Download Au Revoir Cornwall? Brexit and EU Regional Policy

Press Release – Friday 3rd June 2016
Brexit and EU Regional Policy
Analysis by the Centre for Competitive Advantage in the
Global Economy
The European Union (EU) spends a large share of its budget on Regional Policy. Overall,
regional transfers across the EU give value for money. However, there is room for further
improvement in the design of EU regional transfers to make them even more effective. UK
regions have benefited from EU regional policy over the last decades. There is uncertainty for
those UK regions that currently benefit from substantial amounts of EU funding (e.g. Cornwall)
over what would replace those funds after Brexit.
These are among the conclusions of research by the Centre for Competitive Advantage in the
Global Economy (CAGE) at the University of Warwick. It analyses the impact of EU regional
transfers on regional growth and investment, across the EU and in particular in the UK. It
addresses the question on whether money of taxpayers in the UK and elsewhere is well-spent
on average recipient regions of EU regional transfers, and how UK regions have benefited from
those transfers.
The UK has traditionally put a lot of emphasis on foreign aid. For instance, in 2010, the
government ring-fenced the foreign aid budget while the vast majority of UK ministries saw
their budgets slashed by 20% or more. Even under a Brexit scenario, the UK might still be
inclined to support the poorest regions of Europe in the same way that it supports poor
countries around the world. It is therefore insightful to see how effective EU Regional Policy
has been over the past 25 years.
The CAGE research shows:

Objective 1 transfers to the poorest regions of the EU (i.e. regions with per-capita GDP
of less than 75% the EU average) which are meant to directly foster catching up in percapita income induce growth and income beyond a simple consumption effect: one
Euro of transfers generates between 1.00 and 1.20 Euros on average. So, on average,
Objective 1 transfers have been effective. Contrary to popular belief, money paid into
the EU regional policy budget was not generally wasted.

However, this average positive effect is not uniform across regions. Transfers affect
regional per-capita income growth quite differently, and in a systematic way: those
regions receiving Objective 1 transfers that have a better educated workforce
(“technological absorptive capacity”) and/or better-run local government with less
corruption and better local administration (“institutional absorptive capacity”) do
better than the average recipient region, and regions below average in terms of
education of the workforce and/or quality of local government do not grow faster than
regions that receive no transfers at all. This points to potential efficiency gains for
future EU regional policy if EU regional transfers were targeted at improving absorptive
capacity with beneficial long-run effects rather than just catching up in the short run.

Regarding EU regional transfers as a whole more spending does not generally lead to
higher economic benefits: some regions seem to struggle with the amount of transfers
received and above a certain transfer intensity further additional growth is by no means
ensured. Again, future EU regional policy might consider capping transfers to avoid
inefficiencies.

UK regions in receipt of Objective 1 transfers over the last 25 years show similar effects
of EU transfers on growth and investment as other Objective 1 regions across the EU,
so there is no UK specialism.

Case studies of UK regions that lost their Objective 1 status after they crossed the 75%
threshold show that UK national funding that replaced EU funding was substantially
lower than what those regions had received before. UK regions currently in receipt of
substantial amounts of EU funding might lose substantially after Brexit, unless they
negotiate a Growth Deal with Westminster. Any such negotiation will likely be subject
to political bargaining because other domestic interest groups will also battle to get a
share of Britain’s contribution to the EU budget.
Sascha O. Becker commented: "The bottom line, which may surprise those critical of Britain’s
contribution to the EU budget, is that the EU does not systematically and overall waste
taxpayer money. In fact, EU regional policy is overall effective. But not all regions benefit in the
same way from EU regional transfers. Regions with below-average absorptive capacity, i.e.
ones with below-average quality of local government or below-average educated workforce,
benefit substantially less from EU regional transfers than regions with above-average
absorptive capacity. Also, some regions seem to receive “too much of a good thing”: they get
transfers that are in excess of what they can turn into additional growth."
Peter H. Egger highlighted: "UK regions have also benefited from EU regional policy.
Interestingly, UK regions in receipt of EU regional transfers have not outperformed other EU
recipient regions. So, the UK has been an “average country” in this regard."
Maximilian von Ehrlich said "It seems to be uncertain what would replace EU funding for
regions such as Cornwall in case of Brexit. They would probably have to negotiate “Growth
Deals” with Westminster to ensure they are not falling further behind."
For further information, contact:
Authors:
Sascha O. Becker, University of Warwick and CAGE; Email: [email protected]
Peter H. Egger, ETH Zurich and CAGE; Email: [email protected]
Maximilian von Ehrlich, University of Bern and CAGE, Email:
[email protected]