Regional Allocation of Structural Funds in the European Union

Abstract

Economic disparities among the regions of the European Union are more pronounced than among countries. Structural Funds have played a crucial compensatory role, promoting the economic development and real convergence of lagging regions. The amount of resources destined to regional policy and the conflicts arising from its funding and distribution create the need for an adequate theoretical foundation or model to help politicians solve the distribution problem. In this paper we propose an empirical procedure to carry out and evaluate different distributions of funds for the periods 1989 – 93 and 1994 – 99. We begin with the estimation of an augmented production function to permit the calculation of the expected GDP per capita. We then propose a nonlinear programming method to simulate alternative distributions of Structural Funds among Objective 1 regions, based upon two different approaches: equal development, and equal opportunities. For these two approaches we calculate different possibilities, ranging from highly efficient to highly equitable, with the result that we are able to show the ‘frontier’ of optimal distributions. Finally, we evaluate these results and compare them with the real distribution.