Spillover Effects of Natural Capital: Implications for Regional Development and Cohesion Policy in the European Union

The relationship between natural capital and economic growth has gained considerable attention in recent years, particularly within the framework of sustainable development and European regional cohesion policy. Despite its recognised importance, natural capital remains largely absent from regional growth accounting frameworks, and its spatial spillover effects across regions are still insufficiently understood. This paper addresses both gaps by integrating natural capital- defined from an ecosystem services perspective- into an augmented Cobb-Douglas production function, and by applying a Spatial Durbin Model to assess the direct and indirect contributions of natural capital to economic output across EU NUTS2 regions. The results reveal a statistically significant positive association between natural capital and regional economic performance. A 10% increase in natural capital is associated with a 0.7% rise in gross value added, of which 0.4% is attributed to direct productive effects and 0.3% to spillovers from neighbouring regions. Spatial analysis further reveals marked territorial heterogeneity: above-average effects are concentrated in Central and Eastern Europe, while core Western European regions exhibit weaker spillover benefits, consistent with their lower structural dependence on ecosystem service flows. Although the estimates are associational rather than causal, the consistency of results across multiple model specifications supports their robustness. The study provides a proof of concept for integrating natural capital into regional development planning and demonstrates its relevance for advancing EU cohesion policy objectives. The findings also offer policy-relevant evidence to support future investments in biodiversity protection and ecosystem restoration, in line with the European Green Deal and the EU Biodiversity Strategy for 2030. • Natural capital is integrated into growth accounting via a spatial regression model • A 10% increase in natural capital leads to a 0.7% rise in the GVA of EU regions • Positive spillover effects imply that natural capital can foster regional cohesion • The model provides insights about the economic impact of biodiversity investments