Key findings & learning

Guidance Lab > Institutional Quality & Capacity > key findings & learning

Understanding the interplay between institutional quality and policy outcomes is essential for optimizing resource allocation, especially in contexts where large public investments are managed at the regional or local level. Numerous studies showed that sub-national institutional features are essential for evaluating the root causes of local economic disparities (Acemoglu and Dell, 2010).

The implementation of the EU Cohesion Policy, which is the most extensive place-based policy in terms of breadth, amount of resources involved and duration directly involving subnational governments, has stimulated a vast body of literature on the quality of these governments. For instance, high-quality sub-national institutions can ensure that resources allocated through the EU Cohesion Policy are used efficiently and transparently, leading to better outcomes in terms of economic growth and development. Conversely, poor institutional quality can lead to mismanagement and corruption, diminishing the policy’s effectiveness. With this respect, it is crucial to focus on specific dimensions of institutional quality, particularly administrative capacity, which directly influences the investment attraction, funds management and efficient public goods’ provision (Polverari, 2020).

Main findings on the conditioning role that quality of government and administrative capacity play for Cohesion Policy implementation:

• The quality of government affects funding allocation and the subsequent local economic growth (Becker et al., 2013; Rodríguez-Pose and Garcilazo, 2015).

• The quality of regional governments affects administrative performance in the implementation of the Cohesion Policy (Mendez and Bachtler, 2024)

• The political equilibria determine constraints and success of place-based policy in Italy as regional transfers may become rent-seeking opportunities (D’Amico, 2022)

Where Evidence is Inconclusive or Lacking

The main concerns about the inconclusiveness of evidence are due to i) insufficient data availability and ii) limited results on the causal effects of administrative capacity for cohesion policy implementation. 

Indeed, as for the first point, there is a lack of indexes on institutional quality / administrative capacity at a more granular level (e.g., municipalities), and with a sufficient time span to allow for credible identification or covering all policies timing. Moreover, the existing data on institutional quality / administrative capacity do not allow for comparisons among countries or common evaluation of European projects. Some possible, available solutions rely on the use of the recently proposed Municipal Administration Quality Index (MAQI) by Cerqua et al. (2024). This Index addresses the issues of granularity and limited time span by measuring the administrative quality of nearly all Italian municipalities from 2001 to 2021. However, its focus solely on Italy limits its utility for comparing the effectiveness of EU policies across different European local territories.

Alternatively, the well-established European Quality of Government Index (Charron et al., 2014) serves as a valuable tool for comparative studies across European regions. Nonetheless, since it is only available starting from 2010, it does not facilitate comparative evaluations of the earlier programming periods of EU Cohesion Policy. Moreover, most studies find a strong correlation between institutional quality indexes and economic growth rather than being able to isolate the causal relationship between these two variables. Indeed, it is particularly difficult to find exogeneous variations for estimating the causal relationship of interest.

As for the second point – some interesting facts about the administrative capacity in the context of EU Cohesion Policy need to be investigated highlighting the causal mechanisms. There is ample room to causally investigate the role of regional administrative efficiency for available funds’ absorption capacity and the effective support to firms (Bachtrögler-Unger et al., 2024), the role for non-compliance events (Výrostová and Györgyi Nyikos, 2024), and its connection with the local stakeholders’ capacity (Potluka and Medeiros, 2024).

Learning from the evidence for guiding the implementation of the NRRP with critical administrative capacity

Main lessons

• Policies that rely directly on subnational administrative governments for their planning and implementation should always consider the socio-institutional contexts.

• Diversified administrative capacity endowments influence the spatial patterns of funds distribution and the financed projects. Particularly small municipalities have faced challenges related to administrative capacity and the lack of qualified personnel to manage complex projects, resulting in missed funding opportunities.

• Municipalities with critical administrative capacity can struggle to develop projects that are sufficiently detailed and competitive to meet the NRRP selection criteria. The lack of specific skills in project design and management hampers their chances of accessing funding.

• Even when a project receives funding, an inefficient administrative structure can cause delays in implementation.

• When all territories are eligible for the same amount and intensity of funds, unlike the assignment process of the EU Cohesion Policy, differences in local institutional quality can exacerbate territorial disparities.

• Coordination problems might arise between local governments or among different levels of government. These issues can lead to implementation delays or missed funding opportunities, as seen with the Union of municipalities that failed to coordinate various projects effectively.

Directions for actionable measures:

Policies and programs involving large amounts of funds, such as NGEU, are important drivers of economic growth. However, for these policies to be effective in achieving their goals, and their benefits being widespread and long-lasting, certain conditions must be met:

• Funds must be precisely targeted and urgent measures are needed to assist subnational governments during the implementation phases. This includes strengthening the administrative capacity of local governments, whose staff is often undersized and lacking the necessary skills to apply for and implement projects

• Coherent coordination procedures are necessary to ensure smooth processes and communication among the different actors involved at various levels of government, preventing delays in project timelines. Involving citizens and relevant stakeholders is crucial for this purpose.

• Disparities in administrative capacity must be carefully considered. These are not only weaknesses to be addressed in the long term through place-based policies but also potential drivers of heterogeneous effects. Strong support for local public administration would maximize the uniformity of results.

• Investments aimed at enhancing public administration capabilities are crucial for ensuring the adoption of best practices. Technical assistance and training programs to improve the administrative skills of local actors are particularly relevant. Collaborations between local authorities, universities, and non-profit organizations should be encouraged to provide technical support and create networks of expertise to help municipalities overcome their administrative limitations.

• Public efforts aimed at long-lasting improvements in local institutional quality and administrative capacity are essential to ensure that funds are spent effectively and that economies become more resilient and competitive. Modernizing public administrations must be promoted to enhance governance and crisis response capacity.

More actionable measures will be provided starting from the research we are carrying out within the project (cfr. Policy Targeting). Any recommendations from academics or practitioners are welcome. Please use our contacts to contribute to this Guidance Lab at any stage! 

References

• Acemoglu, D., & Dell, M. (2010). Productivity differences between and within countries. American Economic Journal: Macroeconomics, 2(1), 169-188. https://doi.org/10.1257/mac.2.1.169 

• Bachtrögler-Unger, J., Fratesi, U., & Perucca, G. (2024) Administrative capacity and the territorial effects of EU support to firms: a two-step analysis, Regional Studies, 58:4, 719-732.  https://doi.org/10.1080/00343404.2022.2109613

• Becker, S. O., Egger, P. H., & Von Ehrlich, M. (2013). Absorptive capacity and the growth and investment effects of regional transfers: A regression discontinuity design with heterogeneous treatment effects. American Economic Journal: Economic Policy, 5(4), 29-77. https://doi.org/10.1257/pol.5.4.29 

• Cerqua, A., Giannantoni, C., Zampollo, F., & Mazziotta, M. (2024) The Municipal Administration Quality Index: The Italian case. GSSI Discussion Paper Series in Regional Science & Economic Geography No.2024-06.https://gssi.it/images/discussion%20papers%20rseg/2024/DPRSEG_2024-06.pdf 

• Charron, N., Dijkstra, L., & Lapuente, V. (2014). Regional governance matters: Quality of government within European union member states. Regional Studies, 48(1), 68–90. https://doi.org/10.1080/00343404.2013.770141

• D'Amico, L. (2021). Place based policies with local voting: Lessons from the eu cohesion policy. Available at SSRN 3866098. http://dx.doi.org/10.2139/ssrn.3866098 

• Mendez, C., & Bachtler, J. (2024) The quality of government and administrative performance: explaining Cohesion Policy compliance, absorption and achievements across EU regions, Regional Studies, 58:4, 690-703.  https://doi.org/10.1080/00343404.2022.2083593

• Polverari, L. (2020) La capacità amministrativa in Italia: sfide, opportunità e prospettive. SVIMEZ.

• Potluka, O., & Medeiros, E. (2024) Administrative and organizational capacities of civil society in EU Cohesion Policy, Regional Studies, 58:4, 745-755. https://doi.org/10.1080/00343404.2021.1986626

• Rodríguez-Pose, A., & Garcilazo, E. (2015) Quality of government and the returns of investment: Examining the impact of cohesion expenditure in European regions. Regional Studies, 49(8), 1274-1290. https://doi.org/10.1080/00343404.2015.1007933

• Výrostová, E., & Nyikos, G. (2024) Administrative capacity and EU funds management systems performance: the cases of Hungary and Slovakia, Regional Studies, 58:4, 704-718.  https://doi.org/10.1080/00343404.2022.2152434