Regional economic impact of the Next Generation European Union recovery plan

Abstract

This paper analyzes the economic impact of the Next Generation Funds package of the European Union (NGEU), focusing on the allocation of NGEU funds across European regions and the impact on rent distribution using new datasets on direct investments and remittances. Employing the input-output framework this work assesses the effects of the pandemic and the implications of NGEU funds, considering two alternative scenarios of sectoral and regional allocation, and a second round of rent distribution. The analysis reveals that the positive effects of the NGEU are largely overshadowed by the negative impacts of pandemic in most regions. Additionally, when considering the final redistributive effect, including interregional capital and remittance flows, the spatial pattern shifts, indicating that despite overall improvements, core regions capture rents from peripheral regions, leading to anti-cohesion outcomes. These results prompt further investigation into the role of NGEU in regional recovery and cohesion, suggesting additional research into rent distribution and the long-term economic impacts.