Can We Boost the Competitiveness of the European Union through Reducing Regional Inequalities in Human Capital?

Abstract

The trade-off between boosting EU member states competitiveness and reducing within-country regional inequalities is important but under investigated relation in competitiveness and regional policy analyses. The article studies the influence of regional inequality in human capital on competitiveness of the EU member states, drawing on a panel dataset of 22 EU countries and its 266 NUTS 2 regions, over the period 2000-2011. Analysis is extended with the variables that can have significant influence on the observed relationship so EU structural and cohesion funds and (development) differences between the EU member states and regions are included. Applying different panel data estimators it is determined that higher regional inequalities in human capital reduce competitiveness of the EU member states. EU structural and cohesion funds payments have positive influence on competitiveness in the long run. EU new member states as well as the EU countries in which most of the regions are classified as less developed regions have lower competitiveness. The conclusions imply that the absorption of EU structural and cohesion funds in less developed regions does not contribute enough to strengthening national competitiveness. The results are also confirming the need to integrate more place-based approach into EU regional and even into national competitiveness policies. With its approach in analysing the influence of regional inequalities this article adds empirically to the existing studies about the ambiguous relation between regional inequalities and competitiveness, while the conclusions can be used in future EU regional policy planning that gives special emphasis on the measures which are directed on developing human capital potential.

DOI: http://dx.doi.org/10.5755/j01.ee.26.3.8029