Preliminary investigation of the Cohesion policy priorities in Latvia for the
post-2013 programming period
Baltic International Centre for Economic Policy Studies (BICEPS)
07.10.2011.-15.12.2011.
Summary
This study, commissioned by the LR Finance Ministry, represents a preliminary
investigation (priekšizpēte) of the Cohesion policy priorities or areas of support
that Latvia should adopt for the post-2013 programming period in order to
achieve maximal concentration of support. Within the framework of the project
the following have been developed: a methodology for identifying areas of
Cohesion Policy support; a set of criteria; an application of the criteria to 11
predefined priorities with the aim of identifying 5 concentrated areas of support.
The methodology, criteria and proposed support areas have been subject to a
consultation process consisting of the following activities: a focus-group
discussion with representatives of line ministries and stakeholders; five regional
discussions with regional stakeholders; and a final public consultation in Riga.
The methodology proposed to identify the criteria for defining priorities is based
on the goals of both European level and Latvian level planning documents and
other relevant studies. These include:
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EU Cohesion policy, draft Regulation for 2014-20, the Europe 2020 strategy,
The Latvian National Reform Programme (NRP) implementation report
The Latvian Sustainable Development Strategy to 2030 (Latvia 2030).
The draft Latvian Competitiveness Report (LCR)
Equally important in defining Latvian priorities is the overall economic and
social situation in Latvia and the report provides a brief description of the most
important indicators.
Three main points that emerge from the Regulation in relation to defining
priorities are the following: firstly the convergence of less developed regions
(that is regions with a GDP per capita at less than 75% of the EU average)
remains the main goal of EU Cohesion Policy with less developed regions
expected to receive 68.7% of the EUR 336 billion proposed budget for 20142020 Cohesion spending; secondly there is a strong guidance for member states
to align their Cohesion policy with the priorities of Europe 2020, namely – smart,
sustainable and inclusive growth; and thirdly there is an emphasis on a more
focussed approach with more concentrated priorities. The Latvian NRP has a
concrete set of goals that are consistent with Europe 2020 and Latvia 2030
identifies nine goals which include the aim of increasing GPD and reducing
economic and social inequalities.
Based on these considerations the study identifies five criteria to be applied in
the selection of Cohesion policy support areas. The first four criteria reflect the
goals of the relevant policy documents and the fifth is a horizontal ‘market
failure’ criterion which is sometimes forgotten in Cohesion policy discussions.
The proposed thematic criteria are:
The first criterion is the impact of cohesion policy intervention on GDP. This
reflects convergence as the main goal of cohesion policy and is also a key goal of
other policy documents. With a GDP per capita at PPS of 52% of the EU average
in 2010 convergence is a key issue arising from Latvia’s current economic
circumstances.
The second is the impact of cohesion policy intervention on inequality. Latvia has
some of the highest inequality indicators in the EU at both the individual or
household level and at the regional level. Inclusive growth is one of the priorities
of Europe 2020 as well as of Latvia 2030.
The impact of cohesion policy intervention on employment is proposed as the third
criterion. Employment is a key target of the Europe 2020 strategy and an explicit
target of Latvia’s NRP. Low employment represents a waste of national resources
and having a job or not is the main determinant of individual poverty.
Sustainability is the fourth proposed criterion. This is in line with Europe 2020
and very much in line with Latvia 2020. Sustainability is important as a separate
criterion because conventional measures of GDP do not fully capture the
resources ‘used up’ creating value added.
A horizontal ‘market failure’ criterion is also proposed. It is a standard principle
of economic theory that public intervention in a particular is justified only if it
can be demonstrated that the market generates a non-optimal outcome. In
particular support for an activity is justified only if the market generates too
little investment. This is a principle which should also be applied to Cohesion
Policy intervention.
The above criteria have been applied to the long list of 11 support areas using: i)
evidence from a macro model of funds impact on the Latvian economy, ii)
evidence from studies reported in the “Background report on: Evidence based
cohesion policy and its role in achieving Europe 2020 objectives” iii) evidence
from Latvian ex-post evaluations of the 2004-6 programming period and iv)
evidence from the draft of the as yet unpublished Latvian Competitiveness
Report (LCR).
From this evaluation three areas clearly stand out as support areas that meet the
criteria: transport infrastructure, information society and employment and social
inclusion. These three areas are expected to have a significant positive impact on
GDP and also satisfy several of the other proposed criteria, including the market
failure criterion. In the 2007-2013 programming period many education
measures were implemented under the ‘Human capital, employment and social
inclusion’ priority and hence cannot be separated out within the framework of
the macroeconomic modelling. Accordingly, it is proposed that in the next period
‘education’ should also be combined with ‘employment and social inclusion’. The
remaining two proposed priorities proved more difficult to identify, but on
balance the evaluation pointed to ‘environment’ and ‘R&D’ as the next most
desirable support areas.
Accordingly, the proposed list of priorities for 2014-2020 is:
Transport infrastructure
Information society
Employment, social inclusion and education
Environment
R&D
The proposed methodology (including the proposed criteria) was presented at
the focus group meeting, the five public discussions and the final public
consultation. These meetings generated considerable discussion. A summary of
the discussions is provided in the report.