Evaluation of benefits gained by EU-15 States as a result of the implementation of cohesion policy in Poland

Transcription

1 Evaluation of benefits gained by EU-15 States as a result of the implementation of cohesion policy in Poland 2010 update 2010 Warsaw

2 Author: Authors of the original report: Cooperation: Coordination: Łukasz Skrok Jakub Growiec, Julian Zawistowski (editor), Łukasz Skrok, Piotr Bartkiewicz, Maciej Lis, Karol Pogorzelski, Andrzej Regulski Piotr Bartkiewicz, Jan Gąska, Andrzej Regulski Julian Zawistowski Evaluation of benefits gained by EU-15 States as a result of the implementation of cohesion policy in Poland 2010 update Ministry of Regional Development Warsaw 2010 Study prepared by Institute for Structural Research commissioned by the Ministry of Regional Development Issuer: Ministry of Regional Development ul. Wspólna 2/4, ISBN: Department of Structural Policy Coordination Phone: (+48 22) Fax: +(48 22) sekretariat@mrr.gov.pl ewaluacja@mrr.gov.pl Translation Contact Language Services Free of charge MINISTRY OF REGIONAL DEVELOPMENT

3 Evaluation of benefits gained by EU-15 States as a result of the implementation of cohesion policy in Poland Updated in 2010 Table of contents Introduction Research context Economic sense of EU cohesion policy EU Cohesion Policy EU Cohesion Policy in Europe after Implementation of EU Cohesion Policy in Poland Expected channels of impact of the implementation of EU Cohesion Policy in Poland on EU-15 and net payer states Short -term effects Long -term effects Evaluation of direct benefits gained by EU-15 companies as a result of the implementation of EU cohesion policy in Poland Evaluation of benefits gained by EU-15 States as a result of the implementation of cohesion policy in Poland research method The objective and scope of the research Research method Data used Problems with data availability and imputations Research assumptions Macroeconomic analysis step by step Evaluation of total benefits (direct and indirect) gained by EU-15 States as a result of the implementation of EU cohesion policy in Poland update of results Update of results Survey results Additional demand on goods and services imported from EU-15 States Additional demand for imported goods and services manufactured in particular economy sectors of EU-15 States Impact on the growth of profits and payroll funds among EU-15 companies and taxes paid by them in mother countries Impact on the growth of profits and payroll funds of companies from particular sectors of EU-15 economies and taxes paid by them in mother countries Changes in the value and structure of goods and services exported by the EU-15 countries to Poland as a result of emergence of an additional production, consumption and investment demand Influence of increase in trade with Poland on the GDP in the EU-15 countries Total benefits summary and conclusions Summary Bibliography Methodological Appendix Validity of the EU cohesion policy assumptions according to the economic literature Microeconomic research

4 Methodology of CAWI survey research Survey results Detailed results of the CAWI survey Methodology of extrapolation for Microeconomic forecast Statistical tables presenting the results of the macroeconomic research Questionnaire used in CAWI survey exemplary path

5 Introduction This report presents the updated results of the comprehensive research carried out in by the Institute for Structural Research for the Ministry of Regional Development. The study was devoted to the benefits gained by EU-15 States as a result of the implementation of EU Cohesion Policy in Poland. The analysis covers both the benefits gained directly by companies from these countries resulting from the participation in Cohesion Policy, as well as benefits obtained by entire economies the research applied both micro and macroeconomic approach to the analysed issue. It needs to be underlined here that the research has not analysed the overall impact of the Polish accession to EU, which is undoubtedly far greater, but only an isolated effect of Cohesion Policy implementation. Complete results of initial analyses have been presented in the report entitled Evaluation of benefits gained by EU-15 States as a result of the implementation of cohesion policy in Poland of A much wider accessibility to data allowed the research to be updated in In order to retain coherence, the larger part of the report of 2009 has been saved. This means unavoidable cases of repetitions. Elements not subject to update and not directly linked to updated parts have been omitted. A significant difference between the original report and its updated version is the scale of final results of indirect impact evaluation. The research, results of which were used for the 2009 report, indicated that the total additional export from EU-15 States to Poland resulting from the implementation of projects co financed from Community funds amounted to EUR 25 billion, but the newest estimations indicate the revenue in the amount of EUR 38 billion. Such a considerable change results mostly from the possibility to use more recent data, in particular concerning input- output analyses (Eurostat data). As far as it was possible to use in 2009 some indices estimated on the basis of data from 2000 (or combined data from 2000 and 2004), then in 2010 complete data for 2005 were available. This also allowed the introduction of detailed modifications of research methods, which were adjusted in 2009 to take account of data availability. Meanwhile, trade exchange between Poland and EU-15 States intensified in , which was perceived as a very important process. This phenomenon could have been observed and identified in the research period of through macroeconomic data analysis, despite the lack of sufficient data. However, application of macroeconomic data in calculations would require the adoption of several other ad hoc assumptions. Taking into account the research objective, this possibility has been rejected in favour of the practice commonly used in scientific research, i.e. accepting conservative assumptions. Thus, as far as the results presented in the 2009 report indicated additional exports, assuming trade intensity at the level of the year 2000, then the current report also takes into account the influence of market unification within the European Union and a more broadly understood internationalisation process regarding production. Benefits gained by EU-15 States have been divided into direct and indirect ones. The former is understood as the situation, where a company from an EU-15 State is a contractor of a project co financed from Community funds, executed in Poland. In such situation, contributions of EU-15 States into funds return to payer States in the form of payments for goods and services delivered 5

6 to Poland. The estimations applied in this study indicate that this happens to 5 % of funds spent in Poland. A direct benefit gained this way by EU-15 States in amounts to PLN 4.6 billion (EUR 1.18 billion), at fixed prices of These data concern projects implemented as part of pre accession programmes and the National Development Plan for However, indirect benefits are far greater, as they result from an increased demand of Poland thanks to the implementation of EU cohesion policy for imported goods and services. These imports are threefold: production (i.e. imports of goods and services used in production processes in Poland), consumption and investment. Occurrence of these imports is related both to the fact that the implementation of projects co financed from Community funds generates the demand for subcontracting and delivery of goods and services related to project needs, as well as to more long -term effects of economic modernisation of Poland and increasing its production potential, resulting in the growth in demand for various goods and services. According to estimations included in this study, the total (i.e. direct and indirect) benefits gained by EU-15 States in in relation to the implementation of EU cohesion policy in Poland amount to EUR 4.5 billion (PLN 17.8 billion) at prices of 2008, i.e. 27 % of the total value of funds flowing into Poland under this policy. We need to bear in mind, however, that these benefits are unevenly distributed over time. This happens due to the fact that the amounts of co financing that Poland was entitled to within the programming period (expended until 2008) were significantly lower than the amounts for Delays in the emergence of indirect effects, particularly those resulting from the increased purchasing potential of Poland, are an important factor. Therefore, according to forecasts included in this report, we should expect that benefits gained by EU-15 in will amount to the total of EUR 37.8 billion (PLN 151 billion), at fixed prices of Thus, a previously observed effect would constitute only 12 % of the value expected for the entire period of With time, the significance of indirect effects will also grow: according to forecasts, they will constitute as much as 91% of all observed effects until At the same time, the impact of induced exports on macroeconomic aggregates in UE-15 countries is low, which results mostly from the fact that the cohesion policy is being implemented in Poland to a limited extent as compared to the value of these States economies. However, additional Polish imports considerably lower the actual costs of financing interventions by the States in question. In particular, from each Euro spent on the implementation of cohesion policy in Poland, EU-15 countries receive the return of 36 cents in the form of additional export of goods and services, or even 46 cents if we deduct their own payments under cohesion policy from the cost. The abovementioned summary results have been obtained by aggregating partial results characterised, in the case of smaller projects, by considerable disaggregation. Individual chapters discuss results broken down to particular EU-15 countries and economy sectors, according to NACE classification. It also needs to be emphasised that these are conservative estimations. Research methodology was structured in a way to, above all, avoid overestimation errors. Therefore, it is possible that the results observed in reality are slightly stronger than suggested by research results. This is confirmed if we compare the current results with those included in the report of Abandoning of some conservative assumptions (which was possible due to greater data availability), significantly increased the values of indirect effects estimations. Finally, in order to avoid any misunderstandings, we would like to once again emphasise the fact that the benefits gained by EU-15 States, estimated in this research, in relation to the implementation of cohesion policy in Poland, constitute an additional effect, simultaneous to far greater 6

7 benefits gained in the same period by Poland. Obviously, Polish companies and citizens benefit the most from the implementation of co financed projects. The structure of this report is the following: The first chapter outlines the economic background for further considerations. Therefore, the economic reference books were discussed, which provide justifications for EU cohesion policy and showing its consequences in a broader context; then facts concerning the implementation of EU cohesion policy were presented, with particular focus on its implementation in Poland; finally, the expected channels of impact of EU cohesion policy on EU-15 economies were presented, including, in particular, on net payer states. This chapter is a repeated first chapter of the 2009 report. It is supplemented by Appendix 7.1 containing the discussion on the economic reference literature justifying the concept of the cohesion policy. Chapter two synthetically presents the estimation of the value of direct benefits gained by EU-15 States due to the implementation of EU cohesion policy in Poland. Direct benefits have been quantified in this research through an Internet survey covering projects with a total value amounting to one third of total financing. It is worth stressing that the results of Internet survey, carried out on a broad scale, provide detailed information on the sectoral structure of expenditure from structural funds in Poland (also broken down by operational programmes of NDP ) information which is very important to analyses of the impact of EU funds on the Polish economy, not only in the context of this project. A forecast of the impact of EU cohesion policy on EU-15 States companies in has also been formulated. Detailed results, as well as methodological description, are presented in Appendix 7.2. Compared to 2009 report, only the forecast has been updated. Chapter three presents the objective and method of a macroeconomic research. It has been based on input -output analysis and sectoral foreign trade accounts. Despite a high degree of disaggregation, its character was macroeconomic. Due to greater data availability, a method was modified compared to the year Additionally, Appendix 7.4 presents the juxtaposition of main research questions and methods used to provide answers. Chapter four undoubtedly the most important to this study characterises total benefits gained by EU-15 States, including both direct and indirect benefits resulting from the implementation of EU cohesion policy in Poland. All estimations have been made at the level of NACE sectors, which allowed for highly detailed analyses and which provided a possibility to answer research questions related to specific aspects of the impact of structural funds on the Polish economy and (indirectly) on EU-15 economies. The results have been broken down by particular States, years and economy sectors. Apart from the impact of Community funds on EU-15 economies in , their expected impact in has also been quantified. This chapter describes results which are the main object of an update. Appendix 7.3 is a drill -down of the chapter, as it contains additional tables with numerical results. Chapter five is a summary. Due to the lack of close connection with the evaluation of indirect benefits, presented in Chapter 4, this report omits research elements from the period. In particular, the 2009 report presents results of supplementary analyses (in depth interviews, documentation analyses, case studies). They cover such aspects as external effects of basic infrastructure, impact of INTERREG initiative on international cooperation and foreign capital flows. If you would like to find out more on these topics, please see the 2009 report: Evaluation of benefits gained by EU-15 States as a result of the implementation of cohesion policy in Poland of

8 1. Research context This chapter is an introduction to the report s subject matter. It is a repeated, analogous version of the part of the report Evaluation of benefits gained by EU-15 States as a result of the implementation of cohesion policy in Poland of 2009, however, to introduce the issues to interested readers it has been fully retained Economic sense of EU cohesion policy The fundamental reason behind the decision to implement EU cohesion policy by European Communities is the will to support sustainable economic growth in the entire area (of all Member States) of the European Union. In order to achieve this effect, it is necessary to first level out the developmental differences between particular States and their regions, so that the grounds for a long -term economic growth are established also in the areas where income per capita is the lowest. In this sense, cohesion policy is supposed to accelerate and facilitate real convergence processes between regions. The real need for it is reflected in a disproportion between Member States when it comes to product per capita (chart 1.1). CHART 1.1. GROSS DOMESTIC PRODUCT PER CAPITA IN EU-27 STATES IN 2007 ( MEASURED BY PURCHASING POWER PARITY, EU-27=100) Luxembourg Ireland Netherlands Austria Denmark Sweden Belgium UK Finland Germany France Spain Italy Greece Cyprus Slovenia Czech Rep. Malta Portugal Estonia Hungary Slovakia Lithuania Latvia Poland Romania Bulgaria Source: EU cohesion policy is of a regional character, i.e. instead of countries, regions are the basic territorial units. This allows the aid to be granted not only to less wealthy countries but also to regions with serious structural problems located in developed countries. 8

9 The possibility of large divergences between regions within particular countries was reflected, among others, in Poland in the pre accession period (figure 1.1): FIGURE 1.1. CONVERGENCE AND DIVERGENCE PROCESS OF POLISH REGIONS (IN THE PERIOD ), MEASURED BY GDP PER CAPITA I regions around national average II regions losing advantage over national average III regions catching up to national average IV regions developing lags compared to national average V regions increasing their advantage over national average Source: Own elaboration based on the data from Regional Data Bank of CSO. A fundamental question, in the context of justifying the usefulness of cohesion policy, apart from the existing developmental disproportions, is the question of selecting economic policy instruments and their efficiency and effectiveness. Here we can make use of findings of the theory of economy. The possibility to increase the investment into a (broadly understood) capital is a key economic channel, through which Community funds are to influence the acceleration of the real convergence process. According to predictions of nearly all models proposed by economic growth theories (starting from the Solow model of 1956 to contemporary theories of endogenous and semi- endogenous growth), countries with a lower growth level will converge in the direction of better developed economies, thanks to a faster accumulation of physical capital, the source of which lies in the above -average rates of return. Real convergence requires the simultaneous removal of barriers such as insufficient development of basic infrastructure or high risk related to running a business activity. Moreover, due to mobility limitations, adjustments take place gradually. Aid from structural funds, addressed to the relatively most poorly developed EU regions, eliminating the abovementioned barriers, delivering a necessary infrastructure and additional incentives for private investments, may largely contribute to accelerated convergence process. The analogous convergence mechanism may also relate to the accumulation of human capital (cf. e.g. Mankiw, Romer and Weil, 1992, cf. discussion below). Since the difference in human resources is in fact one of the significant reasons for the developmental lags of Poland compared to the wealthiest EU States, EU funds supporting the human capital in Poland especially funds expended by SOP Human Resources Development can considerably accelerate Polish convergence with these States. However, investment acceleration requires limited consumption in a short time, and along with the modernisation of physical capital (cf. Greenwood, Hercowitz and Krusell, 1997) it can also be related to outdated qualifications of a part of the workforce, resulting in the decline in real remunerations and (potentially) with unemployment growth. Therefore, the aim of cohesion policy is 9

10 to facilitate the less affluent EU States and regions to go through the transitional period related to modernization. A further discussion of economic reference books related to this research is presented in the Appendix. To shortly sum up, it needs to be emphasised that the significance of cohesion policy to the process of economic convergence is analogous to the impact of public investments or subsidising private investments, broadened by redistribution at the international level. The channels of EU cohesion policy s short -term and long -term impact on the economy are following: subsidies to private investments, aiming at increased accumulation of modern forms of physical capital; public investments in broadly understood infrastructure, enhancing the ultimate productivity of private capital; supporting investments in human capital, that is, increasing labour productivity; supporting scientific research leading to increased productivity of all production factors in a long perspective (due to the implementation of innovations obtained) Temporary multiplier effects on the demand side may also occur as they result from increased consumption or public investments. These effects may be strong, albeit short -term, if households do not fear the increased expenditure in the future, resulting from the increased public expenditure in the current period, financed by public debt. In the case of the inflow of external funds (i.e. coming from other European Community States) this is justified, thus the effect can be stronger than in the case of activities financed from national funds. The theory of economy indicates a number of channels for potentially positive impact of interventions from Structural Funds on subsidised economy. It is indispensable though, to allocate funds to productivity -enhancing investments, which includes e.g. enhancing the quality of human capital especially in the field of science and engineering or expenditure on research and development. Geographical concentration of aid is also significant, depending on the expected results. In accordance with conclusions from empirical analyses, investments in road infrastructure and human capital have the most significant impact on convergence rate between EU regions among economy sectors supported by EU cohesion policy. 1 This impact, with the scale of funds as the one in Poland in , may trigger the increase in gross domestic product (GDP) by 3.5 %. This means that benefits gained thanks to funds are higher than funds allocated to them (for more details, see Chapter 1.2, charts 1.6 and 1.7), which translates into positive net effect on the European scale. EU cohesion policy also strives to fulfil objectives consisting in supporting the labour market. Creating incentives to increase the employment rate among the population or changes of sectoral employment structure in particular regions may significantly contribute to a higher convergence rate when it comes to GDP per capita and also, in a short perspective, to a higher economic growth rate of the entire area. Apart from the impact on convergence rate, this activity has a serious additional economic justification. When economic lagging of certain regions exists in one socio -economic organism, which the European Community is supposed to form, it may result in abandoning these areas by most mobile persons (who usually have the highest human capital at their disposal) aspiring to improve their living standard. In the scale of the entire economy, such 1 Reakcja gospodarki polskiej na fundusze strukturalne w latach wnioski dla Polski, Institute for Structural Research,

11 process is beneficial, since it allows the increased efficiency of workforce allocation; however, it may also lead to a partial depopulation of less affluent regions and, above all, to their further marginalisation and social exclusion of these areas residents. Since such perspective is a potential threat to the integrity of the European Union, the role of EU cohesion policy seems to be immensely important. The implementation of (in particular) INTERREG initiatives is supposed to favour the reduction of divergences between EU regions via strengthening the cooperation between neighbouring regions. The environmental protection -promoting policy requires particular attentions as well. It allows to limit environmental pollution by particular states, with a particular focus on a situation when pollution adversely influences neighbouring countries EU Cohesion Policy The conviction that it is necessary to act towards increasing socio -economic cohesion of Europe at the international level was outlined as early as in the Treaty of Rome of The execution of this task was supposed to be based on two first structural funds established in 1958: the European Social Fund, whose task was to finance the activities on the labour market, and the European Agricultural Guidance and Guarantee Fund, supposed to support the agricultural restructuring and modernisation, as well as rural development processes. Later on, accepting other countries with varied levels of development to the European Communities resulted in growing divergences between particular regions, which led to intensified activities for increasing cohesion within the Community area. This was accompanied by the following system reforms: on the accession of Denmark, Ireland and United Kingdom in 1973, the European Regional Development Fund was established, the task of which was to support less developed, particularly industrial, areas. This meant the beginning of direct redistribution of funds between better and worse developed Community areas. Accession of Greece, Spain and Portugal in 1986 preceded the thorough reform of structural funds that began in The official objectives of the executed policy were formulated at that time: supporting economic growth in the least affluent Community regions; supporting entrepreneurship and improvement of the natural environment s quality in industrial areas; flexible programmes focused on labour market policies; acceleration of structural adjustments of agriculture to reforms under Common Agricultural Policy. In 1992 the Cohesion Fund was established, aiming at supporting large public investments dealing mainly with infrastructure and environmental protection in less developed Member States. It was decided that the Cohesion Fund is of a national scope instead of a regional one, contrary to other structural funds. The accession of Austria, Finland and Sweden to EU in 1995 was accompanied by the establishment of the Financial Instrument for Fisheries Guidance. 11

12 Another reform concerning the cohesion policy management system took place in 1999 and was related to the preparation of the accession of 10 countries (including Poland), which took place in The following objectives have been reformulated: development and structural adjustment of less developed regions; economic and social changes in regions dealing with structural problems; adaptation and modernisation of national policies, as well as education, training and employment systems. Until end-2006, funds allocated from structural funds were expended through Operational Programmes and initiatives, aiming at solving specific problems, inscribing into cohesion policy objectives. Financial aid from the Cohesion Fund was allocated directly to the financing of public investments in authorised countries. In developing the perspective, the Cohesion Fund was integrated with structural funds. New objectives have been formulated (convergence, regional competitiveness and employment, cooperation), whereas most funds (ca. 80 %) were supposed to be allocated for the implementation of the first mentioned objective, consisting in supporting real convergence of the least- developed EU regions. In order to increase cohesion between development levels of particular regions, entrepreneurship, increasing flexibility of labour markets and modification of educational systems are to be supported alongside with co financing infrastructural investments. Methods of managing structural policies at the national level are also supposed to be modernised. Moreover, actions for the quality of natural environment in industrialised areas are also to be undertaken. Care for natural resources is also executed as part of programmes directed at agriculture and fisheries sectors. Structural reforms of the cohesion policy have been accompanied by the gradual increase in funds allocated to their implementation over years EU Cohesion Policy in Europe after 2004 The period between 2004 and 2006, falling for the last years of the planning perspective and the accession of 10 new Member States to European Communities was characterised by the domination of EU-15 in the structure of cohesion policy beneficiaries (chart 1.2). Particularly large subsidies were directed at relatively poor Mediterranean countries: Spain, Portugal and Greece, as well as to Italy (supporting the development of southern regions) and to Germany (mostly post GDR regions). 12

13 CHART 1.2. ALLOCATION OF FUNDS EXPENDED FOR COHESION POLICY IN Spain 22,37% Hungary 2,10% France 6,43% Other 9,80% Czech Rep. 1,47% Germany 12,50% Italy 12,28% Poland 7,34% UK 7,86% Greece 8,92% Portugal 8,93% Source: Own elaboration based on The picture showing the domination of selected (poorer) EU-15 States in is also visible in the data concerning the expenditure under EU cohesion policy per capita. The largest amounts fell on the residents of Greece and Portugal in this period. High per capita amounts were also directed to Spain and Baltic States, which joined EU in 2004 (chart 1.3). CHART 1.3. EXPENDITURE UNDER COHESION POLICY PER CAPITA (IN EURO, FIXED PRICES OF 2008) Portugal Estonia Spain Lithuania Latvia Hunhary Ireland Poland Slovakia Italy Slovenia Czech R. Finland Malta Germany UK Cyprus France Sweden Austria Netherlands Belgium Luxembourg Denmark Greece Source: Own elaboration based on and At the same time, Community budget in , the fourth part of which consisted of expenditure on cohesion policy, was to a great extent financed by EU-15 States (chart 1.4). 13

14 CHART 1.4. SHARE OF PAYMENTS TO COMMUNITY BUDGET IN Other 9,00% Germany 21,23% Denmark 2,04% Sweden 2,71% Poland 1,92% Austria 2,19% Belgium 3,88% Netherlands 5,33% France 16,61% Spain 8,59% Source: Own elaboration based on UK 12,80% Italy 13,71% Taking into account, on the one hand, the total payments to budget, and on the other hand, the sum of all benefits (including direct payments to farmers), most EU Member States were net payers; only ten countries were net beneficiaries in The largest net beneficiary in this period was Spain (over EUR 9 billion, at prices of 2008), while the largest net payer was Germany (approximately EUR 160 billion, at prices of 2008). Among EU-15 States, only the following were beneficiaries: Spain, Greece, Portugal and Ireland. Among states that joined in 2004, the following were beneficiaries: Estonia, Latvia, Lithuania, Poland, Slovakia and Hungary. The remaining new Member States, i.e. Slovenia, Czech Republic, Cyprus and Malta were net payers. FIGURE 1.2. EU MEMBER STATES NET BENEFICIARIES AND PAYERS IN Net beneficiary states have been marked red and pink. Net payer states have been marked yellow. The more intense the colour the larger the difference between payments to budget and benefits gained. Source: Own elaboration based on 14

15 Moreover, the distribution of direct benefits and burdens resulting from the cohesion policy will change in the perspective of to the disadvantage of most EU-15 States. Although certain EU-15 States will remain significant beneficiaries of structural funds, a considerably greater concentration of expended funds in new Member States is visible. This means that the share in benefits resulting from the implementation of cohesion policy by EU-15 States will be limited, which is a natural result of enlarging the European Communities by 10 countries (and by other 2 in 2007 Romania and Bulgaria), the majority of which are characterised by a lower productivity level or GDP per capita compared to EU-15. We should additionally expect that the share of the majority of EU-15 States in Community budget financing will remain high (at least in proportion to their population), which results from basing contribution levels on the gross domestic product. Therefore, as long as the cohesion policy does not fully achieve its basic objective, i.e. convergence of regions, the most affluent EU-15 States will have to finance larger parts of the Community budget. CHART 1.5. ALLOCATION OF FUNDS EXPENDED FOR COHESION POLICY IN THE PERSPECTIVE Poland 19,40% Other 17,47% Spain 10,25% France 4,14% Italy 8,34% Romania 5,63% Czech Republic 7,70% Greece 5,92% Portugal 6,22% Hungary 7,30% Germany 7,62% Source: Own elaboration based on A particular role in this scope is played by the Cohesion Fund, which due to supporting public investments of the infrastructural and environmental nature, is supposed to support the stability of least developed economies. In the perspective, this fund s resources will be directed only to countries which joined the European Union in 2004 and later, as well as Greece and Portugal (Figure 1.3). Spain will be included in the transition period resulting from the fact of receiving Fund aid until 2006 and in accordance with n+2 rule will be granted funds until end

16 FIGURE 1.3. EU MEMBER STATES COHESION FUND BENEFICIARIES IN Countries which are Cohesion Fund beneficiaries in the perspective have been marked red. Other European Union states have been marked yellow. Source: Own elaboration based on Summing up, the information presented in this item suggests the low profitability of participation in the system on the part of large EU-15 States, particularly Germany. It needs to be noted, though that supporting the growth of poorer economies may tighten the international cooperation, as well as intensify trade. This may lead to a situation where indirect benefits level direct disadvantages concerning net payers out. The analysis being the subject of this report will help answer the question concerning the relation between increasing the stream of international trade between Poland and EU-15 States and financing the Community budget by these states Implementation of EU Cohesion Policy in Poland EU cohesion policy, financed from structural funds, was implemented in Poland in through six Sectoral Operational Programmes and two Community Initiatives. Moreover, funds from the European Regional Development Fund were transferred to Poland through Operational Programme Technical Assistance as well. The Rural Development Plan was also financed from the European Agricultural Guidance and Guarantee Fund. Table 1.1 presents a detailed structure of programme financing. 16

17 TABLE 1.1. IMPLEMENTATION OF COHESION POLICY IN POLAND IN THE PERSPECTIVE European Regional Development Fund (ERDF) European Social Fund (ESF) European Agriculture Guidance and Guarantee Fund ( EAGGF) Financial Instrument for Fisheries Guidance (FIFG) Equal CI Interreg CI Rural Development Programme Technical Assistance OP SOP Restructuring and Modernisation of the Food Sector and Rural Development SOP Human Resources Development SOP Fisheries and Fish Processing SOP Transport SOP Improvement of the Competitiveness of Enteprises SOP Integrated Regional Operational Programme Source: Cohesion Fund resources were not expended in the perspective through operational programmes. Expenditure was divided between Transport and Environment categories. Funds flowing to Poland in the perspective were significantly increased only in Despite a longer period of European Union membership in 2005 compared to 2004, the total value of funds remained on a low level. Funds received by Poland in constituted a small part of Polish GDP (Chart 1.6). CHART 1.6. VOLUME OF FUNDS FLOWING TO POLAND IN AS PART OF THE NATIONAL DEVELOPMENT PLAN AND NATIONAL COHESION STRATEGY Miliardy euro (2008) Udział w PKB Polski 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 2 0.8% 0.6% 1 0.4% 0.2% % Source: Own elaboration based on data of MRD, Eurostat and NBP. 17

18 In the perspective, the allocation of funds for Poland is supposed to increase significantly, which is going to make Poland the largest recipient of assistance funds among EU-27 states. In regards to the size of Polish economy, this means the more than a double increase of previous aid. Therefore, we can expect a considerably greater influence of cohesion policy on the Polish economy. This effect may abate only in the final years of the period , due to the higher economic growth rate than the assistance funds allocation growth (Chart 1.7). In the context of imports from EU-15 States, this means that the part of inflow triggered by Community Funds will be replaced by an autonomous economic growth. CHART 1.7. ALLOCATION OF FUNDS FOR POLAND IN THE PERSPECTIVE UNDER COHESION POLICY (IN EUR BILLION AND AS % OF GDP) Miliardy euro (2008) Udział w PKB Polski 2.7% 2.6% 2.5% 2.4% 2.3% 2.2% 2.1% 2.0% % Source: Own elaboration based on and ISR macroeconomic forecast. In the perspective the organisation of cohesion policy implementation system has also been reformed in Poland. Compared to the years more emphasis has been placed on regional development, which corresponds to the greater meaning accredited to convergence objective in cohesion policy assumptions. In the case of Poland, this is manifested in the separation of divisible regional programmes for each Voivodeship, as well as the establishment of the Operational Programme Development of Eastern Poland (all these programmes have been financed from ERDF). Moreover, more emphasis has been placed on supporting innovativeness and development of human capital and less emphasis on direct assistance activities. Apart from the aforementioned ones, Operational Programme Innovative Economy and Operational Programme Infrastructure and Environment (co financed from the Cohesion Fund) will also be financed from ERDF. Operational Programme Human Capital will be financed from ESF. Apart from increasing the amount of aid, different management of Polish economy should contribute to the reinforcement of positive impact on it, according to conclusions from Chapter 1.1. This should also translate into higher additional imports of goods and services from EU-15 States. At the same time, funds flowing to Polish economy from EU-15 payments, constitute a minute proportion of gross domestic product of these countries, which is indicated in Table 1.2. This means that the flow of funds should result in a stronger positive effect for the Polish economy than a negative one for EU-15 economies, even without taking into account return effects in the form of increased trade exchange. 18

19 TABLE 1.2. PAYMENTS TO COMMUNITY BUDGET IN THE PART DEDICATED TO THE IMPLEMENTATION OF COHESION POLICY IN POLAND IN REGARD TO GDP OF EU-15 STATES Austria 0.02 % 0.02 % 0.03 % 0.06 % 0.07 % 0.07 % 0.07 % 0.05 % Belgium 0.03 % 0.03 % 0.04 % 0.10 % 0.10 % 0.12 % 0.12 % 0.08 % Denmark 0.02 % 0.02 % 0.03 % 0.08 % 0.08 % 0.09 % 0.09 % 0.06 % Finland 0.02 % 0.02 % 0.03 % 0.06 % 0.07 % 0.08 % 0.07 % 0.05 % France 0.02 % 0.02 % 0.03 % 0.07 % 0.07 % 0.08 % 0.08 % 0.05 % Greece 0.02 % 0.02 % 0.03 % 0.07 % 0.07 % 0.09 % 0.09 % 0.06 % Spain 0.02 % 0.02 % 0.03 % 0.09 % 0.09 % 0.10 % 0.10 % 0.06 % the Netherlands 0.02 % 0.02 % 0.03 % 0.08 % 0.09 % 0.10 % 0.10 % 0.07 % Ireland 0.02 % 0.02 % 0.03 % 0.07 % 0.07 % 0.08 % 0.08 % 0.05 % Luxembourg 0.02 % 0.02 % 0.03 % 0.06 % 0.07 % 0.07 % 0.07 % 0.05 % Germany 0.02 % 0.02 % 0.03 % 0.06 % 0.07 % 0.07 % 0.07 % 0.05 % Portugal 0.02 % 0.02 % 0.03 % 0.07 % 0.07 % 0.09 % 0.08 % 0.06 % Sweden 0.02 % 0.02 % 0.03 % 0.06 % 0.06 % 0.07 % 0.07 % 0.05 % United Kingdom 0.01% 0.01% 0.02 % 0.05 % 0.05 % 0.06 % 0.06 % 0.04 % Source: ISR own calculations based on as well as data and forecasts of GDP by Eurostat Expected channels of impact of the implementation of EU Cohesion Policy in Poland on EU-15 and net payer states Concept of cohesion policy is not limited to the redistribution of funds between particular EU regions, though, but it also covers the expectation of beneficial economic effects for the entire Community, including its wealthier net payer countries and regions. Description of economic relations, within which these benefits may arise, is best understood from the angle of a basic accounting equation Y = C + I + G + X Z, according to which the disposable product (i.e. product generated in Y country with Z total import) is divided between C consumption, I investment, G government expenditure and X exports. After a slight transformation this identity takes the form of: (S - I) + (T - G) = (X - Z), in which foreign trade balance (X Z) is equal to private savings surplus over investments (S I) in terms of identity, added up to central budget surplus (T G). Thus, if there is an inflow of EU-15 funds to Poland (via governmental sectors of EU-15 States) supporting Polish investments (I private and G governmental), then, assuming that in the short perspective, tax savings and revenues of the government will be roughly constant, net payments to Poland must return abroad in particular to EU-15 States in the form of additional imports of goods and services (cf. Figure 4). Obviously, 19

20 the impact of this effect does not have to be proportional to funds invested by particular EU-15 States. A significant role will be played here by the structure of investments co financed under cohesion policy, as well as the structure of Polish foreign trade especially the share of imports from particular EU-15 States by particular sectors of the Polish economy. Additional positive effects of the implementation of EU cohesion policy in Poland should be expected for EU-15 States also in the long perspective. These effects will be discussed in detail in paragraphs below; it is these long -term effects, albeit only indirect that are the basic reason (apart from the feeling of transnational and transregional solidarity) for which the wealthier EU-15 States agree to be net payers of Structural Funds and EU Cohesion Fund. FIGURE 1.4. DIAGRAM OF PRODUCT CIRCULAR CYCLE IN ECONOMY Export (X) C+I+G+X Z Taxes Transfers Private income Net taxes (T) Savings (S) EU-15 States C+I+G Z Government (T G) Consump on (C) Private sector (S I) Other countries Investments (S) Import (Z) Government purchases (G) C+I+G C+I Source: Own elaboration. It needs to be emphasised then that the mechanisms analysed in this research, dealing with the impact of the implementation of EU cohesion policy in Poland on EU-15 economies are based both on short and long -term phenomena. 2 In the short perspective, the main effect consists in the fact that additional investment incentives (public or private) will translate themselves into additional demand for goods and services, which are obviously partly imported, largely from EU-15 States. This demand (both direct and indirect) appears both at the investment implementation stage and later on, when physical or human capital accumulated is used in production processes. In the long perspective, the key benefits are related to material effects of the implementation of EU cohesion policy, i.e. with real changes of the sectoral economic structure, development of modern branches of industry and services, increased purchasing power among consumers in 2 Unfortunately, due to the fact that primary data available only cover the years , i.e. too short a period for the longterm effects to manifest themselves visibly, the microeconomic part of the research identifies mostly short-term effects. The macroeconomic part, whose description is a significant part of this partial report, will contain a formulation of a long-term forecast which will also take long-term effects into account. 20