Impact of European Cohesion Policy on regional growth: does local economic structure matter?

A growing body of literature has analysed the effect of European Cohesion Policy on regional gross domestic product (GDP) growth. The paper contributes to this literature by discussing Structural Funds and assigning an explicit role to the choice of strategy and the economic structure of regions. In particular, adopting a regression discontinuity design with heterogeneous treatment and using data on NUTS-3 regions makes it possible to identify the causal impact of Structural Funds on regional growth according to the size of the service sector, a sector that accounts for a large share of total Structural Funds expenditure. The paper shows that the larger the sector, the greater the amount of financial resources directed to services and the slower is growth. The interpretation pertaining to policy implications is that higher growth rates can be obtained by promoting the service sector at its early stages, i.e., when it is comparatively small and its potential for productivity growth is higher.