Regional and local development in Europe: Public policies, investment strategies, institutions

The development strategies being promoted in the EU – Europe 2020 and the 2014-2020 Cohesion Policy – aim to supersede the presumed incompatibility between efficiency and equity through a policy approach tailoring interventions to the key specificities of all territories, including the most disadvantaged. In this view, the socio-economic progress of lagging regions would help keeping under control any increase in inequalities potentially associated with the economic development process. However, the idea of promoting spatially-targeted interventions in economically backward areas has been conceptually questioned, and the effectiveness of the Cohesion Policy programme in poorer regions is yet to be convincingly proven. In the policy framework underpinning EU strategies, a key role is assigned to the quality of regional and local government institutions. Public institutions are conceived as instrumental for identifying and solving the bottlenecks inhibiting economic growth and perpetuating social exclusion in poorer places. Nevertheless, local governments may also be responsible for wastes and misallocations of financial resources. While theoretical contributions on the importance of government institutions for regional and local development abound, empirical evidence on their functioning is scarce. Through which mechanisms they influence the design and outcomes of public policies is unclear. Drawing from cross-country investigations and case-studies in the European context, the four quantitative studies composing this Thesis contribute to shed light on these related issues. Focusing on the United Kingdom, the first paper evaluates the economic and labour market impact of EU Cohesion Policy. Counterfactual analyses demonstrate that EU regional policies may have a beneficial impact on the labour market and growth path of peripheral regions. The study warns over possible negative repercussions of a discontinuation of EU financial support to poorer areas, a result of obvious relevance for the country after ‘Brexit’. By exploiting panel samples of EU regions, the second and third papers shed light on the role of government institutions for the returns of regional investments and for labour market and social conditions in Europe. The second paper examines the link between institutional quality, transport infrastructure investments, and economic growth. It shows that improvements in secondary (local) roads are conducive to a better economic performance only in presence of sound regional governments. The third paper investigates the extent to which the factors at the centre of European growth strategies – institutions, innovation, human capital and transport infrastructure – contribute to the generation of employment and to social inclusion in EU regions. The evidence produced suggests that regional government institutions have been essential to mitigate social exclusion issues in EU regions. The fourth paper focuses on Southern Italy to examine how public finances are distorted by ‘local governments captures’ operated by organised crime. Collusions between mafia and local politics have a significant impact on the selection of investments and on the collection of fiscal revenues. The local policy agenda is modified to the advantage of the interests of organised crime. Overall, the evidence emerging from this Thesis suggests that policy interventions have the potential to boost the economic and labour market performance of the less developed EU regions. However, any favourable policy outcome (both in terms of efficiency and equity) is conditioned by the competence and the goodwill of government institutions responsible for defining development targets and enforcing investment plans. When politicians are conditioned by illegal pressures from criminal groups, investment decisions follow special interests rather than general welfare goals. In turn, inadequate governance harms the economic impact of selected interventions. The results are particularly relevant for the lively debate, within economic geography, on the pre-conditions and policy measures enabling ‘smart and inclusive’ development at the sub-national level.