“Regional Policy in an Integrated Europe. Insights from the Literature”

This paper discusses the theoretical justifi cations in favour of and the empirical evidence available on the EU regional policy, taking the eastward enlargement as standpoint. On a theoretical ground, we note a recent weakening of the arguments spelled out in favour of a convergence hypothesis, which is, in fact, the expected outcome of traditional neo-classical models only under very restrictive assumptions, such as the homogeneity of technological endowment, the presence of a market for externalities and the absence of constraints to labour mobility. All these factors are missing in the current and will be even weaker in an enlarged union. Following a convergence path in the debate about divergence, similar to old post-keynesian theories, the New Growth and New Economic Geography theories predict national convergence, but regional divergence as the most likely outcome of a process of economic integration. The empirical literature on the EU integration process seems to be unable to provide more than very bland evidence in favour of regional convergence, either driven by market forces or by regional funds. These last seem to act only as temporary transfer mechanisms, as already foreseen in the seminal contribution by Mundell (1961). We conclude that in order for the regional policy to be effective, more funds are necessary to sustain the objective of a quickly enlarged union, which seems to be driven more by policy than by economic considerations. Moreover, an effective regional policy should be fi ne tuned to the needs of depressed regions by increasing their human capital endowment and technological potential. Without a strong fi nancial effort from the richer regions carefully addressed to the needs of old and new depressed regions of the EU, the risk to trade off economic for policy integration seems to be diffi cult to avoid in the long run. Finally, the enlargement has called for a complete rethinking of the EU regional policy. A larger union involves not only further constraints to the funds available to regions in the old and new member states, but also, and perhaps more importantly, to the effi cient functioning of EU institutions. Their reform implies redefi ning not only the role of supranational governing institutions, but also governance rules of the EU regional policy. The devolution of some aspects of this policy to the national and regional level seems not only appropriate, but also necessary, if not unavoidable.