The spillover effect of European Union funds between the regions of the new European Union members

Abstract

Abstract As the differences between the regions are more pronounced than among the countries, NUTS 2 regions of the new members that joined the EU after 2000 are considered. Due to the presence of externalities between the regions, the Solow growth model using interregional externalities is used. This is modelled by spatial econometrics, the method of maximum likelihood. According to previous research, the effects of European funds in the EU on reducing disparities are not unique, but contradictory. From the mentioned research for new members, we can conclude that the research shows a positive effect of European funds on growth rates. There is a noticeable lack of research analyzing the impact of EU funding on new members after the 2008 crisis, including their mutual regional interaction. The aim is to determine the impact of EU funding on reducing regional disparities as measured by GDP per capita. The paper shows that an increase in European funding increases growth rates, thus contributing to the reduction of interregional disparities. European funding, which is mostly targeted at less developed regions, represents an opportunity for new members and potential new members to move closer to more developed old members. The spillover effect of European funds represents the key contribution to the positive effect of EU funds, i.e. the advantage of the application of spatial econometrics. Also, these spillovers have proven to be an important factor whose omission in models estimated by the OLS leads to bias. Regional externalities should be taken into account in regional divisions by regional policymakers, and in creating the distribution of funds for the next programming period. The effect of funding in the region itself without the spillover effect does not contribute to reducing disparities, which represents a future opportunity, especially for the poorest regions, such as the regions in Bulgaria and Romania.