European Funds. We conduct a two-way fixed effect panel regression model during the period between 2007 and 2015. The results underline that, in general, Cohesion investments and IQI are positively related to the regional growth; instead, efficiency indexes are important key factors mainly in the Southern area, characterized by structural weaknesses.