Rethinking Cohesion: When and Where ESI Funds Drive Socio-Economic Change?

This study examines the non-linear relationship between European Structural and Investment (ESI) Funds and socio-economic development across EU member states from 2007 to 2020. To accomplish this, the study utilises a novel methodological approach, employing panel threshold regression to analyse the complex interactions between these variables. Using the Human Development Index (HDI) as a comprehensive measure of socio-economic progress, this research goes beyond traditional metrics, such as GDP, to capture a multidimensional view of development. The threshold variable, represented by the ratio of ESI Funds paid to GDP, highlights critical inflexion points where the impact of funding shifts, revealing both positive and negative effects. The study finds that ESI Funds positively impact socio-economic development up to a threshold of 0.7% of GDP, beyond which their effectiveness diminishes, emphasising the need for strategic allocation and management. Additionally, the analysis of control variables identifies a critical threshold range between 2% and 2.3% of GDP, indicating the growing importance of ESI Funds in fostering development within complex socio-economic contexts. This paper contributes to the foundational model of socio-economic development informed by ESI Funds, offering valuable insights for policymakers by emphasising the importance of balancing funding levels with strategic allocation to avoid diminishing returns.