Spatially blind policies? Analysing agglomeration economies and European Investment Bank funding in European neighbouring countries

Abstract

Agglomeration economies are a key factor of modern economic development, although to take full advantage of agglomeration economies that come with urban concentration, infrastructure plays a key role. Policies promoting development need to take into account the fact that globalisation has made space more rather than less important. For a long time development policies have focused on the provision of infrastructure. In this work we analyse: first how urban concentration and infrastructure interact with each other for encouraging economic growth; and second if policies promoting infrastructure have considered the spatial distribution of economic activity. As a case study we focus on the European Investment Bank (EIB) funding and lending instruments for financing infrastructures, for both the European Union and the EU neighbourhood. We perform panel data analysis considering different measures of infrastructure (as the provision of basic urban services, transport, and communications) and we also analyse the EIB projects. Our results suggest a relevant role of connectivity infrastructure (i.e. transport and communications) for agglomeration benefits to take place in European Neighbouring Policy countries. Our results also suggest that policies promoting development are more country specific for these neighbouring countries than for the EU countries: while for the EU spatial issues seem to matter, even after controlling for time, sectoral, and country-specific factors, this is not the case for EU neighbouring countries.

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