**Comparison with Durand and Espinoza (2021).** Our finding of a lack of a large multiplier at the _country level_ is somewhat surprising given Durand and Espinoza (2021) found all-Europe multipliers of around 1.2 using similar country-level data and empirical methodology.<sup>55</sup> However, the country-level part of our paper still differs from theirs in several dimensions: their sample is longer than ours (including the 1994-99 programming period, whereas we start in 2002 as this is when NUTS2 GDP sample starts, allowing for lags) and they include some extra countries (like the UK, IE and LT), they have several extra controls (lagged change in institutional quality; lagged change in financial risk), they exclude 2009 (we do not), they drop 7 influential observations based on austerity programs and judgement<sup>56</sup> (we drop 2 observations based on one-by-one exclusion regressions), they drop extreme standardized residuals (we winsorize the data), they use a subsample of 5 CEE countries based on similarity to Slovenia (we consider 10) and our instrument construction varies slightly.

To try to understand which of these factors drive the different results we replicated their country-level allEurope results, and then changed modeling assumptions one-by-one from the replication. The first column of Online Appendix Table A4.7 presents their all-Europe results: a contemporaneous GDP country-level of 1.2. Applying their sample (which does not include payments from FEAD and YEI funds), outliers, controls and a similar construction of the instrument, we find a similar multiplier of 1.26, also significant at the 1% level. We are also able to replicate their investment multiplier of 1.5. The remaining columns of Online Appendix Table A4.7 make changes that move towards our sample and specification.

The most important difference seems to be that Durand and Espinoza exclude 2009, whereas we do not. Specifically, in column 3 we include 2009 (by removing their control variable of spending X a 2009 dummy), the all-Europe 2SLS multiplier falls to 0.8 and significance falls to the 5% level. This is within one standard error of our all-Europe 2SLS estimate of 0.67, which is borderline insignificant at the 5% level. It is debatable whether 2009 should be included or excluded in the sample — Europe clearly experienced a large growth shock that period, but our specification already includes time fixed effects, which remove bulk the effect of the recession (the 2009 time fixed effect has a value of -7% and is significant at the 1% level).<sup>57</sup> Other changes appear to be less important and generate estimates similar to those in Durand and Espinoza (2021). In Table A4.7 column 4 we start with our replication of Durand and Espinoza but then start the sample in 2000, which yields large all-Europe multipliers of around 1.3. Likewise removing their outliers and/or their influential observations (Columns 5 and 6) continue to generate large 2SLS multipliers of 1.3.<sup>58</sup>

# **4.2 Spillovers from Spending in Neighboring Countries**

One of the possible reasons for a small multiplier estimated above could be that the higher demand in a region from EU spending is leaked to surrounding regions: for example, a firm constructing an EU-funded road in a region might employ workers or buy supplies from a nearby region. Indeed, Coelho (2019) finds a

> 55 They find an all-Europe OLS country-level multiplier of 0.9, which is fairly similar to our default multiplier of 0.87 for the same sample (both significant), so we do not discuss this further in the text.

> 56 Cyprus (2012, 2013, 2014), Portugal (2011), Spain (2011), Ireland (2011, 2015, 2016), Finland (2015, 2016).

> 57 Instead, it is the cross-sectional correlation between the change in EU spending and the growth that is driving the lower multiplier estimate.

> 58 We were also able to replicate a significant CEE 2SLS multiplier of 1.9 using their specification. However, the size of that multiplier is entirely dependent on including Croatia in 2016. Without including it, the multiplier becomes insignificant and the first stage becomes weak.

20