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Enlargement and local development:
the role of Structural Funds and
International Financial Institutions
Daniel Gros (CEPS)
Convegno Unicredito
Roma, July 9 2004
Structural Funds or the need for large public
investment?
• What level of infrastructure endowment is
needed for catch-up growth?
• Level of present EU-15 would seem
excessive.
• Economic approach look at empirical link
between level of GDP and infrastructure.
Regression Results
Paved road network
(% of all roads) (a)
Rail network (km per
surface area) (a)
GNP per
capita PPP
1.20****
(12.9)
CEE8
SEE
CIS
ASEAN
1.50***
(2.8)
1.21****
(9.5)
1.57****
(8.5)
0.71****
(11.3)
1.42****
(11.4)
1.34****
(11.4)
1.08****
(4.8)
0.44
(0.9)
0.97****
(-2.8)
Source: own calculations. All variables are in logarithm. All standard errors are
corrected heteroskedasticity-consistent. The symbols: *, **, ***, **** indicate
coefficients that are significant at the 10%, 5%, 1% and 0.1% level, respectively.
(a) Additional explanatory variable: population density, 118 observations. 1999
data.
R2
0.80
0.73
Infrastructure needs: a second approach
• Alternative method:
• Look at utilization rate of existing
infrastructure.
• For example, road and railway usage.
Idle capacity on rails and roads?
EU-15 average
Czech Republic
Estonia
Hungary
Latvia
Poland
Freight (in TKM) per km
railway line
8.5
4.1
2.8
2.5
2.1
3.2
Passenger cars per km
road
53.6
27.1
9.2
10.9
7.2
24.4
Source: own calculations based on data from New Cronos.
What is being spent in reality?
• The new member states spend only a bit
more than the “old” EU-15.
• Revealed preference? Shows that need can
be covered without the need for large flows
of funds from the EU?
Share of gross fixed capital formation by
general government in GDP
New members: 2003 data
Czech Republic
Estonia
Hungary
Poland
4.2
4.7
3.1
3.5
Old members: 1990 data
Portugal
Greece
Spain
Ireland
Source: Commission, DG ECFIN, Statistical Annex, Spring Forecast, 2004.
3.3
2.7
3.7
2.1
Concluding remarks
• Need for (hard) infrastructure often overestimated.
• What to do with Structural Funds?