EU funding and Cornwall

Marco Di Cataldo, ‘The impact of EU Objective 1 funds on regional development: evidence from the UK and the prospect of Brexit’, Journal of Regional Science 57(2017), 814-839.

Marco Di Cataldo notes that the ‘scarcity of research on the effects of Cohesion Policy in the UK’ is ‘surprising’. He sets out to remedy this by asking how effective the EU Objective 1 programme has been, using Cornwall and South Yorkshire as examples. The existing literature on EU structural funding has reached no consensus. Some studies suggest it has been beneficial; others conclude it has been detrimental.

Cornwall & Scilly received 145 euros per inhabitant in the 2007-13 round of funding, over three times the level of the next highest British region. This was on top of the 138 euros per inhabitant during the previous round of funding from 2000 to 2006. Yet Di Cataldo begins his article by noting how the high Brexit vote in regions receiving EU spending implies that EU Cohesion Policy has not succeeded in ‘triggering greater development’. The possibility that the ‘greater development’ has itself been a factor spawning discontent is not explored in what is a quantitative study of the effectiveness of EU funding.

‘Effectiveness’ is defined in quite narrow terms of the levels of unemployment and GDP per capita. The performance of Cornwall and South Yorkshire since 1992 is subjected to a comparative analysis and the broad conclusion is that EU funding has been successful in reducing unemployment levels and raising GDP per capita. However, the experience of South Yorkshire suggests the effects may be short-term, as that region has done less well since funding ended in 2006.

The article begins with a useful summary of the EU’s structural funds programme and continues by discussing the changing map of eligible regions in the UK. Di Cataldo notes how ‘the ”devonwall” political concept promoted by the UK Conservative Party from the 1970s’ lost Cornwall funding in the first round from 1994 to 1999.

He adds that ‘requests for separation were complicated by the presence of political elites and stakeholders in Cornwall believing that the unity between Devon and Cornwall was best serving their interests’ through a stronger lobbying voice. However, his summary of the unlinking in 1999 is based on the fairly superficial secondary literature rather than new empirical research and overestimates the role of the Lib Dems after 1997. It’s more likely that the change in the regional map was due to technical rather than political factors, as the ONS was looking to maximise EU funding before the 1997 general election.

The article then moves on to the data. A sophisticated analysis of unemployment and GDP per capita is undertaken at the level of regions and wards. This is done through constructing ‘synthetic’ regions and wards. These combine non-eligible (or ‘untreated’) regions and wards closest to Cornwall and South Yorkshire in terms of factors including labour force typology, levels of education, % of fixed capital formation and the like. The performance of Cornwall and South Yorkshire is then compared with these synthetic regions.

The unemployment rate in Cornwall fell faster than in its ‘synthetic region’.

The results at both spatial levels are consistent. Cornwall was one of the top performing regions in terms of unemployment reduction. Unemployment dropped faster than in its synthetic region after 2000, although running in parallel before then. The difference in GDP per capita was less marked but still ‘marginally significant’. Similarly, South Yorkshire saw a (smaller) improvement over its synthetic region from 2000 to 2006. But this was lost after 2006 when performance deteriorated.

The article notes that the fastest catch-up for Cornwall was in the early years from 1999-2002. Since 2006 the picture has been fairly static in relation to the synthetic region. This has occurred despite an increase in the proportion of EU funds devoted to employment promotion, so policy has been ‘only partially successful’.

The gap between Cornwall and its ‘synthetic region’ in terms of GDP per capita has narrowed, but mainly in the early years of EU funding.

Nonetheless, Di Cataldo is still able to conclude that ‘Cornwall has made good use of Objective 1 funds’. However, Objective 1 effectiveness may dissipate when funding ends, as in South Yorkshire. In what reads like an afterthought, the article concludes that Brexit means that ‘a region like Cornwall which has benefited from Objective 1 policies for a long period of time, faces the highest risks’.

What is needed now is more research on the wider effects of EU structural funding, involving more measures than merely unemployment and GDP with some more convincing linkage between funding and performance. Ultimately, this article shows there is a correlation but does not prove causation.

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