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Regional and Local Development in Europe: Public Policies, Investment Strategies, Institutions

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Regional and Local Development in Europe: Public Policies, Investment Strategies, Institutions Regional and local development in Europe: Public policies, investment strategies, institutions Marco Di Cataldo London School of Economics September 2017 Thesis submitted to the Department of Geography and Environment of the London School of Economics for the degree of Doctor of Philosophy in Economic Geography. Declaration I certify that the Thesis I have presented for examination for the PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others. The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without the prior written consent of the author. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 57,980 words (excluding appendices and literature references). Statement of conjoint work I confirm that paper 2 was jointly co-authored with Riccardo Crescenzi (LSE, Geography & Environment) and Andres Rodríguez-Pose (LSE, Geography & Environment); paper 3 was jointly co-authored with Andres Rodríguez-Pose; paper 4 was jointly co-authored with Nicola Mastrorocco (Trinity College Dublin). My contribution amounts to at least 80% of the total work on papers 2 and 3 and to 50% of the total work on paper 4. To my father Abstract The development strategies being promoted in the EU – Europe 2020 and the 2014-2020 Cohesion Policy – aim to supersede the presumed incompatibility between efficiency and equity through a policy approach tailoring interventions to the key specificities of all territories, including the most disadvantaged. In this view, the socio-economic progress of lagging regions would help keeping under control any increase in inequalities potentially associated with the economic development process. However, the idea of promoting spatially-targeted interventions in economically backward areas has been conceptually questioned, and the effectiveness of the Cohesion Policy programme in poorer regions is yet to be convincingly proven. In the policy framework underpinning EU strategies, a key role is assigned to the quality of regional and local government institutions. Public institutions are conceived as instrumental for identifying and solving the bottlenecks inhibiting economic growth and perpetuating social exclusion in poorer places. Nevertheless, local governments may also be responsible for wastes and misallocations of financial resources. While theoretical contributions on the importance of government institutions for regional and local development abound, empirical evidence on their functioning is scarce. Through which mechanisms they influence the design and outcomes of public policies is unclear. Drawing from cross-country investigations and case-studies in the European context, the four quantitative studies composing this Thesis contribute to shed light on these related issues. Focusing on the United Kingdom, the first paper evaluates the economic and labour market impact of EU Cohesion Policy. Counterfactual analyses demonstrate that EU regional policies may have a beneficial impact on the labour market and growth path of peripheral regions. The study warns over possible negative repercussions of a discontinuation of EU financial support to poorer areas, a result of obvious relevance for the country after ‘Brexit’. By exploiting panel samples of EU regions, the second and third papers shed light on the role of government institutions for the returns of regional investments and for labour market and social conditions in Europe. The second paper examines the link between institutional quality, transport infrastructure investments, and economic growth. It shows that improvements in secondary (local) roads are conducive to a better economic performance only in presence of sound regional governments. The third paper investigates the extent to which the factors at the centre of European growth strategies – institutions, innovation, human capital and transport infrastructure – contribute to the generation of employment and to social inclusion in EU - 1 - regions. The evidence produced suggests that regional government institutions have been essential to mitigate social exclusion issues in EU regions. The fourth paper focuses on Southern Italy to examine how public finances are distorted by ‘local governments captures’ operated by organised crime. Collusions between mafia and local politics have a significant impact on the selection of investments and on the collection of fiscal revenues. The local policy agenda is modified to the advantage of the interests of organised crime. Overall, the evidence emerging from this Thesis suggests that policy interventions have the potential to boost the economic and labour market performance of the less developed EU regions. However, any favourable policy outcome (both in terms of efficiency and equity) is conditioned by the competence and the goodwill of government institutions responsible for defining development targets and enforcing investment plans. When politicians are conditioned by illegal pressures from criminal groups, investment decisions follow special interests rather than general welfare goals. In turn, inadequate governance harms the economic impact of selected interventions. The results are particularly relevant for the lively debate, within economic geography, on the pre-conditions and policy measures enabling ‘smart and inclusive’ development at the sub-national level. - 2 - Acknowledgments I am indebted to all the people that accompanied me in this long and rewarding journey. I owe my utmost gratitude to my supervisors, Riccardo and Andrés, for the insightful guidance, constant encouragement and great recognition of my work. You have helped me to realise the LSE was a place where I could fit in, and you have given me the intellectual freedom I needed to gain confidence as a researcher. But above all, I am deeply thankful to you, as well as to Simona, for the understanding and sincere support in my most difficult period of the PhD. I am deeply grateful to all my PhD colleagues and especially to Alex, Davide, Mara, Filippo, Eduardo, Elisabetta, Pablo, Viola, Susanne, David, Paula, Andrea, Martin, Luca, Patrizia, Mara, Yimin, Alexandra. Thanks to all that have contributed to transform St Clement’s 5th floor PhD room into a pleasant place to work in. I am also thankful to Nicola, for the intense and fruitful collaboration on my fourth PhD paper, and to Martina, Marci, and Riccardo, for keeping my window to the non-academic world always wide open. My work has benefited from discussions with other faculty and colleagues at the LSE. In particular, I thank Steve, Olmo, Henry, Vassilis, and all other participants of the LSE Economic Geography seminar for the helpful comments. I also thank my family and in particular my mother, always there for me, and Giovanna, Elisa and Margherita, who shared with me the pain of the darkest days. You gave me the strength I needed to keep going. Last but not least, my gratitude goes to Laura, whose support and unconditional love has been so important for me during my PhD. Thank you for your patience every time I felt overwhelmed by the PhD stress and when, for escaping it, I needed to scream in front of useless football matches on tv. I am immensely grateful for all the sacrifices you have made and you make every day just to be by my side. - 3 - - 4 - Table of contents Table of contents ....................................................................................................................... 5 List of tables ............................................................................................................................ 10 List of figures .......................................................................................................................... 12 Introduction ........................................................................................................................... 15 Conceptual framework ............................................................................................................ 17 Themes of research ............................................................................................................................ 21 Structure and objectives of the Thesis ..................................................................................... 22 1. The impact of EU regional policies in the UK ............................................................... 24 The Cohesion Policy of the European Union: functioning, rationale, empirical evidence ............... 24 EU Cohesion Policy in the United Kingdom and the prospect of Brexit ........................................... 25 Paper 1. The impact of EU funds on regional development: Evidence from the UK and the prospect of Brexit ................................................................................................................................................. 27 2. The role of regional government institutions for the promotion of socio-economic development in the EU ............................................................................................................ 28 Government institutions and development ......................................................................................... 28 Quality of government in the EU regions .........................................................................................
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