Infrastructure Investment Inside And Outside Of The Eurozone

Areta Jez

Abstract


What explains the difference between Poland and Spain’s relative positions in weathering the 2008 Euro Crisis? What role did the Structural and Cohesion Funds, especially in relation to infrastructure investment, play in producing these outcomes? Infrastructure can serve as a platform for growth and development, but only when coupled with other regional development plans and a flexible currency regime. In times of crisis, does infrastructure investment fulfill its purpose of mitigating regional disparities, both inside and outside a monetary union? In this paper, Mill’s Methods of Comparison were employed in a comparative case study of Poland and Spain using qualitative evidence, with Italy to triangulate and support the findings. The pieces of data relied upon were changes in GDP, growth in numbers of highways and roads, level of exports, changes in levels of unemployment, trends in income inequality, volume of freight exports as percentages of GDP, EU budget allocations, but perhaps most importantly, changes in exchange rates (Euro vis-a-vis the Polish zloty). I found that an independent monetary policy can magnify the effects of infrastructure, but the effect of highways and roads all but disappears in times of crisis, showing that it is exchange rate, not infrastructure, that is more important without an independent monetary policy. Therefore, EU membership presents itself as an opportunity, not a guarantee of development. Infrastructure investment can amplify the effects of prosperity, but fails to produce intended benefits in times of crisis. In conclusion, it is the exchange rate and not infrastructure that is more important to convergence during a crisis.


Keywords


Infrastructure development, European Union, exchange rates

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