This study is the first attempt at assessing the regional economic impacts of investments by the European Institute of Innovation and Technology (EIT), using a spatially explicit macroeconomic model. This model allowed us to take into account the main direct, indirect and spatial spillovers effects of those investments via interregional trade and links between investments and a spatial diffusion of technology. We also take into account an endogenously determined global knowledge frontier with growth engines driven by investments in knowledge and human capital.
EU Economic Modelling System (EU-EMS)
In order to account for all the potential direct, indirect and spatial spillover effects of EIT investments, this study employs a spatially explicit general equilibrium model for Europe (EU-EMS), with regional and sectoral details that enable the identification of various spillovers from investments in knowledge and human capital. This EU Economic Modelling System (EU-EMS) is a new spatial computable general equilibrium (SCGE) model, developed by PBL Netherlands Environmental Assessment Agency, within the EU Framework Programme for Research and Innovation – Horizon 2020.
EU-EMS is a global modelling system that looks at 62 individual countries (among which 28EU member states) and one rest-of-the-world region. Such a detailed global geographic representation allowed us to take into account for the global value chains. The EU28 Member States in the EU-EMS model were further disaggregated into 276 NUTS2 regions, and each regional economy was subsequently disaggregated into 63 economic sectors according to NACE rev 2 classification of Eurostat.
Significant spatial spillover effects to other, non-EIT-supported, EU regions
The highly detailed EIT expenditure data that resulted from our simulation suggest that, besides sizeable direct effects in regions that receive EIT investment support, there are also significant spatial spillover effects in other, unsupported regions in the EU. Taking all of the main indirect and spatial spillover effects into account is a particular feature of the spatial general equilibrium methodology. Our results suggest that they are indeed important and need to be taken into account when assessing the impact of EIT investment policies on regional economies.