Evaluating the Determinants of EU Funds Absorption across Old and New Member States - the Role of Administrative Capacity and Political Governance

This article assesses the impact of administrative capacity and political governance factors on the absorption of structural and cohesion funds (SCF). We drew on EU-27 country level data and developed a dynamic panel data model for the 2007-15 implementation period. By using a tobit estimation technique, the results indicated that government effectiveness and public diversion of funds significantly affect the recipient countries ability to absorb EU funds. The results revealed that increasing government effectiveness and combating corruption had significant stronger boosting effects on the absorption of SCF, especially in the new member states (NMS). This might explain why bottlenecks of administrative capacity and political governance are highly relevant for NMS and why these countries generally faced lower absorption rates, as compared to EU-15. Moreover, the results also underlined that the recent great recession reduced the ability of countries to absorb SCF. Against our expectations, domestic financial capacity and political decentralization were not shown to be decisive for EU funds absorption. In policy terms, our study suggests a focus on administrative capacity-building and fighting corruption in NMS and across lagging regions of older member states in order to improve absorption rates, while also focusing more on the efficiency and effectiveness of European cohesion policy. Finally, several suggestions are made on how our analysis can be replicated and taken forward by analysts of the European Union's internal development cohesion policy.