Ministry of Finance of the Republic of Lithuania
Evaluation of the Impact of the EU
Structural Funds on Gross Domestic
(HERLIT model based on HERMIN)
DIRECTORATE-GENERAL REGIONAL POLICY –
"EVALUATION NETWORK MEETING"
Brussels, 25 and 26 February 2010
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.
• 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
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
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 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
Treatment of Limited or ignored Included/explicitly modelled
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-
• 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
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
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
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
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
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.
The results are compared among objective 1 (convergence) economies.
Countries are divided into three groups, based on a ranking by the size of the
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 were directed towards increasing
Programme investment impact on GDP.
Recommendations for The Ministry of Finance of Lithuania (MA) were
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
• General public policy analysis;
• EU investment related policy analysis (Ex-ante,
• Impacts of the other EU policies (Single market,
•Design/evaluation of national industrial strategies
Ministry of Finance of the Republic
of Lithuania BGI Consulting Ltd., www.bgiconsulting.lt