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Absorptive capacity, economic freedom and the conditional effects of regional policy

Author

Listed:
  • Jonathan Eberle

    (Department of Geography, Philipps University Marburg)

  • Thomas Brenner

    (Department of Geography, Philipps University Marburg)

  • Timo Mitze

    (Department of Business and Economics, University of Southern Denmark)

Abstract

This paper analyzes the role played by regional conditioning factors, namely absorptive capacity and economic freedom, for the working of regional policy in Germany. We construct synthetic composite indicators to measure differences in these factors across German regions and stratify regions by their respective values. We then identify the subsample-specific transmission channels of regional policies in a spatial panel vector-autoregressive (VAR) framework and compare the direction and magnitude of effects by impulse-response function analysis and ex-post t-tests. The results point to two main channels of policy impact: While regions with low levels of absorptive capacity and economic freedom benefit from public funding only in terms of a traditional funding channel (i.e. higher investment rates and partly increased human capital levels), the link between regional policy, GDP and technology growth is very weak for these regions. In comparison, our findings hint at significant positive effects on regional GDP per workforce and patent activity for regions with a high absorptive capacity and economic freedom (i.e. a knowledge-based funding channel). This underlines the role of regional conditions for the direction and magnitude of funding effects and should be considered by policy makers as a means to trigger policy effectiveness in times of stagnating or decreasing funding volumes.

Suggested Citation

  • Jonathan Eberle & Thomas Brenner & Timo Mitze, 2018. "Absorptive capacity, economic freedom and the conditional effects of regional policy," Working Papers on Innovation and Space 2018-03, Philipps University Marburg, Department of Geography.
  • Handle: RePEc:pum:wpaper:2018-03
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    References listed on IDEAS

    as
    1. Aadne Cappelen & Fulvio Castellacci & Jan Fagerberg & Bart Verspagen, 2003. "The Impact of EU Regional Support on Growth and Convergence in the European Union," Journal of Common Market Studies, Wiley Blackwell, vol. 41(4), pages 621-644, September.
    2. repec:bla:jcmkts:v:41:y:2003:i::p:621-644 is not listed on IDEAS
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    More about this item

    Keywords

    regional policy; production function; absorptive capacity; economic freedom; SpPVAR; impulse-response functions;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • 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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