Impact of European Union development subsidies on Hungarian regions

Abstract

Since the collapse of the communist system, regional inequalities have increased in Central European Countries. This paper describes an assessment of the impacts of regional development programmes on the development of Hungarian regions at a highly disaggregated level between 2002 and 2008. We construct a multi-dimensional composite indicator to estimate the overall development of rural regions and capture social, economic and environmental dimensions. The impacts of rural development programmes were investigated through counterfactual analysis in combination with Propensity Score Matching and Difference-in-Differences approaches. There has been considerable variation with increasing concentration in the level of subsidies distributed during the analysed period. From a policy perspective, the results are disappointing. Irrespective of the subsidy measures or methodology employed, the impact of the former is very close to zero or non-significant. Our findings cast serious doubt on the effectiveness of development policy and the long-run convergence of European regions.