Institutional quality and the effectiveness of EU funds for innovation in Italy

Abstract

Innovation has been shown to be a crucial determinant for growth and convergence, motivating the EU to devote massive spendings towards the promotion of innovation in the European regions. In the case of Italy, especially the South has been targeted for co-financing of innovation projects with EU money. Several papers have emphasized the relevance of institutional quality at the local level for the effectiveness of EU funds. In this paper, I will test whether institutions have had a role for funds to affect the innovation target by measuring innovation output with patents. In doing so, I will use the NUTS 2 - and NUTS 3 - regions in Italy as geographical units, as Italy has been a large recipient of funds in the past, including the two programming periods under analysis, 2007-2013 and 2014-2020. Controlling for spatial spillovers and addressing endogeneity, findings indicate a limited role for EU funds to promote innovation in Italy. Institutions seem to play a role only in the short-term and under certain assumptions about the time lag of the effect, with high-quality institutions being able to amplify EU funds’ impact on patents.