Does EU regional policy promote local TFP growth? Evidence from the Italian Mezzogiorno

Abstract

Total factor productivity (TFP) explains the bulk of the differences in income level across territories. A major policy issue refers to the ability of place-based policy to promote TFP growth in backward areas. We investigate the effect of the European Regional Development Fund (ERDF) on local TFP growth in Southern Italy between 2007 and 2015. By using different empirical models (least absolute shrinkage and selection operator (LASSO) cross-section, panel fixed-effect regressions and a spatial regression discontinuity design), we show that, on average, local TFP seems to be rather unresponsive to EU programmes. Some suggestive evidence of a positive effect is found for ERDF infrastructure investments and for the areas characterized by higher institutional quality and population density.