Cohesion Policy Meets Heterogeneous Firms

Fattorini, Loredana and Ghodsi, Mahdi and Rungi, Armando Cohesion Policy Meets Heterogeneous Firms. EIC working paper series #2/2018 IMT School for Advanced Studies Lucca ISSN 2279-6894.

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Abstract

In this paper, we empirically test the effects of the EU ‘cohesion policy’ on the performance of about 500,000 European manufacturing firms after combining regional policy data at NUTS- 2 level with firm-level data. In a framework of heterogeneous firms and different absorptive capacity of regions, we show that financing of ‘cohesion policy’ by European Regional Development Fund (ERDF) aimed at direct investments in R&D correlates with improvement of firms’ productivity in a region. Conversely, funding designed at overall Business Support correlates with negative productivity growth rates. In both cases, we registered an asymmetric impact along the firms’ productivity distribution, where a stronger impact can be detected in the first quartile, i.e. less efficient firms in a region. We finally argue that considering the heterogeneity of firms allows a better assessment of the impact of ‘cohesion policy’ measures.

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