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The growth effect of the Internal Market Programme: the aggregate impact and its distribution across the EU regions

This project, carried out in collaboration with Cambridge Econometrics, was funded by DG XV (Internal Market and Financial Services) of the European Commission. The study examines the extent to which growth and economic convergence, of both output and employment broken down by broad sector and in total, have been affected by the Internal Market Programme (IMP). The study begins with a review of the theoretical and empirical literature, including both neoclassical and endogenous growth theory. It then describes the historical trends in growth and convergence at the level of the member states and NUTS 2 regions of the EU, and then applies econometric models to analyse the trends, looking for evidence of a change in behaviour since 1987 (taken as the first year in which IMP effects might have begun to occur). The analysis indicates little evidence for any general acceleration of convergence during the IMP period, and insofar as growth accelerated during the IMP period, this was due to higher investment and R&D spending. The countries with the strongest policy support (the OB1 countries), do not appear to have been hindered, and may have been helped by the IMP. Disentangling the enhanced Structural Fund spending from the effects of the IMP indicate that differences in Structural Fund spending did not explain differences in growth performance. This does not mean that Structural Fund spending has no impact, but it does suggest that the demand-side effects of Structural Fund spending do not dominate other reasons for differences in regional growth. The supply-side effects would probably not be apparent after such a short period.