Working Paper BETA #2018-46

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Title : 'The winner takes it all' or a story of the optimal allocation of the European Cohesion Fund

Author(s) : Benoit Dicharry, Phu Nguyen-Van, Thi Kim Cuong Pham

Abstract : This paper aims to determine an optimal allocation of the European Cohesion Fund (ECF) and compares it with the observed allocation. This optimal allocation is the solution of a donor optimization problem which maximizes recipient countries' GDP per capita to achieve economic convergence in the EU. Compared to the observed allocation, our solution can identifiy the recipient countries that can benefit from higher ECF transfers than the observed levels, as those having low relative GDP per capita, large population size and where the ECF has a strong capacity to support economic growth. Result is robust to changes in the specification of the donor's utility function.

Key-words : Economic growth; European cohesion policy; Foreign aid.

JEL Classification : F35, I30, O47