Derangement or Development? Political Economy of EU Structural Funds Allocation: Insights from the Hungarian Case

Structural Funds transfers are designed to increase economic and social cohesion among EU Member States, via enhancing a fast catch-up process of the less developed. Cautious critique questions the effective and productive absorption of these substantial transfers, primarily based on the experience with former EU15 Cohesion Countries. Recent evidence from the 2004-2006 cycle of SF allocation shows that this is a significant issue for New Member States too due to their structural, institutional and administrative legacies. Absorption problems might lower the efficiency and effectiveness of SF, yet there is no clear-cut theoretical or empirical background in the literature to define and analyze them.

This research project aimed to reveal some insights on the interaction of political and economic aspects in Hungarian development policy and multi-level government financing mechanisms. By looking at the programming and allocation of regional development funds to municipalities/small regions (Nuts4) through the Regional Operational Program of EU Structural Funds in Hungary for 2004-2008, the project addressed two distinct but related questions: who are the winners, what is behind successful applications (institutional aspects); if and how such development programs and financing mechanisms are influenced by political factors?

Through econometric data analysis it was observed which municipalities or small regions (NUTS4) seemed particularly successful in EU applications and patterns, in search for election or party-motivated funding, e.g. checking whether grants are given to swing-voter districts in contrast to loyalty and same color favoritism. The research contributes to the literature on the political economy of intergovernmental grants as well as policy research on Structural Funds allocation.