Cohesion Policy Spending in the New Member States of the EU in an Endogenous Growth Model

European Union Cohesion Policy supports investment in infrastructure, research and development, and human capital in Europe's poorer regions. This paper provides a model-based assessment of the potential macroeconomic impact of these fiscal transfers using a microfounded dynamic general equilibrium model with endogenous growth and endogenous human capital accumulation. The simulations show the potential benefits of Structural Funds with significant output gains in the long run due to sizable productivity improvements. The condition that recipient countries cofinance part of the funding is found to raise the long-term output effects. Delays in spending due to slow absorption of available funding reduce potential gains.