EU Structural and Cohesion Funds in Spain and Portugal: Is Regional and National Inequality Increasing? Working Paper Series, Vol. 3 No. 11, December 2003

There has been a long standing tradition within Europe that has been driven by political and economic considerations to reduce inequality and achieve convergence within Member States. To implement the “structural adjustment polices”, the attention of the Community officials has been devoted to a relatively small number of “development indicators”: (i) transportation, telecommunication and water supply, (ii) highly qualified labor force and high school attendance rate, (iii) the financial system and (iv) research and development activities. (2) The objective of this paper is to determine the effectiveness of the assistance funds in reducing economic inequality in the Iberian Peninsula. More specifically, to empirically capture how different regions in Spain and Portugal have been affected by the Structural and Cohesion Funds within the industrial and labor market context. This study will attempt to answer the following questions: (i) have these funds reduced economic disparities among and within the different regions of the Iberian Peninsula? and (ii) what sectors of the economy in the Iberian Peninsula have benefited the most? The remainder of the paper proceeds as follows. Section 2 summarizes the findings on the importance of the structural funds on economic convergence. Section 3 describes the empirical approach that was employed in this paper as well as the findings. Section 4 discusses the challenges that the Commission faces when allocating the funds and section 5 offers some potential solutions to these problems. Finally, section 6 offers some conclusions