Non-linear and Lagging Convergence Effects of the EU's Regional Support at NUTS3 Level

Abstract

Reduction of the territorial disparities in terms of their development level is the main aim of the European Union's (EU's) regional support. Most of the previous studies investigate the linear relationship between support and growth at countries' or NUTS1/2 disaggregation level, omitting the question on what is the impact of this support on regional convergence among NUTS3 regions and on whether non-linear effects occur. To fill this gap, we modified the difference-in-differences estimator to test empirically the non-linear convergence effects of the EU's regional support at NUTS 3 level over the 2000-2006 programming period, taking into account the possible lagging effect. The results revealed that the impact of regional support on convergence is positive with the diminishing marginal effect as the intensity of payments is increasing. Moreover, we find evidence that the return is higher for the post-intervention compared with the intervention period, i.e. the convergence outcomes of the EU's support occur in the long-run.