Mind the gap: how does the flow of EU funds match structural investment gaps in CESEE?

This chapter shows that determining investment gaps in quantitative terms is a rather challenging task. In Central, Eastern and Southeastern Europe (CESEE), there is tangible evidence suggesting significant structural and qualitative investment needs. By using a large set of structural indicators, the chapter first sheds some light on the qualitative investment gaps and their evolution in CESEE during the last European Union (EU) budget period. The analysis suggests that convergence of the quality of capital toward the EU average has been negligible. The chapter then contrasts the identified structural investment needs with the flows of the European Structural and Investment Funds (ESIF) in the 2007-2013 EU budget period. It turns out that, contrary to expectations, higher ESIF amounts were not positively correlated with the largest structural needs, nor with more significant improvements in capital quality. The findings thus point to the policy conclusion that the link between allocated resources and structural reforms should be strengthened; which is exactly what the European Commission envisages for the next Multiannual Financial Framework.