Economic impact evaluation challenges posed by the new European Union Cohesion policy:

The case of the GMR-approach

Attila VargaUniversity of Pécs, Hungary

2

Outline

• Introduction• The New Cohesion Policy and economic

impact evaluation challenges• The GMR approach• Policy simulations• Conclusions

3

Introduction

• Project level vs. economic evaluation – the need for economic models

• Cohesion Policy: regional development vs. monetary transfers

• Smart growth, inclusive growth, sustainable growth

• Place-based approach: Smart specialization• Challenges for economic impact evaluation

4

Challenges in economic impact evaluation

• Place-based approach to economic development– “smart specialization”

• In target: place-specific industrial comparative advantages

• integrated policy instruments (human capital, R&D, entrepreneurship)

• multi-level governance• Participation (industry, universities, local organizations)

5

• Regional features determining the growth effects of development policies:

– Local specificities (industrial structure, research specialization, factor endowment)

– Cumulative agglomeration effects– Additional impacts (Keynesian demand effects,

intersectoral linkages)– Interrregional impacts (spillovers, trade, migration)

Challenges in economic impact evaluation

6

• The macroeconomic dimension: selection of projects/regions – on what basis?

– Same budget – diff results: depending on the instrumental distribution (ref. to the first simulation)

– Same budget – diff results: depending on the regional distribution (ref. to the second simulation)

Need for macro level representation (costs/benefits, macroeconomic framework conditions)

Challenges in economic impact evaluation

7

• Representation of both:

– Macroeconomic dimension: costs and benefits

– Regional dimension: local specificities affecting policy needs and policy effectiveness

Challenges in economic impact evaluation

8

• Search for new impact modeling approaches:

– MASST (Capello-Fratesi 2013)

– GMR-type models • GMR-Hungary, GMR-Europe (Varga et al. 2010, 2013)• RHOMOLO (Brandsma et al. 2012)

Challenges in economic impact evaluation

9

The GMR

(Geographic Macro and Regional)

impact modeling approach

10

The GMR approach: Model versions and applications

• Antecedents and model versions:

– Links to theory: Acs-Varga 2002

– Empirical modeling framework (Varga 2006)

– The EcoRet model (Schalk, Varga 2004, Varga, Schalk 2004)

– GMR-Hungary: (Varga, Schalk, Koike, Járosi,Tavasszy 2008)

– GMR-EU (Varga, Járosi, Sebestyén 2011; Varga,Törma 2011)

– GMR-HUNGARY II (Varga, Járosi, Sebestyén, 2013)

11

The GMR approach: Model versions and applications

• Applications:

– Cohesion Policy impact studies for the Hungarian government (2003- )

– Cohesion Policy impact studies for the European Commission (DG Regio - 2011)

– FP6 impact study (2010)

12

• The GMR- Europe model (163 EU NUTS 2 regions and the EU level) includes:

– a regional Knowledge Production Function (KPF) sub-model (163 NUTS 2 regions)

– a regional Spatial Computable General Equilibrium (SCGE) sub-model (163 NUTS 2 regions)

– a macro (EU level) Dynamic Stochastic General Equilibrium (DSGE) sub-model (Quest III)

13

14

15

16