This document summarizes an Estonian presentation on EU cohesion policy funding in Estonia. It discusses the background and objectives of EU regional policy and cohesion funds. It then analyzes trends in Estonia's receipt of structural and cohesion funds over different programming periods from 2004 to the present. Key challenges discussed include efficiently allocating funds, avoiding substitution of domestic spending, preventing long-term aid dependence, and managing macroeconomic impacts. While numerous projects have been funded, challenges remain regarding priorities, synergies, analysis and impact evaluation.

1. 114EUfunds-show1.ppt 1
Eesti Panga ülevaadete esitlus
9. mai 2014, 11:00-12:30
EU Cohesion Policy Funding in Estonia:
Background, Trends and Challenges
Karin Kondor-Tabun
Karsten Staehr
All opinions are personal!

2. 22
1.1 Introduction
10 years of EU membership
EU cohesion policy  “to enhance economic, social
and territorial cohesion”
 Support regions, income convergence, social issues
 EU “regional policy”

3. 33
1.2 Introduction
Next 18½ minutes  EU cohesion policy funding
 Background, trends and challenges

4. 44
2.1 The EU cohesion policy
 Treaty of Rome (1957)
 1957  European Social Fund (ESF)
– Employment, education, mobility
 1975  European Regional Development Fund
(ERDF)
– Infrastructure, innovation, small businesses

5. 55
2.2 The EU cohesion policy
 1988  reform after introduction of single market
– “Objectives”
– Multi-annual programming
– Increased resources
 1992  Cohesion Fund (CF) / Ühtekuuluvusfond
– Transnational transport networks, environment
EU cohesion policy funding = ESF + ERDF + CF
Structural funds

6. 66
2.3 The EU cohesion policy
Allocation of funding
 7-years programming periods  total allocation
decided before
Recent programming periods
 2000-2006  + 10 new Member States
 2007-2013  + Bulgaria and Romania
 2014-2020  + Croatia
– Focus on growth  support Europe 2020 growth strategy

7. 77
2.4 The EU cohesion policy
 Eligibility
– Different objectives vs. different funds
– Main  Convergence objective funded by ESF and ERDF
 “Less developed regions”  GDP per capita < 75% of EU average
 “Transition regions”  GDP per capita = 75-90% of EU average
 Allocation
– Complicated calculations (GDP, unemployment, etc.)
– Ceilings and floors
– Final political decision

8. 88
3.1 Foreign aid
Starting point  1st theorem of welfare economics
 Market equilibrium efficient  no resources wasted
But…
 Spillovers  externalities
– Positive (transport), negative (pollution)
 Solidarity  distributional concerns
– Compensation to losers of reforms
 Compensation to gain support for reforms

9. 99
3.2 Foreign aid
Conditionality
 Funding conditional on… (e.g. roads, trains, training)
 Most foreign aid (including EU cohesion policy
funding)
– If spillover motive 
– If solidarity motive ?

10. 1010
3.3 Foreign aid
Challenges
 Efficiency of aid
– Projects with most highest social return per $
 Growth potential…
 Substitution = lack of “additionality”
– Even if conditionality
 Aid dependence
– Policymakers, bureaucracy, businesses
– Transfer effect  real appreciation crowding out export
 Macroeconomic management
– Aid useful during recessions… but may fuel booms!

11. 1111
4.2 Empircal studies from EU15
Empirical studies of substitution (few)
 Ederveen et al. (2003)  EU funding ↑ 1 € 
domestic funding ↓ 0.17 €
 Wostner & Slander (2009)  substantial substitution
in countries with EU cohesion policy funding > 2.3%
of GDP

12. 1212
4.2 Empircal studies from EU15
Empirical studies of growth effects
 Many  rely on meta-analyses (not CEE countries)
 Simulation models  investment ↑
– Generally large effect 
 Econometric studies  different cohesion policy
funding to different regions
– Generally no effect 
– Large variation across time, regions and methods 
 Ederveen et al. (2006)  background important
(openness, institutions)
 Marzinotto (2012)  implementation important

13. 1313
4.2 Empircal studies from EU15
NBs
 Different results for different methods…
 Maybe only effects in very long term
 Other objectives than growth (social, environment)
 Still improve welfare even if no growth effect

14. 1414
5.1 Cohesion policy funding in Estonia
 Pre-accession funding from EU
 May 2004 – 2006
– Weight on environment  satisfy EU directives on
drinking water, sewage, waste
 2007-2013 (participated in negotiations)
– Initially most weight on infrastructure, less on
social policy
 2014-2020
– Operational programme approved on 25 Feb. 2014
– Focused spending priorities + long-term impact

15. 15
0
500
1000
1500
2000
2500
3000
3500
4000
0
500
1000
1500
2000
2500
3000
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May 2004 - 2006 2007 - 2013 2014 - 2020
Cohesion Fund
European Social Fund
European Regional
Development Fund
15
5.2 Cohesion policy funding in Estonia
Estonian cohesion policy funds, different programming periods,
million current EUR and % of GDP
2.4%
3.0%
?%

16. 1616
5.3 Cohesion policy funding in Estonia
0
1
2
3
4
0
1
2
3
4
Cohesion policy funding allocated to 10 CEE countries, 2007-
2013, % of GDP

17. 1717
5.4 Cohesion policy funding in Estonia
Payment of EU cohesion policy funding to beneficiaries in
Estonia, mill. EUR
0
100
200
300
400
500
600
700
0
100
200
300
400
500
600
700
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Programming period 2007-2013
Programming period 2004-2006

18. 1818
5.5 Cohesion policy funding in Estonia
Summing up
 EU cohesion policy funding  around 3% of GDP
 Rapid payment of 2007-2013 allocation
– Reduce risk of losing allocation due to deadline
– “Jump” in 2009

19. 1919
6.1 Experiences and challenges
Effect of EU cohesion policy funding
 Numerous projects funded 
– Specific project targets met
– … but challenges remain

20. 2020
6.2 Experiences and challenges
 Efficiency
 Mid-term review (CDP & RAKE, 2011)
– Lack of priorities, too dispersed  lack of synergies
– Lack of funding for subsequent operation
 Riigikontroll (2010)
– Adult education programmes lack management
 Riigikontroll (2012)
– Lack of analysis  users for schools and roads?

21. 2121
6.3 Experiences and challenges
 Cases of misallocation 
– But many and detailed analyses + controls...
 Detailed programming
 Detailed description of requirements
 Pre-selection requirements, incl. cost benefit analysis
 Monitoring and evaluation
 Co-financing
– Feedback to other areas of government spending 

22. 2222
6.4 Experiences and challenges
 Substitution (counter-factual not available )
 Cutbacks in 2009 eased by cohesion policy funding
 Additionality?

23. 2323
6.5 Experiences and challenges
 Aid dependency
 Varblane (2013, 2014)
 Cohesion policy funding in 2007-2013 programming
period
– ≈ 11.1% of total fixed investment
– ≈ 9.3% of government tax revenue (2007-2013)
 Funding secured for 2014-2020 
 Current rules  gradual phase out from EU cohesion
policy funding (“transition region”)

24. 2424
6.6 Experiences and challenges
 Macroeconomic management
 Relatively small payments during 2006-2007 boom
(≈ 1.5% of GDP) 
 Large payments during 2008-2010 crisis 
 Future challenges?

25. 2525
7.1 Conclusion
EU membership  cohesion policy funding 
… and potential for faster convergence
 Challenges
– Efficient use, substitution, dependence, macro economy
– How generate rapid, stable and sustainable economic
growth in Estonia?
 Will EU cohesion policy funding stimulate growth?
– Meet in 10 years…

26. 26
Karin Kondor-Tabun
karinkondor@yahoo.com
Karsten Staehr
karsten.staehr@ttu.ee
All opinions are personal!
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