Quality of government and the returns of investment: Examining the impact of cohesion expenditure in European regions

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Posted on: 16 July 2013
By: mackene
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Filed under: News

This paper sets out to examine the impact of the quality of local and regional governments on the returns of investment, focusing on the returns of EU structural and cohesion funds. Despite the widespread belief that the quality of government affects the returns of public investments, whether this is effectively the case has seldom been proved.  The results of the analysis underline the importance of the quality of government both as a direct determinant of economic growth, as well as a moderator of the efficiency of structural and cohesion funds expenditure. The analysis finds that both EU investments targeting regions and quality of government make a difference for regional economic growth, but that above a significant threshold level of expenditure, the quality of government is the key factor determining the returns of public investment. In many of the regions receiving the bulk of structural funds, greater levels of cohesion expenditure would, in the best case scenario, only lead to a marginal improvement in economic growth, unless the quality of government is significantly enhanced.

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