Institutional quality and digitalization: Drivers in accessing European funds at regional level?

Abstract

Today, when smart development is increasingly mentioned in public policies, the way digitalization, as a key component of it, will transform the world in which we are living is gaining great interest. States have to resort to the mastery of various technological tools in order to keep up with global trends and, therefore, the consequences of digitalization, whether positive or negative, will be better inventoried once time passes. The changes deriving from these realities will be felt at all levels of society. Since the path towards cohesion among the less developed countries and regions in the European Union (EU) is facilitated by its financial support, through a variety of funds, a key question emerges: how much do the elements of an institutional nature, coupled with aspects that revolve around digitalization, matter in differentiating the regions when it comes to attracting European funds? To provide answers to this question, in our study we explore the dynamics of European funds, in the 2007–2018 time frame, under the influence of several factors that lead, on the one hand, to characteristics that define institutional quality, and on the other hand, to a slightly ignored facet, at least in socio-economic sciences, namely digitalization. The examined period covers the entire financial framework 2007–2013 and a significant part of that which started in 2014. Unfortunately, the data related to the following years were not available when this article was written, and, thus, it was impossible to design a more comprehensive scoreboard on the absorption of European funds in the 2014–2020 cycle. The sample includes 56 regions from Central and Eastern European (CEE) countries and the funds addressed in this research are: the Cohesion Fund (CF), the European Regional Development Fund (ERDF) and the European Social Fund (ESF). Applying, initially, a panel structural break test and a baseline scenario that considers the trilateral relationship between institutions, digitalization and the absorption of funds, we build, subsequently, two interaction scenarios between certain indicators integrated in the analysis. Proceeding in such manner, we obtained results highlighting the fact that institutional quality (regional governance), as well as digitalization, have a particular impact on accessing European funds. In fact, the proposed approach along the two dimensions (institutions and digitalization), set in connection with European funds, enable one to X-ray and better understand the particularities of the regions so that the latter can capitalize more intensively on their potential to faster diminish development disparities and induce inclusiveness.