Territorial Cohesion versus Competitiveness in Europe: False dilemma or real trade-off?

This paper examines whether the European Union’s Cohesion Policy entails a trade-off between competitiveness and cohesion or whether both objectives can be achieved simultaneously across EU territories. We analyse the impact of Cohesion Policy expenditure on labour productivity, GDP per capita, investment intensity, employment and unemployment across EU NUTS3 regions over the period 2016-2024. The analysis accounts for both endogenous policy allocation and inter-regional spillovers using a two-step residual-inclusion spatial autoregressive model with region and year fixed effects. We further decompose the estimated impacts into direct and indirect spatial effects and assess the contribution of Cohesion Policy to regional convergence through a counterfactual Shapley-Theil inequality decomposition. The results show that Cohesion Policy significantly increases productivity, income, investment and employment while reducing unemployment. A substantial share of these effects arises through spillovers to neighbouring regions, highlighting the importance of spatial transmission mechanisms. The policy also reduces inter-regional inequalities across all socio-economic outcomes, with the strongest equalising effects observed for investment and unemployment, driven primarily by reductions in disparities between more- and less-developed regions. The findings provide little evidence of a trade-off between cohesion and competitiveness. Instead, they suggest that Cohesion Policy promotes both regional convergence and aggregate economic performance, generating benefits that extend beyond recipient regions through integrated European economic linkages.