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ASSESSMENT OF EUROPEAN UNION S REGIONAL POLICY AT THE LEVEL OF LOCAL MUNICIPALITY: CASE STUDY OF SELECTED NEIGHBOURHOODS IN RIGA Normunds Strautmanis, Maija Rozite University of Latvia, Faculty of Geography and Earth Sciences, Latvia School of Business Administration Turiba, Department of Tourism and Hospitality, Latvia Nowadays, growth and development at the local level within European Union (EU, Union) is seen as part of Union s regional policy aimed at contributing to the umbrella strategy, the Europe 2020 strategy. The purpose of the EU regional policy is to help achieve the overall goals of Europe 2020 strategy. EU regional policy is in point of fact an investment policy meaning that it is largely being implemented through funding provision from the EU budget to the member states (of the EU). Aimed at reducing significant economic, social and territorial disparities between EU regions, the regional policy supports job creation, competitiveness, economic growth, improved quality of life and sustainable development. Backing the bottom-up approach, we would like to argue that it is essential that the EU policy in order to be effective and successful reach its targets at all levels of economics starting from level of a local municipality and even a neighbourhood of a municipality until the regional, interregional and national level. The bottom-up approach has been chosen for one particular reason most of the EU investment provided through funding opportunities, at least speaking about those related to implementation of the regional policy, lands at a specified territory, or to be more precise at a specified address within a particular territory. Thus to reduce the economic, social and territorial disparities between EU regions, the EU funding must be invested in those territories lagging behind. In other words, the less developed the territory or an area, the larger amount of EU funding should be invested there. Taking the example of the most strongest region of Latvian economics the region of Latvian capital city of Riga, which has received the largest amount of EU funding within the research period of the paper ( , two and a half years after Latvia joining the European Union), the authors have analyzed whether the EU funding has been invested in those areas of the city of Riga lagging behind the average level of development and thus attempted to answer the question whether the aims of EU regional policy are met at a level of the local municipality. Investment in real estate a truly profit driven instrument has been chosen as an indicator to evaluate whether the territories where the largest amount of EU funding has been invested are those ones that are in real need of involvement of public funds like those of EU. The authors argue that if the territory is economically strong enough to attract private real estate investment, the territory do not needs additional public funds for development; and vice versa. In cases if a particular territory is strong enough to attract real estate investment and EU funds have been invested at the same time as well, the authors have examined whether there is any link between EU investment and real estate investment, i.e., whether the EU investment has been the catalyst for further development of territory and attraction of real estate investment after the EU funding has been placed there. Empirical analysis shows that the actual performance of the EU funding is in contrary with the EU regional policy and it is not possible to speak about cohesion in the case of the Latvian capital in regard of EU funding invested. Although many EU funding options are available both for municipalities and companies, the results obtained show that regardless of the clear evidence of the significant increase in the amount of real estate investment in the city of Riga following Latvia s accession to EU, the spatial distribution of the real estate investment made does not have a clear linkage to EU funds invested in the particular territory (neighbourhood). It is possible however to argue that EU funding invested to some extent (depending on the amount and typology) may multiply the possibility of real estate investment being invested in that particular territory due to the increased competitiveness of the territory. Keywords: real estate investment, EU regional policy, neighbourhood, spatial development, city of Riga. Introduction Priority areas of Europe 2020 strategy are (1) smart raising of employment and modernisation of labour market growth meaning improvement of Union s performance and education opportunities, and improvement of social and in education, research/innovation, and information and territorial cohesion within Union. communication technologies; (2) sustainable growth meaning Therefore a rhetoric question could be raised: If the building of competitive low-carbon economy, protection Europe 2020 strategy envisages smart, sustainable, and of environment, development of green technologies, and inclusive growth does it mean that cities in Europe by 2020 improvement of business environment, especially for small will be sustainable, smart, and inclusive? and medium enterprises; (3) inclusive growth meaning 168 The core aim of the EU s regional policy is to reduce economic and social disparities between Union s 27 member states and their 271 regions (at NUTS1 level) since the economic and social disparities between the regions are great one region in four has a Gross Domestic Product, GDP per inhabitant under 75% of the average (Commission, 2011a). Regional policy in its essence is investment policy meaning that it is realized through investment (funding possibilities) provided by the Union to achieve the core aim. The planning period of 2000 to 2006 had 3 main objectives: (1) to support development of less prosperous regions. (2) revitalization of all areas within Union facing structural difficulties, and (3) to support the adaptation and modernisation of education, training and employment policies and systems in regions not eligible under Objective 1, as well as 3 additional actions with each of them having a different accent. 213 billion EUR plus additional billion EUR for new member states were available. Does the regional policy actually help the regions, cities and rural areas become smarter, more sustainable, and more inclusive? The problem is both scientific and practical and may have very strong impact on the development of particular areas within and outside the cities. The issues related to European Union are relatively novel for Baltic scholars and therefore there have not been many attempts on evaluating the EU regional policy neither at regional, nor local (municipality) level. This paper therefore is going to contribute to the literature on evaluating the EU regional policy and EU funding distribution at national level with a focus on local (municipality) level. The purpose of the paper is to evaluate the impact of European Union s regional policy on a local level and to look for relations between Union s regional policy and spatial distribution of real estate investment reflecting the well-being of the territory on a local municipality level. Riga, the capital city of Latvia, the largest city within Baltic States and one of the largest in the Baltic Sea Region (BSR) has been chosen for the case study reflecting the tendencies of a city of the block of former planned economies around Central and Eastern Europe (CEE). The paper is based on an empirical analysis based on data about actual EU investment and real estate investment in City of Riga obtained from Ministry of Finances and Riga City Construction Board, as well as Riga City Development Department. Data are structured and presented using mapping techniques including those of GIS cartography. It is preceded by an overview and critical analysis of EU funding implementation policy in Latvia through the evaluation of existing planning documentation for the period. The methods applied allow drawing conclusions on the actual performance and role of EU funding in the process of cohesion and further development of the territory. The conclusions might be of interest both for academics, as well as practitioners of regional policy. Evaluating the EU regional policy European Commission s DG for Regional Policy, the unit behind the elaboration and implementation of EU regional policy in its annual report states that macroeconomic model 169 simulations indicate that Cohesion Policy had the net effect of raising the level of GDP in the EU as a whole (Commission, 2010). Nevertheless, it is admitted by the Commission that there is a room for improvement (Commission, 2010) speaking about provision of grants to enterprises, admitting that there has been an over-reliance of them. Up to now, there haven t been many attempts by researchers to critically evaluate the European Union s regional policy at a local level of one administrative municipality (city, town, or county, province, parish or any other similar unit of territory), and almost no attempts on evaluating the impact of the EU s regional policy on an even smaller unit of territory like the neighbourhood of a city or a rural village. Most of the researchers have focused their attention on larger territorial units like regions, countries or even cross-border areas. Although there is no single mutual standpoint, most of the researchers conclude that the Union s regional policy aimed at reducing the regional disparities could be much more effective than it actually is. In his price winning research paper Martin (1999) argues that it is scarcely a caricature of the Commission s position to portray this [conceptual framework of the regional policy] as a belief that transfers to the poorest European regions are beneficial to them. He even concludes that moreover, the recent models of geographic economics show that regional integration, by reducing transaction costs between the regions, may lead to self-sustaining inequality (cit. above) and it is therefore illogical to claim that the diminution of regional inequalities supposedly facilitated by regional policies will generate efficiency gains at pan- European level (cit. above). Even more unpleasant conclusion is made by Neven and Gauymte (1995): even if there is a slow long-run convergence at a European level observed, it may mask a process of regional divergence within countries. The unpleasant conclusion is backed by Quah (1996) speaking about the situation in Spain and Portugal at the time those countries were Cohesion group countries (like all three Baltic States at present), Duro (2004) showing the decrease of inequalities between countries and increase of inequalities within countries, and more recently by Jankova (2011) speaking about situation in Latvia after year De la Fuente and Vives (1995), and Esteban (1994) suggest that around half of the existing inequalities between NUTS level regions of EU are accounted by inequalities between regions within countries. Puga (2002) has shown that despite large [EU] regional policy expenditures, regional inequalities have not narrowed substantially over the last two decades, and by some measures have even widened. This thrilling conclusion comes in the time when the regional policy expenditures are the second largest position (accounting for almost 1/3 of total EU budget of EUR billion (Commission, 2012) for year 2012) after the agricultural policy budget. At the same time Barro and Sala-i-Martin (1990, 1991) based on economical analysis of U.S. states and regions of Western Europe starting from 1950s do not argue whether the convergence [between regions] is taking place or not; they demonstrate that the convergence is present, however the process is very slow, the rate of convergence being about 2 percent a year and can be computed by the neoclassical growth model for closed economies (developed by Solow, 1956; Cass, 1965; Koopmans, 1965), modified to suit open economies. However, the model proposed by Barro and Sala-i-Martin does not take into account any kind of state s financial aid, and is solely based on economic theory on free movement of capital and labour, which actually is the strategic aim behind the regional policy within EU. Yet another finding not in favour of Union s regional policy is that of Duranton and Monastiriotis (2002). They provided an example from United Kingdom (UK) based on analysis of earnings for people of similar characteristics across UK regions showing that two from three objectives [objective 1 and objective 2] of Union s regional policy are actually controversial to each other. The criticism on EU s regional policy is continued by Rodriguez Pose and Fratesi (2003). Based on crosssectional and panel data analysis they conclude that Union s regional policy has so far failed to fulfil their objective to deliver greater social and economic cohesion of the EU regions. They have found that, despite the concentration of development funds on infrastructure and to a lesser extent on business support, the returns to commitments on these axes are not significant. Support to agriculture has short-term positive effects on growth, but these wane quickly, and only investment in education and human capital which only represents about one eight of the total commitments has medium-term positive and significant returns. One of the reasons behind the poor performance of the Union s regional policy and failure to reach the targets set might be the distribution mechanism of EU s regional policy funds: the lack of regional development priorities at state level and the fact that the distribution of structural funds at state level are managed by the states themselves. Jankova (2011) analyzing the case of Latvian [NUTS 3] regions, especially the Zemgale region, has found out that there is no regional development programme to be found existing in Latvia since 2004 which were in tune with the industry strategic policy documents, and that the planning of EU funds at national not regional level do not link them to regional development programmes which in result leads to the increased disparity between Latvian regions. EU funded activities within the city of Riga Latvia together with Estonia, Lithuania and seven other countries joined the European Union on 1 st of May 2004 in the second half of ongoing programming period 2000 to 2006 (because of the fact that the policies in the European Union are adopted for a period of seven consecutive years). Becoming a member state of European Union, according to the regulations of EU, Latvia was able to receive funding from Structural funds instead of those from pre-accession funds as before. Both funding possibilities differ in the purpose of the funding, however to a much larger extent Structural funds, in the amount and variety of the funding, provides for much larger and wider funding opportunities. For the period , according to the information obtained from Ministry of Finances, the authors have identified 101 projects related to regional policy part-financed by EU funding, i.e., financed either from European Regional Development Fund, ERDF (98 projects, 85% of total EU investment in Riga for the period) or Cohesion Fund, CF (3 projects, 15% of total EU investment) within the priority ISSN EUROPEAN INTEGRATION STUDIES No actions of Commission s regional policy in total of Ls million (EUR million). Additionally, City of Riga administration itself or any other institution located in the Latvian capital acted as a project partner in 67 cross-border, transnational, or interregional cooperation projects during the period However none of the projects brought at least one Latvian lat (LVL) in hard investment to the city. Although mentioned in the Latvian Development plan (2003), some projects in Riga planned to be realized within the period, have not yet even started. For example, the planned Cohesion fund investment for construction of road E22 into Riga has been postponed for planning period according to information from state JSC Latvian State Roads (LSR, 2012). The situation with additional crossing of Daugava River the Northern Crossing is about the same; the realization of the project has been postponed to an indefinite period of time (yet officially it is postponed until 2015, according to the project web page 1 ) regardless of the fact that some EU funding has already been invested in the pre-construction phase of the project. The particularity of the EU funded projects is that regardless of the approval of the project and start of provision of EU funding, they may end at a later date than the actual EU planning period. Figure 1, which shows the actual end date of the projects part-financed by the EU within the planning period , clearly depicts that only half of the projects had been completed within the same planning period. The figure clearly shows the linkage between the completion date of the project (implementation of EU investment) and the amount of investment per project: the larger the amount to be invested, the longer the implementation of the project and thus the later the completion dates of the project. This should be taken into account in the further research, analyzing the relation between the accumulated EU investment within a particular location (area) and real estate investment in that territory. Figure 1. (Calculations by authors on the basis of data obtained from Ministry of Finance) The largest amount of EU funding for the planning period in the city of Riga has been invested in projects related to engineering infrastructure (57% of total EU investment for the period), in particular, in projects aimed at expanding water and sewerage network; 15% - in projects aimed at developing transport infrastructure including roads, 1 streets, and bridges, 12% - in projects aimed at modernizing production processes and infrastructure in privately owned enterprises, 10% - in projects aimed at modernizing research and education infrastructure in state owned universities and research institutes, 4% - in projects aimed at developing all kinds of social infrastructure, e.g., medicine, waste management, and social services, and 0.5% of the total investment in the sphere of development of tourism infrastructure. 3% of the total EU investments are related to real estate investment, i.e., reconstruction and renovation of existing buildings, or construction of new ones. The situation differs neighbourhood by neighbourhood in Riga (there are 58 neighbourhoods recognized by Riga City Development Department differing in size, structure, and characteristics in Riga). Table 1. Distribution of EU Investment in Riga per Neighbourhood, LVL Neighbourhood Total EU Investment, Real Estate Engineering Transport Social Research and LVL Investment Infrastructure Infrastructure Infrastructure Education Production Andrejsala - Pētersala ,76 100% Atgāzene ,50 100% Avotu iela ,00 100% Āgenskalns ,95 30% 60% 10% Bišumuiža ,38 93% 7% Brasa ,00 100% Bukulti ,54 87% 13% Centrs ,02 3% 47% 6% 37% 7% Čiekurkalns ,74 89% 11% Daugavgrīva ,25 94% 6% Dārzciems ,74 99,6% 0,4% Dreiliņi ,35 94% 6% Dzirciems ,60 69% 31% Grīziņkalns ,99 100% Iļģuciems ,00 100% Imanta ,82 100% Jugla ,18 34% 56% 10% Katlakalns ,42 100% Kleisti ,17 100% Kundziņsala ,00 100% Ķengarags ,99 1% 50% 39% 10% Mangaļsala ,26 100% Maskavas forštate ,34 76% 8% 16% Mārupe ,25 100% Mežaparks ,50 47% 53% Mežciems ,75 84% 16% Mūkupurvs ,85 100% Pleskodāle ,19 72% 26% 2% Pļavnieki ,80 100% Purvciems ,00 100% Sarkandaugava ,55 41% 4% 55% Skanste (Ganības) ,90 100% Šampēteris ,46 96% 4% Šķirotava ,90 36% 64% Teika ,25 73% 24% 3% Torņakalns ,40 47% 51% 2% Vecāķi ,25 100% Vecmīlgrāvis ,80 73% 27% Vecrīga ,83 69% 31% Zasulauks ,42 13% 87% Zolitūde ,55 100% Several neighbourh ,00 89% 11% Total ,65 Calculations by authors on the basis of data obtained from Ministry of Finances 171
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