# **2.2. Data**

The main sample consists of 25 countries (EU27 countries minus Ireland and Lithuania) for which we have country level data and NUTS2 level data.<sup>19</sup> Our sample generally runs from 2000-2018 (programming periods 2000-2006, 2007-2013 and 2014-2020), though the sample starts later for some countries and specifications due to missing data.<sup>20</sup> The main data required for Equation 1 are real GDP and real EU payments, both measured in real euros. Real investment data are required for variants of Equation 1 explaining investment rather than GDP. Each real variable is constructed from nominal data taken from Eurostat for GDP and Investment and the European Commission for EU payments. Specifically, nominal GDP data are “Gross domestic product (GDP) at current market prices by NUTS2 regions” (downloaded 19-Oct-2022),<sup>21</sup> EU payments are from “Historic EU payments - regionalised and modelled” (downloaded 09-Sept-2021)<sup>22</sup> and Investment data are “Gross fixed capital formation by NUTS2 regions” (downloaded 19-Oct-2022).<sup>23</sup> In order to convert nominal series denominated in euros ( ) to a real series ( ), we take the nominal value of each of the series for NUTS2 region _i_ that belongs to country nn _c(i)_ , at time rr _t_ and divide it by that ii,tt ii,tt xx xx country’s GDP deflator at time _t_ measured in euros ( € ) i.e = €nn, ~~.~~<sup>24</sup> The deflator data are measured rr xxii tt in euros, and are taken from Eurostat (downloaded 14-Oct-2022). ppcc(ii),tt xxii,tt<sup>25</sup> ppcc(ii),tt

**Data Cleaning.** Growth data are often highly volatile, and so extreme observations will receive a disproportionate importance in any least-squares algorithm. This is especially true if EU payments are

19 We exclude Ireland and Lithuania as changes in the definition of some NUTS2 regions mean that the NUTS2 regions in the payments data are different NUTS2 regions in the GDP data. The EU27 are the 27 member states of the European Union after Brexit, so it does not consider the UK. We also use a larger country-level sample in table A4.6 for comparison with Durand and Espinoza (2021), which includes EU27 + UK and has data that runs from 1994–2018. 20 EU payment data for Croatia only starts in 2007.

> 21 <u>https://ec.europa.eu/eurostat/databrowser/product/page/NAMA_10R_2GDP</u> GDP data at the NUTS2 level uses the 2021 NUTS2 definitions (see <u>https://ec.europa.eu/eurostat/web/nuts/history for the changes in NUTS2 regions), but</u> payments data use historical NUTS2 definitions. The two differ as historical NUTS2 regions sometimes had a change in their name or were split into smaller regions. We combined the new definitions of the GDP data to be consistent with the old definitions of the payments data. Some examples of changes include Croatia (HR04=HR02+HR05+HR06), Hungary (HU10=HU11+HU12) and Poland (PL12=PL91+PL92). Also, many names for NUTS2 regions have been changed across programming periods and we also had to adjust for that (in France and Poland). 22 Downloaded from https://cohesiondata.ec.europa.eu/Other/Historic-EU-payments-regionalised-and-modelled/tc55- <u>7ysv,  based on Lo Piano et al (2017). We thank Luigi Durand for referring us to these data.</u>

23 <u>https://ec.europa.eu/eurostat/databrowser/product/page/NAMA_10R_2GFCF. As Investment data use the 2021</u> NUTS2 definitions, we used the same procedure we have used for GDP data (explained in footnote 19) to make investment data match payments data.

24 We used country-level GDP deflators because NUTS2 level GDP deflators are not available. Note that this means that we are not able to tell whether an increase in GDP in a NUTS2 region is due to an increase in the price level in that region (relative to the national average), or an increase in quantity produced. This is an important caveat for the NUTS2 level results.

25 Note that we apply the same methodology for countries with flexible non-euro exchange rates; which is equivalent to regressing real GDP growth in local currency on the change in real local-currency spending as a share of lagged GDP. This is because the real GDP growth rates in euros reported by Eurostat are the same as the real growth rates in national currency, and euro deflator inflation is the same as national currency deflator inflation adjusted for the change in the exchange rate. https://ec.europa.eu/eurostat/databrowser/product/page/NAMA_10_GDP__custom_3592126.

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