Can we boost the competitiveness of the european union through reducing regional inequalities in human capital?

Abstract

The trade-offs involved in boosting the competitiveness of EU member states, while reducing within-country regional inequalities, constitute an important, but underinvestigated relation in competitiveness and regional policy analyses. The article studies the influence of regional inequalities in human capital on the competitiveness of the EU member states, drawing on a panel dataset of 22 EU countries and 266 NUTS 2 regions, over the period 2000-2011. The analysis is extended with the variables that can have a significant influence on the observed relationship, including the EU’s Structural and Cohesion Funds, and differences in the levels of development between EU member states and regions. Applying different panel data estimators, it is determined that higher regional inequalities in human capital reduce the competitiveness of the EU member states. The EU’s Structural and Cohesion Fund payments have a positive influence on competitiveness in the long run. The EU’s new member states, as well as the EU countries in which most of the regions are classified as less developed regions, have lower competitiveness. The conclusions imply that the absorption of the EU’s Structural and Cohesion Funds in less developed regions does not contribute sufficiently to the strengthening of national competitiveness. The results also confirm the need to integrate a more place-based approach into the EU’s regional, and even national, competitiveness policies. With its approach in analysing the influence of regional inequalities in human capital, this article adds empirically to the existing studies about the ambiguous relation between regional inequalities and competitiveness. The conclusions can be used in the future EU regional policy planning that places special emphasis on measures, which are directed towards developing human capital potential.