Labour market effects of rural development funds. A path analysis approach

Abstract

This paper examines the impact on the labour market of European Union EAFRD (European Agricultural Fund for Rural Development) funds spent on rural development in Hungarian villages over the 2007–2013 EU budget period. The relevance of the study results from the scarcity of development policy impact assessment in the social sciences, in particular with regard to EU funds in Central Eastern Europe. Most analyses are based exclusively on research into the macro- or micro-scale status of the socio-economic environment before and after policy interventions. However, there is some previous international and Hungarian research using experimental tools and complex indices to measure more accurately the real impact of such rural development policies. These, on the other hand, argue that the complexity of project objectives makes it incredibly difficult to properly assess the impact of such policies.

The former Hungarian rural development strategy titled “New Hungary Rural Development Programme 2007–2013” provides a unique opportunity to examine the impact of this policy on labour market outcomes. An objective of the programme is related to the “third axis funds” of rural development policy of the previous EU budget period, which can be considered as rural development in the narrower sense (i.e. excluding agriculture). The aim is to improve quality of life in rural areas by supporting micro-enterprises, creating new jobs and increasing incomes, in particular by diversifying the local economy. As some € 3 billion of EAFRD funds were spent on rural development and Hungary was one ofthe countries with the highest share of these international funds in local development, expenditure at settlement level is very well documented so that a good research framework for the analysis of this issue exists.

For the analysis of interactions, linear regression-based path analyses were employed. As part of the research, a database was developed at the settlement level on expenditure for the third axis funds and labour market variables. The variables were calculated per capita and (in the case of labour market variables) a change in their values was introduced into the model (instead of their cross-sectional value) for the period 2006–2016. Three sub-samples were compiled: agglomeration villages (n=471); non-agglomeration villages (n=2337); villages of the 33 least developed micro-regions (n=644). The research results are as follows: 1. The funds for rural development influenced the average income both by the increasing number of enterprises and by jobs in non-agglomeration villages. 2. In the agglomeration villages, external factors are much more important in explaining income than in other villages. 3. In contrast to other effects, enterprises in the least developed regions have a negative impact on the number of jobs and thus reduce the positive impact of the funds on income.