The DMI Approach for Urban Development Funding

With the introduction of the JESSICA (Joint European Support for Sustainable Investments in City Areas) Initiative, the European Commission aimed at strongly enhancing investments in urban areas to meet the steadily increasing requirements, arising from urbanisation, for European cities. One major challenge now is to find out where the establishment of so called Urban Development Funds (UDFs), with their revolving nature, is a suitable means to achieve this goal. A concept for the determination of funding targets for UDFs is discussed in this paper with the help of three subsequent steps – distance, movability, and capital market imperfections of cities – which we name the DMI approach. The first step is the determination of urban differences by an indicator-based analysis with the definition of the distance to a benchmark city. This reveals cities which have a need for investments in urban areas. Second, the measurement of funding efficiency as a device to quantify movability of cities defines the next step. This step helps to identify cities which should be supported technically to achieve more impact from the funded investments. Finally, the third step is the provision of market imperfections given by the sensitivity of investment needs to the three market failures of external effects, imperfect competition and incomplete information. With the third step, cities which need investments in urban areas are separated into those which are finally eligible for UDFs and other funding candidates.With this overall approach we achieved to merge a high number of information into a neatly arranged separation of cities. As a final result, we obtain those cities which should be supported by UDFs and we also identify if further technical support is appropriate. This is demonstrated by an example on Italian cities. The DMI approach contributes to research on UDFs by introducing a conceptual way for the determination of urban funding target areas which is up to now absent in literature.