The Impact of Spatial Spillovers on Cohesion Funds’ Effectiveness: A Spatial Panel Analysis for the Italian Provinces

Abstract

The aim of this work is to evaluate the impact of spatial spillovers on the effectiveness of projects financed in the Italian provinces (NUTS-3) by the European and national cohesion policy during the 2007-13 and 2014-20 programming periods. The fall-out of the economic effects of a public intervention outside the directly treated areas is certainly desirable. However, this may generate a displacement effect when the policy affects mainly more neighbouring territories. We employ a panel econometric strategy that incorporates spatial autocorrelation patterns between neighbouring provinces by estimating a spatial panel model. We disentangle the total policy impact into direct effects on the per capita GDP growth of the treated provinces and indirect (spillover) effects captured by neighbouring areas. The paper also examines the change of policy effectiveness and spillover direction across the Great Recession by testing whether regional policy has acted as a resilience factor in local economies. The data set was reconstructed from Opencoesione database and deals, for the first time in the literature, with registered expenditures related with completed projects. Our main results show that, in Italian provinces, during the considered period, spatial spillovers have a positive impact on European and national cohesion policies’ effectiveness, in addition to direct effects. In the crisis years, spatial spillovers have drastically reduced and this may have caused a reduction in cohesion policy effectiveness.