Do Spatial Spillovers of Regional Policies Aid the Reduction of Regional Inequalities in Europe?

The European cohesion policy promotes the harmonious development of the Union and its regions, fostering inclusive growth and employment in less developed regions, improving people's well-being and reducing regional disparities. However, the effects of the policy are both direct, in the regions where the policy has been addressed, and indirect, in neighboring or economically connected regions through the generation of spillovers. Evaluating the total effects of these policies is therefore complex, as both direct effects and spillovers must be taken into account. However, spillovers are generally excluded from the classic counterfactual model, which does not allow for interference effects between treated and untreated units of the policy (named SUTVA assumption). This work aims to overcome this restriction, by implementing a methodology fully coherent with the counterfactual approach relaxing this assumption. We propose a spatial DiD model, based on the SDM specification that allows for spillover effects. The paper evaluates the total effects of regional policy of the programming period 2007-2013 using data at both NUTS-2 and NUTS-3 level. Results show positive effects of European regional policy in the Eastern regions, where the policy produces positive externalities, reducing inequalities with the more developed regions.