The role of EU structural and investment funds in the green transition: A stochastic ray frontier analysis

This study aims to provide a comprehensive picture of the effects of the European Structural Investment Funds (ESIF) employed to promote the sustainable economic growth of EU countries from 2016 to 2022. Sustainable economic growth is conceived as environmental-economic efficiency, that is the ability to decouple GDP growth from the environmental damage expressed by greenhouse gas emissions (GHGE). The Ray Stochastic Frontier is employed to estimate the efficient frontier of the multi-output production function which incorporates GHGE as bad output. The effects of structural funds on sustainable economic growth are estimated using the efficiency effect frontier model. The study contributes to the literature by offering new empirical evidence on how cohesion policy supports the decoupling of economic growth from environmental degradation. It provides a cross-country, performance-based evaluation of ESIF's climate relevance, offering actionable insights for optimizing fund allocation in line with the European Green Deal and Fit for 55 objectives. The empirical analysis reveals considerable heterogeneity in green efficiency across EU countries, with some member states lagging significantly behind the efficiency frontier. ESIF investments are found to reduce environmental-economic inefficiency, demonstrating their effectiveness in promoting sustainable growth. Environmental taxation also emerges as a key institutional driver, positively influencing countries' convergence toward green growth. Nevertheless, results indicate that progress slowed during the Covid-19 period, underscoring the need for resilient funding mechanisms.