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Synthesis Report Ex-post Evaluation of the ERDF 2000-2006 third higher in 2015 as a result of EU funding over the programming period and in Greece, almost 29% higher. Although the estimates produced by HERMIN are smaller, it is still the case that they are substantial – a gain to GDP by 2015 of around 19-21% in Greece and Portugal as well as in Spain. A similar difference between the estimates produced by the two models is evident for the EU10 countries. For the 10 taken together, GDP is estimated by HERMIN to have been around 4.5% higher in 2009 as a result of Structural Fund support and by QUEST to have been just over 3.5% higher. If the period is extended to 2011, however, the two models generate similar estimates of the effect – the gain to GDP being around 5.5% in both cases. At the same time, for 6 of the 10 countries – all except Latvia, Lithuania, Poland and Slovenia (for which the estimates are much the same) – HERMIN estimates a larger gain than QUEST and this remains the case if the period is extended to 2015. Again, despite the differences in scale and timing, according to both the models, the effect of cohesion policy in raising GDP is substantial in the countries receiving a relatively large amount of financial aid. 4.1.6 The net effect of cohesion policy on GDP across the EU As noted above, the QUEST model enables estimates to be made of the effect of raising taxes to pay for cohesion policy as well as of the effect of the expenditure which it finances. These estimates indicate that, overall, the funding provided by policy for the 2000-2006 period had a positive effect on GDP growth in the EU even if account is taken of the depressing effect in countries which were net contributors to the funding of cohesion policy. GDP in the EU25 as a whole, therefore, is estimated to have been 0.7% higher in 2009 as a result of cohesion policy over the 2000-2006 period, in the sense that the positive effect on countries which were net recipients of financial aid from the Structural Funds outweighed the adverse effects on the countries mainly responsible for raising the finance for the Funds (Table 4.3) 41 . Moreover, the net beneficial effect on GDP tends to increase over time as the lagged effects on raising productive potential in recipient countries come through. By 2015, GDP in the EU25 is estimated to be 2.4% higher as a consequence of the support provided for the 2000-2006 period and in 2020, 4% higher. The implication is, therefore, that, according to the QUEST model, the cohesion policy conducted over the 2000-2006 programming period is likely to add 0.2% a year to average GDP growth in the EU25 between 2000 and 2020 – i.e. effectively increasing the average growth rate of around 2% a year by 10%. In overall terms, therefore, cohesion policy over the programming period is estimated not only to have boosted economic growth in the countries which received funding but to have strengthened the capacity for growth of the EU as a whole. 41 Bulgaria and Romania, which are included in the model estimates, are excluded here since they accounted for an extremely small amount of EU funding over the period (from ISPA). 118
Ex-post Evaluation of the ERDF 2000-2006 Synthesis Report Table 4.3 Cumulative net effect of cohesion policy on GDP according to QUEST, 2000-2006 GDP in end year as a % of GDP in absence of cohesion policy 2000-09 2000-15 2000-20 Germany 0.6 2.1 3.6 Ireland 2.0 5.2 8.1 Greece 13.0 28.6 42.9 Spain 9.5 20.0 29.8 Italy 1.1 2.8 3.9 Portugal 15.7 33.7 49.7 Czech Republic 1.4 3.9 6.0 Estonia 3.5 8.3 12.0 Cyprus 0.1 0.7 1.2 Latvia 11.7 27.9 41.1 Lithuania 7.7 18.7 28.8 Hungary 3.1 8.0 12.5 Malta 0.7 2.7 4.4 Poland 5.0 14.7 23.1 Slovenia 0.8 2.3 3.4 Slovakia 2.3 6.0 9.3 EU4 (Cohesion EU15 MS) 9.8 21.1 31.5 EU15 Net donor countries -2.2 -4.0 -5.3 EU15 0.5 1.9 3.3 EU10 3.7 10.2 15.9 EU25 0.7 2.4 4.0 Note: Aggregations are weighted averages of country estimates, using the GDP of countries expressed in EUR as weights. GDP in 2009 has been used to weight the estimates for the subsequent years. Source:Janos Varga and an in 't Veld, A model-based analysis of the impact o cohesion policy expenditure 2000-06: Simulations with the QUEST III endogenous R&D model. 4.1.7 Concluding remarks The estimates of the effect of cohesion policy produced by the two models are not necessarily an accurate reflection of reality. Indeed, both cannot be correct. It may well be, therefore, that the QUEST model underestimates the initial contribution of the funding provided by overstating the extent to which private spending is likely to be reduced as public spending is expanded, especially in the context of economies working at less than full capacity, as was case in most major recipient countries over the period. It may also overstate the longer-term effects on productive potential by attributing too large an impact of RTDI on this. Conversely the HERMIN model may understate these longer-term effects by attributing too little to this and, more generally, to the spill-over effects of growth on investment and, through this, on productive potential. Equally, it might overstate the short-term effects on growth by over-estimating the scale of the Keynesian multiplier effects. However, while both models may have features which are open to question, modifying these features would not alter the main result of the exercise which is that cohesion policy is judged to have had a significant effect on the economic growth of the regions assisted over the 2000-2006 period. Moreover, while the views of how economies work encapsulated in the two models are not the only ones which exist, models incorporating other views would be unlikely to produce radically different results, especially as regards the long-term consequences of policy. 119
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