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					                Ministry of Finance of the Republic of Lithuania


        Evaluation of the Impact of the EU
       Structural Funds on Gross Domestic
                     Product
                (HERLIT model based on HERMIN)
                                                                    Presentation for
                                          DIRECTORATE-GENERAL REGIONAL POLICY –
                                                 "EVALUATION NETWORK MEETING"
                                                  Brussels, 25 and 26 February 2010
Jonas Jatkauskas,
BGI Consulting, Public Policy Division
Dr. John Bradley,
Economic Modelling and Development Strategies (EMDS),
          Aims of the Evaluation
General aim – to evaluate the impact of the EU Structural Funds on
  the Gross Domestic Product (GDP) of Lithuania. Firstly the
  impact of the 2004-06 SPD and secondly preliminary impacts of
  the 2007-13 OPs.


Tasks:
• Economic overview;
• To assess the level of achievement of the SPD key indicators
   (Increase of GPD according to the initial scenario);
• Provision of recommendations for the period of 2007-13 (GDP
   increase emphasized).
               Evaluation Criteria
Relevance – relevance of the Programme indicator “Real increase of
   GDP according to the initial scenario” was assessed.

Effectiveness – the level of achievement of the key SPD indicator
   “Real increase of GDP according to the initial scenario” was
   evaluated.

Impact – the impact of 2004-06 SPD on the economy and separate
  sectors was evaluated. This included evaluation of long term
  social and economic impacts of the investment.

Efficiency – the comparative analysis of efficiency of SPD
    investment was carried out. This included comparison of
    “cumulative” multipliers among convergence member states.
                Methods of Evaluation
The central tool of the evaluation – Economic macro-model
     HERLIT.
HERLIT model is based on HERMIN methodics which was widely
     used in other evaluation exercises of member states.
The HERLIT model was created and applied by the key expert of
     the evaluation – dr. John Bradley (EMDS).
                       Micro (bottom-up)            Macro (top-down)
Level of            High (individual projects)   Low (sectoral aggregates,
disaggregation                                       whole economy)
Use of theory       Weak (judgemental, CBA)      Strong (macroeconomics)
Model calibration     Judgemental/informal       Scientific(?)/econometric
Policy impacts      Informal/implicit/ranking/ Formal/explicit/quantified
                       some quantification
Treatment of            Limited or ignored    Included/explicitly modelled
externalities
                  The key assumptions
 The key assumptions were made in carrying out the HERLIT simulations of
the SPD impacts:

•The baseline is the “with-SPD” scenario, because it is an ex-post evaluation.
• The values of the supply-side SPD spillover parameters are selected from the
mid range of the international literature, as being reasonably representative of
a standard design and implementation of the SPD.
• A later sensitivity analysis can be used to probe different assumptions, and
seek out how the impacts might be improved.
• If the SPD were absent, no substitute purely domestic investment package
would be substituted.
• When SPD 2004-2006 terminates in 2008, public investment is assumed to
revert to the no-SPD situation. SPD 2004-06 evaluated in isolation from 2007-
13 OPs)
• A preliminary ex-ante evaluation of 2007-13 combines both periods (2004-
2006 and 2007-2013) together.
            Stages of Evaluation (1)
Stage 1:    Preparation of the baseline Lithuanian macroeconomic
scenario.

This involves the preparation of a baseline projection for the
Lithuanian economy to be used as an ex-post reference point for the
subsequent analysis of the SPD policies. The period covered will
extend to about the year 2015 in the case of SPD 2004-2006 and to
2020, in the case of SPD 2007-2013.

Stage 2: Preparation of the Lithuanian EU Funds data for use in the
impact analysis

The SPD expenditure data was reclassified into the three standard
economic categories: physical infrastructure, human resources, and
direct aid to business (including R&D assistance).
          Stages of Evaluation (2)
Stage 3: Applications of the model to Lithuanian SPD impact analysis

The new HERLIT model was applied to the impact analysis of the
Lithuanian SPD 2004-2006, both in terms of aggregate effects and
more detailed sectoral effects.        In addition, an exploratory
examination of the likely impacts of SPD 2007-2013 was carried out.

Stage 4: Documentation of results of SPD impact analysis

The SPD impact results were documented, and the policy
conclusions related to the wider socio-economic analysis carried out.
The results of ex-post evaluation was compared with those of the ex-
ante evaluation carried out in 2003 (particularly measuring the level
of achievement of the key SPD indicators as GDP increase and jobs
created).
         Results of Evaluation: Input
          SPD 2004-06 – Size of funding injection




Starting from a very low base in 2004 (less than 0.1 percent of GDP), the SPD
expenditure build up, and peak in the final year 2008 at over 1 per cent of GDP (EU)
and 1.5 per cent of GDP (total).
        Results of Evaluation: Effectiveness
                 SPD 2004-06 – Impact on the level of GDP




The initial impact in 2004 is very small, and raises the level of GDP by only 0.07 per cent.
The impact builds up over time, and peaks in the terminal year 2008 at an increase of
over 2.1 per cent.
It can be summarised that SPD effectiveness goal (increasing GDP) set in the
Programme (SPD) was achieved and slightly exceeded initial estimations (by 0.3 per
cent points).
  Results of Evaluation: Impacts (1)
    SPD 2004-06 – Impact on unemployment rate




SPD 2004-06 impact on the unemployment rate was app. -0,3 % points in 2005, -
0,8 % points in 2006, -1,17 % points in 2007 and peaked in 2008 by reducing the
unemployment by -1,5 % points. It can be stated that in no-SPD scenario the
unemployment rate would be 7,3 % in 2008, while with SPD it actually was 5,8 %.
Results of Evaluation: Impacts (2)
    SPD 2004-06 – Impact on sectoral output
Results of Evaluation: Impacts (3)
   SPD 2004-06 – Impact on sectoral productivity
Results of Evaluation: Impacts (4)
   SPD 2004-06 – Impact on sectoral balances
     Results of Evaluation: Input
SPD 2004-06 plus 2007-13 OPs – Size of funding injection



                              2007-13
                             injection




         2004-06
         injection
Results of Evaluation: Impacts (5)
SPD 2004-06 plus 2007-13 OPs – Impact on the level of GDP
   Results of Evaluation: Impacts (6)
SPD 2004-06 plus 2007-13 OPs – Impact on unemployment rate
   Results of Evaluation: Impacts (7)
SPD 2004-06 plus 2007-13 OPs – Impact on sectoral output
   Results of Evaluation: Impacts (8)
SPD 2004-06 plus 2007-13 OPs – Impact on sectoral productivity
      Results of Evaluation: Efficiency
                  Comparing “Cumulative” multipliers
“Cumulative” multiplier, is the cumulative percentage increase in the level of
GDP due to SPD divided by the cumulative funding injection, where the latter
is expressed as a percentage of GDP.
                                          Cumulative%increaseinGDP
   CumulativeSF multiplier 
                                          CumulativeSPDshareinGDP
The results are compared among objective 1 (convergence) economies.
Countries are divided into three groups, based on a ranking by the size of the
cumulative multipliers:

High values (above 3.0): IE (4.0), ES (3.3), CZ (3.3) and MT (3.1)
Medium values (2.5 - 3.0): SK (2.8), EL (2.8), EE (2.8), PT(2.6), PL (2.5)
Low values (below 2.5): LT (2.4), HU (2.4), SI (2.2), CY (2.2), LV (1.9)

Source: Study for the European Parliament. Bradley, Untiedt and Zaleski, 2009.
            Recommendations
Recommendations were directed towards increasing
Programme investment impact on GDP.
Recommendations for The Ministry of Finance of Lithuania (MA) were
set three-fold:
1. To strengthen the Programming phase by incorporating
   detailed forecasting and sophisticated economy analysis tools
   in to the process. This should ensure higher relevance of the
   investment to the needs of economy and society.
2. To strengthen Implementation phase of the programmes by
   invoking micro level analysis tools to increase effectiveness
   (like Cost Benefit Analysis). The results should be further
   utilized in order to revise the set of interventions.
3. To strengthen national and regional strategic planning by
   prioritizing the key needs of the economy (according to
   stages of competitive development). National strategic
   planning should be strongly related to the Programmes funded
   by the EU structural funds.
Potential uses of HERLIT model
• Preparation of economic forecasts (short and
medium-term);

• General public policy analysis;

• EU investment related policy analysis (Ex-ante,
Mid-term, Ex-post)

• Impacts of the other EU policies (Single market,
EMU, etc.)

•Design/evaluation of national industrial strategies
                                Thank you!




Ministry of Finance of the Republic
of Lithuania                          BGI Consulting Ltd., www.bgiconsulting.lt

				
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posted:9/27/2012
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