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The growth effect of EU funds – the role of institutional quality

Author

Listed:
  • Szörfi, Béla
  • Augusztin, Anna
  • Iker, Áron
  • Monisso, Anna

Abstract

This paper investigates the growth impact of the EU’s Structural, Cohesion and Pre-accession Funds. We look at a large sample of 27 EU countries and the UK, over a period of 1989 and 2020, essentially covering the full history of these funds. We show that the growth effect of the funds is conditional on institutional quality: the funds contribute to economic growth only in countries with strong institutions: low corruption, strong rule of law, effective governments, and strong regulatory quality.Our research have important messages for the expected economic impact of the Next Generation EU (NGEU) and the Recovery and Resilience Facility (RRF). On the one hand, our findings highlight the risk that countries with weaker institutions – that also receive more funds - may use such funds less efficiently or wisely. On the other hand, countries that receive more RRF funds are also expected to introduce more structural reforms, some of which have the potential to improve institutional quality and thereby improve the effectiveness of the RRF and EU funds in general. JEL Classification: O11, O43, O47

Suggested Citation

  • Szörfi, Béla & Augusztin, Anna & Iker, Áron & Monisso, Anna, 2025. "The growth effect of EU funds – the role of institutional quality," Working Paper Series 3014, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253014
    Note: 2322646
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    More about this item

    Keywords

    cohesion funds; economic growth; institutions; structural;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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