A CGE Approach to Measuring the Impacts of EU Structural Funds in a Small Open Economy

The objective of the current paper is to analyze the impact of the European Union (EU) funds on gross domestic product (GDP) and employment in the Azores. The theoretical model is based on a modeling platform for the Azorean economy, supported by a dynamical multi-sector computable general equilibrium model (CGE) – Azormod, which incorporates the economic behavior of six agents - firms, households, regional government, central government, European Commission and external sector- and controls for six different income levels. The simulations studied the impact in the Azorean Economy of eliminating the EU funds. As expected, the study reveals that in the absence of EU funds there would be a reduction in the public consumption and in the level of well-being of consumers while investment would increase as factor prices would decrease. GDP and employment decrease relative to the reference scenario with EU transfers. According to the model, other things being equal, it would take ten years for GDP to recover its initial levels. Employment, assuming flexible wages, recovers faster. See above See above