The effect of business support on employment in manufacturing : evidence from the EU structural funds in Germany, Italy, and Spain

This study investigates whether a relationship exists between European Cohesion Policy support to business activities and the growth of employment. We exploit cross-industry cross-region variations for a sample of 14 manufacturing industries and 70 European regions (belonging to Germany, Spain, and Italy), and take advantage of detailed EU Structural and Cohesion Funds data available at the regional level for the period 2000-2006. We show that there are differential effects of business support on industries with different initial size as well as with different growth opportunities. The results imply that the European Cohesion Policy’s direct support to businesses might contribute to the process of reallocation of persons employed across industries. Since estimated effects at the aggregate level might conceal large differences across industries, by disentangling the effects across industries we can improve our understanding of how the Structural Funds support can impact industrial and regional development and adjustment paths