Multifaceted effects of public regional policy measures on regional living conditions. Evidence from German redistribution policies and European Cohesion Policy.

The place a person lives in significantly affects the living standards and life chances of this person. Peripheral and economically weak regions within highly developed countries appear to offer their residents fewer opportunities, due to economic constraints, such as unemployment and lower wages, w...

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Bibliographic Details
Main Author: Wardenburg, Sven
Contributors: Brenner, Thomas (Prof. Dr. Dr.) (Thesis advisor)
Format: Dissertation
Language:English
Published: Philipps-Universität Marburg 2021
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Summary:The place a person lives in significantly affects the living standards and life chances of this person. Peripheral and economically weak regions within highly developed countries appear to offer their residents fewer opportunities, due to economic constraints, such as unemployment and lower wages, weaker regional amenities (e.g. such as weaker infrastructure and educational opportunities) or social challenge, such as increased risks for social marginalization, poverty and premature mortality. These constraints affect the daily lives of people living in these regions. Thus, peripheral and structurally lagging regions tend to appear less attractive and economic and social disparities to primarily dynamic metropolitan areas foster social polarization. Socioeconomic trends such as structural change, the new geography of jobs or ageing tend to reinforce within-country inequalities. The theoretical considerations in this thesis illustrate that reducing regional disparities and promoting spatially equivalent living conditions is an important topic in regional science because of its economic, social and political implications. Regional redistributive policy such as structural investment funds and fiscal equalization schemes aim to make less developed regions more attractive and to increase economic and non-economic life-chances. But how effective are those policies? While there is a long tradition of examining economic growth effects of regional policies, there is a lack of scientific research and knowledge on effects that are not directly related to the economic output growth, such as the regional quality of life. This thesis aims to contribute to the literature on the efficacy of regional policy interventions dedicated to less developed regions by presenting novel empirical findings that focus on regional outcomes measures beyond regional economic output growth. Spatial vectorautoregressive panel models (SpVARs) are used to empirically assess the effects of regional policy measures. These models have the advantage of being flexible, accounting for indirect effects between variables, time lags between subsidies payments and regional effects and allowing for the evaluation of multidimensional policy outcomes within the same model. Another goal of this thesis is to further develop the SpVAR approach into an explicitly spatial design that adequately accounts for spatial spillovers and spatial interdependencies between variables and allows to estimate additional impulse response functions that estimate effects occurring in neighboring regions. This cumulative dissertation contains four stand-alone research papers in addition to an overarching introduction and a concluding chapter. The first paper analyzes the effects of the German Fiscal equalization scheme and the structural fund GRW at the level of German labor market regions. The paper shows, that fiscal equalization scheme grants have a significant positive effect on regional net migration rates for persons under 50 years of age. This particularly applies for regions with low endogenous fiscal capacities, which can be described as structurally lagging behind. It is argued that the dynamic development of net migration rates can be used as an indicator of the development of the individually perceived quality of life in the regions. By preventing out-migration from structurally lagging regions, it is found that equalization grants contribute to the goal of spatial equity, although no evidence for promoting regional economic growth is found. This is not found for the GRW policy. The second paper analyzes the multifaceted effects of European Structural and Investment Funds (ESIF’s) in European NUTS-2 regions. The paper finds that the European Regional Development Fund (ERDF) can support regional productivity and employment growth as well as household income growth, which should have a positive impact on the people’s material living standards. The effects of ERDF subsidies are particularly present in less developed regions, while no robust regional responses to subsidies are found for the European Social Fund (ESF) and the Cohesion Fund. In contrast to the first paper, no effects on net migration rates are found. The third article focuses on GRW effects at the regional level of German counties and independent cities. It emphasizes wage developments at different quantiles of the wage distribution as possible effects from GRW subsidies in order to investigate the extent to which possible productivity and income effects of GRW subsidies are transmitted to employees. Industry subsidies are found to have partially positive effects at different levels of the wage distribution in East Germany, while effects in the West are limited to the upper end of the wage distribution. Infrastructure subsidies appear to have higher efficacy on wages than firm subsidies in the industrial scheme, but are also limited to East Germany and to the service sector. The empirical findings suggest that the policies under investigation in this thesis have different transmission channels. The occurrence and strength of effects is heterogeneous and differs across policies. All three empirical findings suggest that effects are higher in less developed regions. Thus, they seem to depend on regional preconditions as well as on the policy frameworks. The final paper presents a novel spatio-temporal panel vector autoregressive approach as an extended spatial econometric method to correctly analyze spatial spillover effects in the SpVAR systems used in this thesis. The paper does not primarily aim to provide new empirical insights, but to extend the spatial dimension of SpVAR models by capturing the full cross-regional interdependencies and spatial spillover between variables over time, which allows to estimate policy effects in neighboring and economically connected regions. It is shown, that positive responses of variable shocks in regions can induce negative effects in neighboring regions through substitution effects. The findings presented should be of particular interest to policy makers, as relevant policy implications can be drawn. Based on the empirical findings, spatially redistributive policies can support the regional development of less developed regions and thus the quality of life and material living standards in these regions under certain circumstances. First, unconditional policy grants from fiscal equalization appear to be more effective than structural investment funds in increasing regional net migration rates and promoting non-material living conditions. Second, the high conditionality of effects in favor of regions with low economic strength indicates that policies should be even more tailored to these regions to be most effective. Finally, policymakers and researchers need to consider spatially indirect effects, since positive effects in subsidized regions may entail negative effects in neighboring regions.
Physical Description:237 Pages
DOI:https://doi.org/10.17192/z2021.0249