2022 - Paper in Regional Science

Received: 11 May 2021 Revised: 6 October 2021 Accepted: 17 December 2021
DOI: 10.1111/pirs.12655
FULL ARTICLE
The relation between the index of economic

freedom and good governance with efficiency of
the European Structural Funds
mez-Gallego1
Juan Cándido Go | María del Rocío Moreno-Enguix2 |
mez-Gallego3
María Go
1
Department of Economic, Faculty of
Economics and Business, University of
Abstract
Murcia, Murcia, Spain This research evaluates the management efficiency of the
2
Department of Finance and Accounting, European Structural Funds according to whether their pro-
Faculty of Economics and Business, University
ductive orientation is based on employment or on economic
of Murcia, Murcia, Spain
3 and social development. The data refers to 2000–2020 for
Faculty of Economics and Business, San
Antonio Catholic University, Murcia, Spain the 28 EU countries. The paper includes an analysis of the
influence of the country's governance and economic free-
Correspondence
María Del Rocío Moreno-Enguix, University of dom on the production function associated with the funds
Murcia, Department of Finance and received. The results show that there is a technological gap
Accounting, Faculty of Economics and
between groups of countries defined by their goodness of
Business, Campus de Espinardo, 30100
Murcia, Spain. governance. On the other hand, there is a positive relation-
Email: mrmoreno@um.es ship of economic freedom and the efficiency scores of the
countries.
KEYWORDS
economic freedom, efficiency, European structural funds, Gini
index, good governance
1 | I N T RO DU CT I O N
One of the main objectives of the European Union since its creation has been the promotion of peace and well-being
of its citizens, according to a model of sustainable development based on balanced economic growth, reinforcing
economic, social and territorial cohesion, a highly competitive market economy with full employment, social progress
and protection of the environment. In order to achieve these aims, the EU has a set of instruments and institutions
to drive their financing needs. The most prominent among these are the five European Structural and Investment
Funds (ESIF). The European Regional Development Fund (ERDF) aims to strengthen economic, social and territorial
© 2022 The Authors. Papers in Regional Science © 2021 Regional Science Association International.
Pap Reg Sci. 2022;101:327–349. wileyonlinelibrary.com/journal/pirs 327

328 GÓMEZ-GALLEGO ET AL.
cohesion in the European Union by correcting imbalances between its regions. The European Social Fund (ESF) sup-
ports employment-related projects throughout Europe and invests in Europe's human capital—its workers, its young
people, and all those seeking a job. The Cohesion Fund (CF) funds transport and environment projects in countries
where the gross national income (GNI) per inhabitant is less than 90% of the EU average. The European Agricultural
Fund for Rural Development (EAFRD) focuses on resolving the particular challenges facing EU's rural areas. Finally,
the European Maritime and Fisheries Fund (EMFF) helps fishermen to adopt sustainable fishing practices and coastal
communities to diversify their economies, improving quality of life along European coasts.
The European Structural and Investment Funds programmes represent a major advance in supporting the EU in
its strategy for smarter, more sustainable, and inclusive growth in the periods 2000–2006, 2007–2013 and 2014–
2020. The programmes contemplate a series of challenges to the EU in terms of promoting the recovery of jobs,
dealing with environmental problems and climate change, counteracting persistent educational gaps, and fighting
poverty and social exclusion. A closer link is therefore generated with European economic governance, support for
institutional capacity and a youth employment initiative.
One of the most important questions raised by both the governments of the European Union and the citizens is
to check the quality and efficiency in the application of the resources of the ESI. Some papers report that certain fac-
tors of the government of the countries benefiting from these funds could affect the efficiency and effectiveness in
the implementation of the funds (Marzinotto, 2012; Maynou et al., 2016; Sosvilla-Rivero et al., 2006; Ulltveit-
Moe, 2007; Zoppi & Lai, 2011). Furthermore, in recent years there is a growing consensus within political and aca-
demic circles that the quality of governing bodies and governments is key to economic development and causes
socioeconomic disparities between regions (Aghion & Howitt, 2006; Charron et al., 2014, 2015; Rodríguez-Pose &
Garcilazo, 2015). Other authors have analysed how the quality and development of public institutions through two
indicators, regulatory complexity and duration of civil disputes, affects economic growth (Acemoglu et al., 2005; Di
Vita, 2018).
In recent decades, a growing body of research has supported the “Quality of government” hypothesis, which
states that a government that acts impartially, efficiently and free of corruption is a crucial factor in explaining the
significant differences in socio-economic factors between different countries. This concept is broader than other
indicators such as the Quality of Institutions (Di Vita, 2018) and focuses on analysing the quality of governments
using a large number of valuables. In this sense, The World Bank attempts to concretize this criterion and has devel-
oped the concept “Good Governance.” The World Bank has established the guidelines and minimum requirements,
creating an internationally comparable measure of “Good Governance” (Worldwide Governance Indicators, Table 3).
The recent global crisis, government corruption, the scarcity of financial resources, and the need to explain the
activities of the administrations to citizens has increased interest in studying the “Goodness of Government” (GoG)
and its relationship with efficiency in public management for all European countries. Indeed, the concept of “Good
Governance” has recently emerged as a key factor in understanding differences between nations (Holmberg &
Rothstein, 2012), or European regions (Charron & Lapuente, 2013).
In the search for the key variables of the growth and prosperity of economies, Economic Freedom (EF) has
played a fundamental role, affecting a variety of economic and social factors including the rule of law, the opening of
markets, levels of efficiency in regulation, and implementation of regulations by the authorities. Nations with high
levels of economic freedom prosper due to a better use of their abilities to innovate and overcome difficulties, both
economic and social, with particular relevance to levels of corruption. The Heritage Foundation calculates The Index
of Economic Freedom, which focuses on those four crucial aspects of the economic environment over which govern-
ments exercise political control. To evaluate these four categories, the index measures 12 specific components of
economic freedom, each of which is rated on a scale of 0 to 100. The scores on these 12 components of economic
freedom (see Table 3), which are calculated from a number of subcategories, are weighted and averaged to produce
a global economic freedom score for each economy.
Due to the scenario outlined in relation to the efficiency of the European Structural Funds, and the two emerg-
ing issues in terms of variables that may have affected this efficient management at the country level, good
GÓMEZ-GALLEGO ET AL. 329
governance and economic freedom during the period 2000–2020, we have set ourselves three objectives in this
paper. First, the evaluation of the efficiency scores in the management of the three European Structural Funds,
ERDF, ESF and ECF. Second, the determination of the effects that the level of good governance of each country has
on the efficiency score of a particular country, and third, the evaluation of causal effects on the efficiency score of
certain economic characteristics at country level, such as inequality in wealth, using the Gini index, and the level of
general economic freedom, by extracting the effect of each variable that conforms it.
The structure of the paper is as follows: Section 2 reviews of the literature. Section 3 deals with the methodol-
ogy applied to the different databases, the sample of data, models and variables. Section 4 offers the results of the
analysis, and Section 5 includes the main conclusions of this research.
2 | LITERATURE REVIEW
Many studies on the European Structural Funds have determined the relationship between these and the GDP of
the receiver regions. In this sense, Dall'erba and Fang (2017) have carried out a meta-analysis taking as a sample
(Beugelsdijk & Eijffinger, 2005; Bouayad-Agha et al., 2011; Dall'erba & Le Gallo, 2008; Ederveen et al., 2002;
Esposti & Bussoletti, 2008; Fagerberg & Verspagen, 1996; Mohl & Hagen, 2010; Puigcerver-Peñalver, 2007;
Rodríguez-Pose & Novak, 2013). They show the results are not homogeneous. But other studies have shown a
growing interest in analysing management and the variables that could affect its effective application, and esti-
mating efficiency is one of the most frequent approaches used to answer this question. Bachtler and
mez García et al. (2010) and Gomez García et al. (2012) analyse
McMaster (2008), Boldrin and Canova (2001), Go
this relationship by examining whether the implementation of these funds has increased the convergence of the
less developed and more prosperous regions of Europe. Although the results obtained in some cases show that
there has been no improvement in the levels of convergence Dall'erba and Le Gallo (2008), others find that the
tasks financed by the European Structural Funds have contributed to the improvement in the economic situation
in the target regions (Boscá et al., 2016; Leonardi, 2006; Lolos, 2009; Marzinotto, 2012; Maynou et al., 2016).
Some papers report that certain factors of the countries benefiting from these Funds could affect the efficiency
and effectiveness in the implementation of the funds (Marzinotto, 2012; Maynou et al., 2016; Sosvilla-Rivero
et al., 2006; Ulltveit-Moe, 2007; Zoppi & Lai, 2011). One of these factors could be the presence in these govern-
ments of an effective and transparent administration that could prevent cases of corruption and facilitate the effi-
cient application of economic resources.
The concept of GoG has recently emerged as a key factor in understanding differences between nations
(Holmberg & Rothstein, 2012), or European regions Charron and Lapuente (2013). Authors such as Leonardi (2005),
Milio (2007), Bachtler et al. (2013), Charron et al. (2014), Rodríguez-Pose and Garcilazo (2015) have determined that
there is a link between the efficiency of the implementation of the European Structural Funds and the capacity or dil-
igence of the governments to manage them. Fatai et al. (2020), Kaller et al. (2018) and Budsaratragoon and
Jitmaneeroj (2020) analysed the effects of some dimensions of GoG on the development of certain economic sectors
in the country. Dutta and Kar (2018) investigate the relationship of these dimensions with economic growth for the
Indian states and find a positive relationship. Others authors (Asongu & Nwachukwu, 2017; Bildirici &
Gokmenoglu, 2020; Charron et al., 2014, 2015; Gutmann & Voigt, 2018; Holmberg & Rothstein, 2012; Mauro, 2004;
Ranasingue & Restuccia, 2018; Welsch, 2004) analysed the relation of some dimensions of GoG like rule of law,
security spending and absence of violence/terrorism to stability with economic growth and trade. The literature finds
that countries with high levels of corruption, low levels of rule of law and little impartiality are associated with,
among other things, low levels of economic and financial development (Charron et al., 2014, 2015; Mauro, 2004),
poorer health (Holmberg & Rothstein, 2012), poorer environmental performance (Welsch, 2004), greater income
inequality (Gupta et al., 2002), lower levels of happiness Veenhoven (2010) and lower perception of general well-
being Helliwell and Huang (2008).
In recent years the doctrine around Economic Freedom has proliferated, with very different contributions
regarding the diversity of variables that directly, or through other variables, can affect the levels of development and
growth of countries or regions (Gehring, 2013; Islam, 2018; Ousmanou, 2017). Pieroni (2013) affirms that not all
areas of freedom affect levels of corruption equally, establishing the level of competition and regulation as mediators
for this disparate effect. Belasen and Hafer (2012) and Nikolaev and Bennett (2016) positively relate the levels of
well-being with economic freedom. Grooper et al. (2015), Cebula et al. (2013); Cebula et al. (2016) and Gwartney
et al. (2004) argue that a high level of economic freedom causes a greater growth and development of their compa-
nies and positive relations with variables such as investment, growth, human development in terms of health and
education, among others. Bjornskov (2016) affirms that economic freedom has a strong positive impact on the recov-
ery times of an economic crisis. Mohamed et al. (2016) maintains that higher levels of direct investment occur in
countries with fragility or conflict, but which in turn have higher levels of economic freedom. We summarize the
main results of the previous literature In Table 1
3 | M E TH O DO LO GY , SA M P L E A N D V A RI A B L E S
3.1 | The DEA models
One of the most widely used methods in assessing the efficiency of a set of decision making units (DMUs) is Data
Envelopment Analysis (DEA). DEA is a non-parametric method which uses linear programming techniques to identify
an efficiency frontier on which only the efficient Decision Making Units (DMUs) are placed.
First presented in 1978, and based on Farrell, the first DEA model is known in the literature as the CCR model,
after its authors, Charnes, Cooper and Rhodes. By using linear programming and by applying non-parametric tech-
niques of frontier estimation, the efficiency of a DMU can be measured by comparing it with an identified frontier of
efficiency. The DEA model can be input or output oriented. The output-oriented DEA model is channelled towards
maximizing the outputs obtained by the DMUs while keeping the inputs constant, at the same time, the input-
oriented models focus on minimizing the inputs used for processing the given number of outputs. The method
applied in this paper is DEA for an output-oriented specification. DMUs are European countries for which a number
of inputs and outputs are selected.
Consider a set of n DMUs. Each DMUj ð j ¼ 1, …, nÞ, uses m inputs xij ði ¼ 1, 2,::, mÞ to produce s outputs
yrj ðr ¼ 1,2, …, s:Þ The specifications of the mathematical programming problem, for a given DMU0 are described
below, and one problem has to be solved for each DMU:
X m Xs
Max ϕ þ ε s þ
i¼1 i
sþ
r¼1 i
,
subject to
X
n
λj xij þ s
i ¼ xi0 i ¼ 1, 2,…,m,
j¼1
X
n
λj yrj sþ
i ¼ ϕyr0 r ¼ 1,2, …, s,
j¼1
λj ≥ 0 j ¼ 1,2, …, n:
Pn
(VRS: add j¼1 λj ¼ 1)
TABLE 1 Summary of previous literature
Efficiency in Structual Funds
Paper by Central results

Mohl & Hagen, 2010; Bachtler and McMaster (2008); The results obtained do not show an influence of the
Boldrin and Canova (2001) European Funds on the convergence or economic
growth of the regions.
Esposti and Bussoletti (2008); Dall'erba and Le The results show that although these regions receiving
Gallo (2008); Fagerberg and Verspagen (1996); European Funds have increased their GDP only in
Ederveen, Gorter, De Mooij, and Nahuis (2002); certain regions or at a lower level than expected.
Beugelsdijk and Eijffinger (2005); Bouayad-Agha, Furthermore, it cannot be said that it is due only to the
Turpinn, and Védrine (2011); Puigcerver- Structural Funds
Peñalver (2007); Rodríguez-Pose and Novak (2013);
mez García, Moreno Enguix, and Goméz
Go
Gallego (2010); Gomez García, Moreno Enguix, and
Gomez Gallego (2012)
Leonardi (2006); Lolos (2009); Marzinotto (2012); The results show a positive relationship between European
Maynou, Saez, Kyriacou, and Bacaria (2016); Boscá, funds and economic growth.
Ferri, Escribá, and Murgui (2016)
Sosvilla-Rivero, Bajo-Rubio, and Díaz-Roldán (2006); Efficiency and economic growth is affected by a number of
Ulltveit-Moe (2007); Zoppi and Lai (2011); assets that increase the effectiveness of the European
Marzinotto (2012); Maynou, Saez, Kyriacou, and Funds.
Bacaria (2016).
Goodness governance
Leonardi (2005); Milio (2007); Bachtler, Mendez, and The results show a positive relationship between the
Oraže (2013); Charron, Dijkstra, and Lapuente (2014); efficiency of the European Funds and the capacity and
Rodríguez-Pose and Garcilazo (2015). diligence of the authorities to manage them.
Fatai, Iga, Victor, Udom, and Balsalobre (2020); Kaller, The results show the relationship between some of the
Bielen, and Marneffe (2018); Budsaratragoon and dimensions of the GoG and economic growth and
Jitmaneeroj (2020). development.
Dutta and Kar (2018). The results show a positive relationship between GoG and
economic growth.
Gutmann and Voigt (2018); Ranasingue and The results show a negative relationship between the Rule
Restuccia (2018); Asongu and Nwachukwu (2017); and Law and Control of Corruption and dimensions
Bildirici and Gokmenoglu (2020); Mauro (2004); economic development and growth.
Charron, Dijkstra, and Lapuente (2014, 2015);
Holmberg and Rothstein (2012); Welsch (2004).
Holmberg and Rothstein (2012); Welsch (2004); Gupta, The results show that countries with low levels of GoG
Davoodi, and Alonso-Terme (2002); have a lower economic, financial, health, environmental
Veenhoven (2010); Helliwell and Huang (2008). development and low social welfare state.
Economic freedom
Islam (2018); Gehring (2013); Ousmanou (2017). The results show a link between various variables of
Economic Freedom and the development and well-being
of the countries
Pieroni (2013) The results show that Economic Freedom reduce de level
of corruption
Belasen and Hafer (2012); Nikolaev and Bennett (2016). The results show show a positive relationship between
Economic Freedom and social welfare.
Grooper, Jahera, and Chu (2015); Cebula, Duquette, and The results show that Economic Freedom has a positive
Mixon (2013); Cebula, Rossi, and Clark (2016); relationship with business growth, investment,
Gwartney, Holcombe, and Lawson (2004). development, education.
(Continues)
TABLE 1 (Continued)
Efficiency in Structual Funds
Paper by Central results

Bjornskov (2016). The results show a positive relationship between
Economic Freedom and situations of economic recovery.
Mohamed, Caha, and Karagoz (2016). The results show the positive relationship between
Economic Freedom and investment.
In the problem above, ϕ is a scalar that ranges between 1 and ∞. The inverse of ϕ ranges between 0 and 1 and
is the technical efficiency score. If it is equal to 1, it implies that the DMU0 is efficient; if less than 1, the DMU0 is
inefficient. Vector λ is a (n 1) vector of constants that measures the weights used to compute the location of an
inefficient DMU if it were to become efficient.
The model specification under the hypothesis of variable return to scale implies the condition of convexity of
the frontier. This presumes that the restriction N1λ ≤ 1 is introduced in the model, with N1 being an n dimensional
vector of ones. The absence of this restriction would imply that returns to scale were constant.
The DEA model is relatively simple to estimate but it is deterministic and does not account for measurement
error. The bootstrap approach must generally be combined with DEA to obtain statistical properties of the efficiency
scores. The bootstrap is a computer intensive technique based on the idea of mimicking the unknown distribution of
interest through the concept of resampling from the original sample. For more technical details on the DEA boot-
strap method, see Simar and Wilson (2007).
3.2 | Technology gap ratio
O'Donnell, Rao, and Battese (2008) developed the metafrontier analysis method to analyse the technology gap
between different DMUs. According to their research, the technology set of n DMUs is T = {(x, y)jx can produce y},
and the boundary of T is defined as the metafrontier of all DMUs. Assuming that n DMUs can be partitioned into
G groups based on their technical levels, then different groups have different technology sets: Tk = {(xk, yk) /xk can
produce yk} (k = 1, …, K). The boundary of Tk is defined as the group-frontier of Group k. Therefore,
T ¼ T 1 [ T 2 [ … [ T k . The efficiencies of DMU0 relative to the metafrontier and group frontier are denoted as
metafrontier efficiency (ME) and group frontier efficiency (GE), respectively. The meta-technology ratio (MTR) is thus
defined as: MTR = ME/GE ≤ 1. The closer the MTR is to 1, the smaller the technology gap between the metafrontier
and the group frontier.
3.3 | Tobit regression model and multicollinearity tests
We use the tobit regression technique to estimate the relationship between the efficiency variables according to
the controlled models and the economic variables that predict efficiency. In this analysis, it is necessary to diag-
nose and control the multicollinearity tests using correlation coefficients, inflation variance factors and tolerance
statistics.
The tobit regression model, which was proposed by Tobin (1958), describes the association between a non-
negative dependent variable (latent variable) and independent variable(s) when the data is censored or truncated.
The relative efficiency scores, which are obtained from the DEA models, range from 0.0 (left-censored) to 100.0
(right-censored). Hence, the tobit model is an effective tool for the second stage of DEA analysis, because the data is
censored from both the lower and upper bounds. The tobit regression model can be formulated as:
θit ¼ β0 þ β1 X1it þ … þ βk Xkit þ εit,

where εit N 0, σ 2 y θit ¼ θit if 0 < θit < 1 0 otherwise.
where β ¼ ðβ1 , …, βk Þ is (k 1), a vector of unknown coefficients which determines the relationship between what is
a (1 k) vector of independent variables ðX1 , …,X k Þtr and the latent (unobservable) variable θkt denotes the relative
efficiency scores obtained from the DEA models. εi t is a normally, identically, and independently distributed
error term.
In this direction, DEA efficiency scores obtained in the first stage are used as a dependent variable in the second
stage, one side censored tobit model in order to allow for the restricted [0, 100] range of efficiency values (Sufian &
Akbar Noor Mohamad Noor, 2009).
The simultaneous use of certain independent variables may lead to multicollinearity problems. We carry out two
tests to check whether there is a potential multicollinearity problem in this study. First, we use variance inflation fac-
tors (VIFs) and the tolerance statistic (TOL) to test for multicollinearity, where TOL should not be close to 0 and VIFs
should not be greater than 10 Gujarati (2009).
3.4 | Sample, variables and models
The present study analyses the efficiency levels of the ESIF received by the countries belonging to the EU 28 in the
period between 2000 and 2020 comprising the granting of funds in subperiods 2000–2006, 2007–2013 and 2014–
2020.
The production function has been defined taking into account the objectives of the three ESIF types considered:
ERDF, ESF and CF. Thus, proxy variables of the population welfare, the level of employment, the degree of business
innovation and the proportion of families at risk of poverty have been selected. Such proxy variables are gross
domestic product per capita, unemployment, company and poverty risk software.
In this paper, the behaviour of countries in three different productive approaches is analysed. The first approach
collects all the variables selected in the study. A second productive orientation, referred to social and business devel-
opment, whose production frontier is estimated from the variables poverty risk, company and unexpected cost soft-
ware. A third productive orientation reflects the reality of each country regarding employability and is based on
unemployment variables, youth unemployment and young people without work, studies, or training. The information
provided by the European Union on the Eurostat database.
Thus, the different approaches analysed are named: overall model (OM), development model (DM) and employ-
ment model (EM). Table 2 shows the definitions of the selected variables such as inputs and outputs.
As explanatory variables of efficiency scores are considered the GoG and the economic freedom of the countries
of the sample.
Kaufmann et al. (2010) defines “goodness of governance” as the traditions and institutions by which authority is
exercised in a country. This includes the process by which governments are selected, monitored, and replaced; the
capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the
state for the institutions that govern economic and social interactions among them. The Worldwide Governance
Indicators report on six broad dimensions of governance: Voice and Accountability, Political Stability and Absence of
Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. The six governance
indicators are reported in their standard normal units, ranging from approximately 2.5 to 2.5, with higher values
corresponding to better governance outcomes. The total score for the GoG index results from the sum of the scores
obtained in every governance indicator. Governance data are collected from the World Bank.
Following the Heritage Foundation's definition, economic freedom is the fundamental right of every human to
control his or her own labour and property. In an economically free society, individuals are free to work, produce,
consume, and invest in any way they please. In economically free societies, governments allow labour, capital, and
goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and
maintain liberty itself. We measure economic freedom based on 12 quantitative and qualitative factors, grouped into
four broad categories, or pillars, of economic freedom: rule of law (property rights, government integrity, judicial
effectiveness), government size (government spending, tax burden, fiscal health), regulatory efficiency (business free-
dom, labour freedom, monetary freedom), open markets (trade freedom, investment freedom, financial freedom).
Each of the 12 indicators within these categories is graded on a scale of 0 to 100. A country's overall score is derived
by averaging these 12 freedom indicators, with equal weight being given to each. The Index of Economic Freedom
considers every component equally important in achieving the positive benefits of economic freedom. The source of
the variables of Economic Freedom was the Heritage Foundation (Table 3).
Table 4 shows descriptive estimations of the distributions of ESF received by the countries of the sample in each
period. From the joint analysis it can be deduced that in the period 2000–2006 more than half of the countries
received less than a quarter of the average. There are countries with extreme values with a certain asymmetry
towards those who receive a quantity greater than the average. In the period 2007–2013 there is a change in the
allocation of funds, there are more countries that receive funds around the average and decrease the dispersion of
the funds received. In the period 2014–2020, the distribution is very asymmetrical to the right indicating that a few
countries receive very higher amounts than the rest, although the median is closest to the average value. For out-
puts, Table 4 shows the average value of the variables at the beginning and at the end of each period, which allows
us to assess the changes produced.
Table 5 describes the distributions of the explanatory variables and indicators of GoG in each period. Table 5
shows that European countries have not improved their GoG throughout the three periods. The averages of stan-
dardized indicators express a certain decrease (not significant, except in the case of political stability and absence ter-
rorism). Disparity is observed in the sample and there are countries with negative assessments, as can be seen in the
column of the minimum reached. Figure 1 represents the average behaviour of the GoG in the period 2000–2020 of
each of the 28 countries of the sample. Denmark, Finland, Luxembourg, the Netherlands and Sweden appear as
high-level countries, while others such as Bulgaria, Croatia, Greece, Hungary, and Romania have the lowest levels.
TABLE 2 Description of input and output
Code Variable Definition

ESF European Structural Funds Monetary items that the European Union uses to finance some of its
strategic objectives related to solving structural deficiencies, improving
education and promoting the development of less favored countries
GDP Gross Domestic Product Monetary value of all finished goods and services made within a country
during a specific period.
SC Software Company Percentage of companies with more than 10 employees that use software
solutions from each of the countries in our study.
POR Poverty Risk Risk that the inhabitants of each of the countries present of being in a
situation of poverty and of not reaching the minimum income level in each
of the countries in our study.
UC Unexpected Costs Unforeseen expenses that the inhabitants of each of the countries.
U Unemployment Percentage of unemployed in relation to the active population of each of the
countries.
NEET Young people without jobs, Percentage of young people without studies and without employment in
studies or training relation to the active population of each of the countries.
YU Youth Unemployment Percentage of unemployed under 25 in relation to the active population.
TABLE 3 Goodness of governance and economic freedom
Goodness of governance

GoG Goodness of Governance Way of measuring how public institutions conduct public affairs and
manage public resources in a preferred way
VA Voice and Accountability Capturing perceptions of the extent to which a country's citizens are able
to participate in selecting their government, as well as freedom of
expression, freedom of association, and a free media.
PV Political Stability and Absence Capturing perceptions of the likelihood that the government will be
of Violence/Terrorism destabilized or overthrown by unconstitutional or violent means,
including politically-motivated violence and terrorism.
GE Government Effectiveness Capturing perceptions of the quality of public services, the quality of the
civil service and the degree of its independence from political pressures,
the quality of policy formulation and implementation, and the credibility
of the government's commitment to such policies.
RQ Regulatory Quality Capturing perceptions of the ability of the government to formulate and
implement sound policies and regulations that permit and promote
private sector development.
RL Rule of Law Capturing perceptions of the extent to which agents have confidence in
and abide by the rules of society, and in particular the quality of
contract enforcement, property rights, the police, and the courts, as well
as the likelihood of crime and violence.
CC Control of Corruption Capturing perceptions of the extent to which public power is exercised for
private gain, including both petty and grand forms of corruption, as well
as “capture” of the state by elites and private interests.
Economic freedom

EF Economic An economically free society, individuals are free to work, produce, consume, and invest in
Freedom any way they please. Governments allow labour, capital, and goods to move freely, and
refrain from coercion or constraint of liberty beyond the extent necessary to protect
RoL Rule of Law The extent to which agents have confidence and abide by the rules of society, and in
particular the quality of contract enforcement, the police and the courts, as well as the
likelihood of crime or violence
PR Property Rights The theoretical and legal ownership of resources and how they can be used. These
resources can be owned by individuals and governs.
GI Government The government must fulfill its commitment to the public, and keep its word as an agent in
Integrity the political principal-agent relationship
JE Judicial Well-functioning legal frameworks protect the rights of all citizens against infringement of
Effectiveness the law by others, including by governments and powerful parties.
GS Government Ratio of government expenditures to the total output of an economy, with total output
Size usually measured by gross domestic product.
TB Tax Burden The total amount of tax paid by a particular group of people, or industry.
GSP Government Captures the burden imposed by government expenditures, which includes consumption
Spending by the state and all transfer payments related to various entitlement programmes.
FH Fiscal Health Governments' ability to plan, manage and pay for critical public investments and services.
RE Regulatory Ability of an administration not to generate redundancies in regulation and barriers to free
Efficiency business, work and pricing.
BF Business Ability to start, operate, and close a business that represents the overall burden of
Freedom regulation as well as the efficiency of government in the regulatory process.
(Continues)
TABLE 3 (Continued)
Economic freedom

LF Labour The ability of individuals to find employment opportunities and the ability of businesses to
Freedom contract freely for labour and dismiss redundant workers when they are no longer
needed
MF Monetary Measure of price stability with an assessment of price controls. Both inflation and price
Freedom controls distort market activity. Price stability without microeconomic intervention is
the ideal state for the free market.
MO Market Economic system with no barriers to free-market activity. Characterized by the absence of
Openess tariffs, taxes, licensing requirements.
TF Trade Freedom Absence of export taxes or outright trade bans.
IF Investment Measure of a variety of investment restrictions (burdensome bureaucracy, restrictions on
Freedom land ownership, expropriation of investments without fair compensation, foreign
exchange controls.
FF Financial Accessible and efficiently functioning formal financial system ensures the availability of
Freedom diversified savings, credit, payment, and investment services to individuals and
businesses.
TABLE 4 Descriptive statistics of input and outputs
Variable Unit Period Mean Std Median Asymmetry Kurtosis

Inputs ESF € (mill.) 2000–2006 8773.37 12647.85 2063.64 1.60 2.32
2007–2013 10538.90 9454.10 7492.50 0.39 1.64
2014–2020 11612.00 9034.13 6913.20 3.42 1.60
Years
Variable Unit 2000 2006 2007 2013 2014 2019

Outputs GDP € (mill.) Mean 17.58 22.65 24.28 25.51 26.24 31.67
Std 12.43 15.22 15.83 16.76 17.37 20.00
E % Mean 90.84 92.54 93.45 88.86 89.52 93.96
Std 4.79 2.44 1.91 5.37 5.14 3.20
NEET % Mean 13.80 12.35 10.09 12.79 12.26 9.36
Std 5.01 4.24 3.28 4.95 4.52 3.16
POR % Mean 25.91 22.20 21.57 24.25 23.68 19.31
Std 9.87 8.65 9.14 7.70 6.56 5.15
SC % Mean 28.02 33.26 38.32 45.00 45.29 51.61
Std 10.22 10.97 11.45 10.89 11.53 12.71
YU % Mean 17.86 17.18 15.08 26.33 24.53 14.74
Std 9.89 5.95 4.93 12.63 11.75 7.34
Note: ESF: European Structural Funds; GDP: Gross Domestic Product; E: Employment; NEET: Young people without jobs,
studies or training; POR: Poverty Risk; SC: Software Company; YU: Youth Unemployment.
TABLE 5 Descriptive statistics of GoG
C.I. (95%)
Period N Mean Std L U Mín. Máx. Sig

VA 1 168 1.16 0.34 1.11 1.21 0.30 1.80 0.144
2 196 1.11 0.33 1.07 1.16 0.31 1.69
3 168 1.09 0.36 1.04 1.14 0.22 1.61
PS 1 168 0.86 0.45 0.79 0.93 0.38 1.76 0.001
2 196 0.77 0.41 0.71 0.82 0.47 1.51
3 168 0.70 0.35 0.64 0.75 0.23 1.44
GE 1 168 1.18 0.66 1.08 1.28 0.37 2.31 0.448
2 196 1.13 0.61 1.04 1.21 0.36 2.35
3 168 1.10 0.54 1.02 1.18 0.28 2.00
RE 1 168 1.20 0.45 1.13 1.26 0.11 2.10 0.663
2 196 1.22 0.41 1.16 1.28 0.46 1.93
3 168 1.18 0.48 1.10 1.25 0.15 2.05
RL 1 168 1.09 0.63 1.00 1.19 0.26 2.00 0.764
2 196 1.14 0.60 1.06 1.23 0.11 2.01
3 168 1.12 0.61 1.03 1.22 0.10 2.10
CC 1 168 1.08 0.79 0.96 1.20 0.49 2.47 0.604
2 196 1.02 0.81 0.91 1.14 0.27 2.45
3 168 1.00 0.78 0.88 1.11 0.26 2.28
GoG 1 168 6.57 3.07 6.11 7.04 1.09 11.82 0.472
2 196 6.39 2.93 5.98 6.80 0.42 11.33
Note: VA: Voice Accountability, PS: Political Stability and Absence Terrorism, GE: Government Effectiveness, RQ:
Regulatory Quality, RL: Rule of Law, CC: Control of Corruption, GoG: Goodness of Governance. LL: lower limit; UP: upper
limit.
Table 6 shows descriptive statistics of the indicators of economic freedom. It is observed that, on average of the
28 countries of the sample, economic, global freedom and its dimensions, has varied significantly (except for the
RoL). Except for RE, changes have been increasing levels of economic freedom.
Figure 2 shows the score of the Economic Freedom Index and its dimensions (in standardized scores) for the
three subperiods. It is observed that the global EF index shows negative levels in the first subperiod but experiences
a growing trend, with positive values in the following two subperiods. This improvement in EF is particularly due to
the behaviour of GS, especially in the period 2014–2020, where government spending on the total production of
goods and services becomes more patent. Another dimension that has experienced an extraordinary change towards
positive values is OM which prints an advance in the objectives of become EU in a series of economic systems with
no barriers to free-market activity, characterized by the absence of taxes and licensing requirements.
4 | RESULTS
Tables 7–8 show the levels of efficiency in the management of the ESF. The information is presented according to
the approaches (OM, EM, DM) and the type of frontier, defined by the categorized variable GoG. Likewise, the
values of gap technology allow us to evaluate the effect that the measure of goodness of governance has on the effi-
ciency of each country.
FIGURE 1 Graphical representation of mean of the Z-GoG scores in period 2000 to 2020
TABLE 6 Descriptive statistics of economic freedom
C.I. (95%)
Period N Mean Std L U Mín. Máx. Sig

EF 1 196 66.52 7.57 65.45 67.58 47.30 82.20 0.000
2 196 68.83 5.97 67.99 69.67 53.40 82.60
3 224 69.91 5.73 69.16 70.67 53.20 81.40
RoL 1 196 65.87 19.34 63.15 68.59 28.00 95.00 0.595
2 196 66.65 18.54 64.04 69.27 30.00 94.50
3 224 67.62 14.95 65.65 69.59 32.60 93.50
GS 1 196 49.06 15.23 46.92 51.21 15.25 78.20 0.000
2 196 52.19 14.62 50.13 54.25 18.30 79.10
3 224 58.42 15.61 56.36 60.47 19.90 85.93
RE 1 196 75.70 8.79 74.47 76.94 27.50 95.17 0.000
2 196 73.29 6.57 72.37 74.22 59.33 95.47
3 224 72.76 5.77 72.00 73.52 58.40 92.37
OM 1 196 71.88 9.74 70.50 73.25 45.87 88.33 0.000
2 196 76.92 7.42 75.88 77.97 57.20 89.20
3 224 78.21 6.14 77.40 79.01 58.97 89.27
Note: EF: Economic Freedom; RoL: Rule of Law; GS: Government Size; RE: Regulatory Efficiency; OM: Open Markets. LL:
lower limit; UP: upper limit.
Table 7 shows the information regarding the period 2000–2006. It is observed that taking into consideration the
metafrontier, the efficiency averages are: OM (0.977; 0.022), EM (0.974; 0.021) and DM (0.919; 0.074). When con-
sidering the frontiers of the groups (B: positive values of GoG; W: negative values of GoG), the efficiency scores vary
according to the group which the evaluated country belongs to. Thus, in group W (14 countries), the values are: OM
(0.982, 0.018), EM (0.982, 0.020), and DM (0.916, 0.082). In Group B (11 countries) the results are: OM (0.986,
FIGURE 2 Mean of Z-EF scores in period 2000 to 2020
0.016), EM (0.981, 0.015) and DM (0.955, 0.042). These findings suggest that B and W frontiers are approaching the
DMUs of each group. Such a result would be reached with the values of the gap technology.
Table 8 shows the information regarding the period 2007–2013. Efficiency averages under metafrontier by
approach are: 0.965 and 0.035 in OM; 0.954 and 0.042 in EM, and 0.942 and 0.049 in DM. When taking into
account the group frontier, efficiency scores are affected. Averages in W group are: OM (0.986, 0.025), EM (0.983,
0.024) and DM (0.963, 0.041) while in B group are: OM (0.989, 0.014), EM (0.981, 0.022) and DM (0.972, 0.035).
These results show a shift in W group-frontier towards DMUs. These findings explain the increase in average of effi-
ciency scores. Even more, this result is confirmed in the gap technology column (4% higher variation in efficiency
scores on OM and DM models).
Table 9 shows the results from the period 2014–2020. It is observed that with respect to the meta-frontier, the
efficiency averages according to different approaches are: 0.978 and 0.036 in OM; 0.971 and 0.026 in EM, and
0.970 and 0.041 in DM. However, when considering the group frontiers, efficiency scores are affected according to
the group the evaluated country belongs to. Thus, in the group of 13 countries with a low GoG, the averages are:
OM (0.993, 0.015), MS (0.987, 0.021) and DM (0.981, 0.031), while in the group of the 15 countries with the highest
GoG, the averages are: OM (0.991, 0.013), EM (0.972, 0.023) and DM (0.980, 0.031). These results express the dis-
placement of the group frontier of lower GoG countries towards the DMUs evaluated, increasing the average effi-
ciency in this group.
At the country level (period 2000–2006), the results show that, under OM, the countries with the smallest GoG
(Czech Republic, Cyprus and Slovenia) are efficient with respect to both frontiers; therefore, its technological gap is
the unit. In the period 2007–2013 only the Czech Republic was efficient with both frontiers. In the period 2014–
2020 there is no country with this specification.
In this sense, the number of countries which are efficient in group frontiers, not considering the metafrontier,
has increased from one (Portugal) in the period 2000–2006 to ten (Bulgaria, Cyprus, Spain, Greece, Croatia,
Hungary, Italy, Latvia, Romania and Slovakia). In EM the number of countries increases from four (Italy, Lithuania,
Portugal and Slovakia) in the period 2000–2006 to six (Bulgaria, Cyprus, Spain, Italy, Romania and Slovakia) in the
period 2014–2020. In DM there were five countries (Croatia, Cyprus, Italy, Slovenia and Spain) in the period 2007–
2013, and some of them changed although the number remained the same (Bulgaria, Spain, Italy, Latvia and
Romania) in the period 2014–2020.
TABLE 7 Efficiency scores for each model and frontier type (2000–2006)
Overall Model Employment Model Development Model Gap technology
GoG Country M-Fr G-Fr M-Fr G-Fr M-Fr G-Fr OM EM WM

B Austria 0.991 0.992 0.989 0.991 0.972 0.972 1.00 1.00 1.00
B Belgium 0.962 0.963 0.962 0.967 0.912 0.912 1.00 0.99 1.00
W Cyprus 1.000 1.000 1.000 1.000 1.000 1.000 1.00 1.00 0.89
W Czech R. 1.000 1.000 0.984 0.988 0.984 0.984 1.00 1.00 0.99
B Denmark 1.000 1.000 1.000 1.000 1.000 1.000 1.00 1.00 1.00
W Estonia 0.992 0.999 0.992 0.993 0.925 0.934 1.00 1.00 1.00
B Finland 0.976 0.977 0.968 0.968 0.960 0.960 0.99 1.00 1.00
B France 0.963 0.970 0.960 0.960 0.941 0.941 0.99 1.00 1.00
B Germany 0.950 0.960 0.952 0.962 0.922 0.922 0.98 0.99 1.00
W Greece 0.952 0.965 0.952 0.963 0.833 0.850 0.99 0.99 0.95
W Hungary 0.963 0.970 0.963 0.972 0.822 0.822 0.99 0.99 0.99
B Ireland 0.988 0.995 0.988 0.992 0.899 0.899 0.99 1.00 1.00
W Italy 0.976 0.981 0.976 1.000 0.860 0.945 0.99 0.98 0.92
W Latvia 0.976 0.986 0.976 0.986 0.767 0.775 0.99 0.99 0.96
W Lithuania 0.995 0.997 0.995 1.000 0.840 0.866 0.99 0.99 0.97
B Luxembourg 1.000 1.000 1.000 1.000 1.000 1.000 1.00 1.00 1.00
W Malta 0.972 0.978 0.973 0.972 1.000 1.000 1.00 1.00 1.00
B Netherlands 1.000 1.000 0.996 0.996 1.000 1.000 1.00 1.00 1.00
W Poland 0.940 0.951 0.940 0.950 0.762 0.777 0.98 0.99 0.96
W Portugal 0.955 1.000 0.955 1.000 0.871 0.937 0.96 0.96 0.96
W Slovakia 0.930 0.950 0.924 0.940 0.924 0.952 0.99 0.98 0.97
W Slovenia 1.000 1.000 0.994 1.000 0.984 0.994 1.00 0.99 0.96
W Spain 0.954 0.971 0.954 0.980 0.891 0.990 0.98 0.97 0.89
B Sweden 1.000 1.000 0.975 0.976 1.000 1.000 1.00 1.00 1.00
B United K. 0.984 0.989 0.984 0.985 0.900 0.900 0.99 1.00 1.00
Mean 0.977 0.984 0.974 0.982 0.919 0.933 0.992 0.99 0.97
STD 0.022 0.017 0.021 0.017 0.074 0.068 0.009 0.01 0.03
Note: GoG: Goodness of Governance; B: best score of goodness of governance; W: worse score of goodness of
governance; M-Fr: meta-frontier; G-Fr: group frontier; OM: overall model; EM: employment model; WM: development
model.
Tables 7–9 provide more information. With respect to the period 2007–2013, Table 8 shows that, in the group
of 13 countries where GoG is positive, the percentages of improvement in efficiency between both frontiers is mini-
mal, less than one percentage point, in all cases. The results show that there are some countries (United Kingdom,
Sweden, Ireland and Estonia) that are not efficient at either of the two frontiers and do not present differences
between the two efficiency scores. Therefore, the estimated inefficiencies correspond to the concept of pure ineffi-
ciency and are not a consequence of non-controllable factors by fund managers. In this group of countries, Denmark,
Germany, Luxembourg, Netherlands and Austria are efficient in all approaches and frontiers, while Finland is ineffi-
cient under EM. Among the countries that are not efficient, Estonia stands out with the lowest level of efficiency
under DM.
TABLE 8 Efficiency scores for each model and frontier type (2007–2013)
Overall Model Employ Model Development Model Gap technology
GoG Country M-Fr G-Fr M-Fr G-Fr M-Fr G-Fr OM EM WM

B Austria 1.000 1.000 1.000 1.000 1.000 1.000 1.00 1.00 1.00
B Belgium 0.974 0.974 0.968 0.968 0.968 0.968 1.00 1.00 1.00
W Bulgary 0.933 0.982 0.933 1.000 0.878 0.930 0.95 0.93 0.94
W Croatia 0.911 1.000 0.875 1.000 0.911 1.000 0.91 0.88 0.91
W Cyprus 0.964 1.000 0.886 1.000 0.964 1.000 0.96 0.89 0.96
W Czech R. 1.000 1.000 0.988 1.000 1.000 1.000 1.00 0.99 1.00
B Denmark 1.000 1.000 1.000 1.000 1.000 1.000 1.00 1.00 1.00
B Estonia 0.975 0.975 0.975 0.975 0.877 0.885 1.00 1.00 0.99
B Finland 1.000 1.000 0.962 0.962 1.000 1.000 1.00 1.00 1.00
B France 0.981 0.981 0.949 0.949 0.980 0.981 1.00 1.00 1.00
B Germany 1.000 1.000 1.000 1.000 0.941 0.942 1.00 1.00 1.00
W Greece 0.868 0.879 0.856 0.902 0.868 0.884 0.99 0.95 0.98
W Hungary 0.978 0.983 0.972 0.983 0.946 0.947 0.99 0.99 1.00
B Ireland 0.959 0.959 0.933 0.933 0.959 0.959 1.00 1.00 1.00
W Italy 0.927 1.000 0.919 1.000 0.909 1.000 0.93 0.92 0.91
W Latvia 0.940 0.952 0.940 0.979 0.876 0.881 0.99 0.96 0.99
W Lithuania 0.944 1.000 0.956 0.990 0.905 0.935 0.94 0.97 0.97
B Luxembourg 1.000 1.000 1.000 1.000 1.000 1.000 1.00 1.00 1.00
B Malta 0.994 0.995 0.992 0.992 0.962 0.962 1.00 1.00 1.00
B Netherlands 1.000 1.000 1.000 1.000 1.000 1.000 1.00 1.00 1.00
W Poland 0.963 0.986 0.958 0.994 0.925 0.945 0.98 0.96 0.98
W Portugal 0.912 0.974 0.928 0.967 0.900 0.964 0.94 0.96 0.93
W Romania 0.981 1.000 0.981 1.000 0.838 0.884 0.98 0.98 0.95
W Slovakia 0.971 0.979 0.927 0.960 0.972 1.000 0.99 0.97 0.97
W Slovenia 0.960 1.000 0.963 1.000 0.951 0.965 0.96 0.96 0.99
W Spain 0.900 1.000 0.877 0.987 0.900 1.000 0.90 0.89 0.90
B Sweden 0.983 0.983 0.985 0.985 1.000 1.000 1.00 1.00 1.00
B United K. 0.994 0.994 0.994 0.994 0.941 0.941 1.00 1.00 1.00
model.
The case of Spain is noteworthy in that it is the country whose technological gap is greatest in the three models.
It is efficient at the group frontier in both OM and DM models (with EM efficiency scores being 11 percentage points
higher from meta to group frontier). These results show the significant impact of low GoG on the effectiveness of
resources received through the ESF.
Table 10 shows average and typical deviation for groups of countries with best and worst GoG, for each type of
frontier and approach. It is observed that the GoG factor establishes two groups of countries between which there
are significant differences in mean efficiency scores (p < 0.001 in the three approaches using metafrontiers). The dif-
ferences in efficiency between the two groups are around 5 percentage points in support of the countries with the
TABLE 9 Efficiency scores for each model and frontier type in period (2014–2020)
Country Meta-Fr G-Fr Meta-Fr G-Fr Meta-Fr G-Fr OM EM DM

B Austria 1.000 1.00 0.98 0.99 0.99 1.00 1.00 1.00 0.99
B Belgium 0.993 0.99 0.97 0.98 0.98 0.98 0.99 1.00 0.98
W Bulgaria 0.990 1.00 0.98 1.00 0.86 1.00 0.96 1.00 0.96
W Cyprus 0.962 1.00 0.96 1.00 1.00 1.00 1.01 0.99 1.01
W Czech R. 1.000 0.99 1.00 0.99 1.00 0.95 1.00 1.00 1.00
B Germany 1.000 1.00 1.00 0.97 1.00 1.00 1.01 0.99 1.00
B Denmark 1.000 0.99 1.00 0.95 1.00 1.00 0.99 1.00 0.99
B Estonia 0.989 0.99 0.98 0.99 0.94 1.00 0.88 1.00 0.91
W Spain 0.881 1.00 0.91 1.00 0.91 1.00 1.00 1.00 0.96
B Finland 1.000 1.00 0.96 1.00 1.00 1.00 1.00 1.00 0.97
B France 0.979 0.97 0.94 0.97 0.99 0.97 0.85 1.00 0.92
W Greece 0.852 1.00 0.91 0.99 0.92 1.00 0.96 1.00 0.97
W Croatia 0.966 1.00 0.96 0.99 1.00 1.00 0.99 1.00 0.99
W Hungary 0.990 1.00 0.98 0.99 0.97 0.95 0.99 1.00 1.00
B Ireland 0.993 1.00 0.98 0.96 1.00 1.00 0.92 1.00 0.92
W Italy 0.924 1.00 0.92 1.00 0.90 1.00 1.00 0.98 1.00
W Lithuania 0.966 0.95 0.96 0.93 0.94 0.91 1.00 0.96 1.00
B Luxembourg 1.000 0.96 1.00 0.93 1.00 0.92 0.96 1.00 1.00
W Latvia 0.967 1.00 0.96 0.96 0.97 1.00 1.00 1.00 1.00
B Malta 1.000 1.00 1.00 0.99 0.97 0.97 1.00 1.00 1.00
B Netherlands 1.000 1.00 1.00 0.92 1.00 0.90 1.00 0.98 1.00
W Poland 0.994 0.97 0.98 0.98 0.98 0.94 0.98 1.00 0.97
B Portugal 0.958 0.97 0.96 0.99 0.95 0.98 0.98 1.00 0.98
W Romania 0.984 1.00 0.98 1.00 0.88 1.00 1.00 1.00 0.99
B Sweden 1.000 1.00 0.98 0.99 1.00 1.00 1.00 1.00 1.00
B Slovenia 1.000 0.99 0.98 0.98 1.00 0.89 0.98 1.00 0.96
W Slovakia 0.988 1.00 0.96 1.00 1.00 1.00 1.00 1.00 1.00
B United K. 1.000 1.00 0.99 0.97 1.00 1.00 1.00 1.00 0.99
model.
best GoG. It is worth asking whether these differences are due to the influence that the GoG exerts on the produc-
tion frontier.
To verify this hypothesis, the three models are evaluated with respect to two group frontiers corresponding to
the countries with the lowest quality of government (15) and those with the highest quality of government (13). The
results show that there is a technological gap in the group with the lowest GoG. The production frontiers of both
groups differ significantly, with the maximums achievable by the countries of the group, with the smallest GoG being
lower than those of the group with the largest GoG. The new frontier for the group with the highest GoG does not
vary with respect to the metafrontier or group frontier with the lower GoG group.
To achieve the second goal of this research, the tobit regression models are estimated considering the efficiency
score as the dependent variable according to each of the three production orientations considered (OM, EM and
TABLE 10 Effects of GoG on the efficiency
C.I. (95%)
N Mean Std LL UL Sig.

OM W 15 94.36 0.92 92.39 96.32 .000
Meta-frontier B 13 98.91 0.38 98.09 99.74
Total 28 96.47 0.67 95.09 97.86
OM W 15 98.23 0.82 96.46 99.99 .468
Group frontier B 13 98.93 0.38 98.10 99.75
Total 28 98.55 0.47 97.58 99.52
EM W 15 93.06 1.06 90.78 95.34 .001
Meta-frontier B 13 98.13 0.63 96.76 99.49
Total 28 95.41 0.79 93.78 97.04
EM W 15 98.42 0.67 96.97 99.86 .757
Group frontier B 13 98.13 0.63 96.76 99.49
Total 28 98.28 0.46 97.35 99.22
DM W 15 91.62 1.13 89.19 94.05 .001
Meta-frontier B 13 97.13 1.01 94.93 99.34
Total 28 94.18 0.92 92.29 96.07
DM W 15 95.56 1.18 93.04 98.09 .297
Group frontier B 13 97.22 0.97 95.11 99.32
Total 28 96.33 0.78 94.74 97.92
Note: B: best score of goodness of governance; W: worse score of goodness of governance; OM: overall model; EM:
employment model; WM: development model. LL: lower limit; UP: upper limit;
DM). Three models (1, 2 and 3) defined by different groups of explanatory variables are estimated. The results are
shown in Tables 11–13.
In Model 1, the Economic Freedom score is considered as an explanatory variable. Model 2 includes, in addition
to the previous one, the Gini coefficient. In model 3 the four dimensions of Economic Freedom and the Gini coeffi-
cient are considered. It is thus intended to analyse the effect of each of these dimensions.
Tables 11–13 show that the economic freedom variable is significant in the three models with a positive rela-
tionship with the efficiency score in the three cases, but with different relevance as a predictive variable. In the three
production orientations, the explanatory power on the variability of efficiency is greater than 10%. In the DM model,
the effect is lower due to the different sense of the effect that its dimensions have.
Model 2 includes, in addition to Economic Freedom, the Gini index, in order to ascertain the global explanatory
power and the added effect of the new variable. The results are consistent in the three production orientations but
differ among themselves. The disposable income concentration indicator has a negative and significant effect for the
three models. The higher the concentration of disposable income in a country, the lower the operational efficiency in
the management of ESF received.
In the OM, the inclusion of GI increases the explanatory power of the model by more than 2 percentage points
and in the case of DM the improvement is greater than 12 percentage points. In the EM orientation, the result is dif-
ferent in terms of effect size. The sense of the relationship and significance are maintained, but the added explana-
tory power is around two percentage points. The levels of efficiency for the management of ESFs are higher in
countries where there is an efficient organization of institutions, which promotes the development of public services,
with effective controls that guarantee compliance with established procedures and legislation.
TABLE 11 Tobit regression results: OM
OM Meta-Frontier Coef. Std t P > jtj C.I. (95%) Pseudo R2

1 EF 0.402 0.066 6.01 0.000 0.269 0.535 0.1284
cons 69.345 4.653 14.90 0.000 60.084 78.607
Log likelihood = 173.31158; Number of obs = 81; LR chi2(2) = 33.21; Prob > chi2 = 0.000
2 EF 0.363 0.058 6.22 0.000 0.247 0.479 0.1495
GI 0.408 0.081 4.99 0.000 0.572 0.246
cons 84.337 4.897 17.22 0.000 74.589 94.085
3 RL 0.068 0.030 2.27 0.026 0.009 0.127 0.1816
GS 0.024 0.028 0.87 0.388 0.031 0.080
RE 0.045 0.035 1.27 0.209 0.025 0.116
MO 0.180 0.062 2.87 0.005 0.055 0.306
GI 0.338 0.094 3.58 0.001 0.527 0.150
cons 85.011 5.322 15.97 0.000 74.410 95.612
Note: EF: economic freedom; GI: Gini Index. RL: rule of law; GS: government size; RE: regulatory efficiency; MO: market
openness GI: government integrity.
TABLE 12 Tobit regression results: EM
EM Meta-Frontier Coef. Std. Er. t P > jtj C. I. (95%) Pseudo R2

1 EF 0.381 0.062 6.11 0.000 0.257 0.506 0.0702
cons 69.342 4.381 15.83 0.000 60.622 78.062
2 EF 0.361 0.060 5.96 0.000 0.240 0.481 0.0847
GI 0.215 0.083 2,58 0.012 0.382 0.049
cons 77.252 5.198 14.86 0.000 66.904 87.600
3 RL 0.088 0.033 2.644 0.010 0.023 0.154 0.1022
GS 0.029 0.028 1.043 0.299 0.025 0.084
RE 0.074 0.035 2.11 0.011 0.005 0.143
MO 0.168 0.076 2.60 0.014 0.041 0.294
GI 0.191 0.076 2.50 0.014 0.341 0.041
cons 78.449 5.558 14.11 0.000 67.555 89.342
In Model 3, the four dimensions of the Economic Freedom (Rule of Law, Government Size, Regulatory Efficiency
and Open Markets) and the Gini coefficient are included as explanatory variables, in a disaggregated way.
In the case of the OM productive orientation, the explanatory power of Model 2 is increased (from 0.149 to
0.181). Table 9 shows that Rule of Law, Government Size, and Market Openness are positively associated with the
efficiency score, with different effect sizes, and yet the Regulatory Efficiency dimension is not significant to predict
efficiency, with the available sample information.
TABLE 13 Tobit regression results: DM
DM Meta.frontier Coef. Std. Er. t P > jtj C. I. (95%) Pseudo R2

1 EF 0.423 0.104 4.04 0.000 0.214 0631 0.0491
cons 63.906 7.343 8.70 0.000 49.292 78.521
2 EF 0.323 0.066 4.88 0.000 0.191 0.455 0.1740
GI 1.018 0.092 11.07 0.000 1.202 0.835
cons 101.461 5.702 17.79 0.000 90.110 112.812
3 RL 0.145 0.330 4.40 0.000 0.080 0.210 0.2052
GS 0.060 0.027 2.18 0.032 0.006 0.114
RE 0.083 0.034 2.40 0.018 0.015 0.152
MO 0.096 0.043 2.20 0.031 0.010 0.181
GI 0.901 0.095 9.442 0.000 1.088 0.714
cons 106.712 5.485 19.45 0.000 95.786 117.637
Regarding the EM productive orientation, the result is different (see Table 10). Now Rule of Law, Regulatory
Efficiency and Market Openness are significant predictor variables while Government Size is not but the positive sign
is maintained.
When efficiency in the DM production orientation is considered as a dependent variable, the model has greater
explanatory power, as now more than 20% of the variability of the efficiency score is explained. Regarding the rela-
tionship between efficiency and the Gini coefficient, a consistent result is obtained, as it is maintained for the three
production orientations and in the six models. In all cases, the higher the concentration of disposable income, the
lower the efficiency score is predicted.
Good governance guarantees the stability of institutions, the fight against corruption, the enforcement of laws
and the implementation of control systems that guarantee the proper management of public resources. This situation
facilitates the development of economic activities and provides an incentive to generate investment and develop-
ment projects, facilitating actions carried out with the European Structural Funds in these less developed regions. An
administration with clear and simple procedures for managing its resources and carrying out its activities implies a
better use of resources and ensures better results, increasing the possibilities of improving the level of development
of these regions and therefore of meeting the objectives set by the European Union in the implementation of its
European Structural Funds. These results coincide with those obtained by Adkins et al. (2002), Farhadi et al. (2015)
and Axala and Fabro (2008), confirming that a clear regulation and increased transparency in administration manage-
ment promote investment, which increases economic development, productivity and job creation. This result coin-
cides with those obtained by Cebula (2011) and Cebula and Mixon (2012). Furthermore, the European Union is
carrying out a large number of initiatives to increase good governance, both in the governing bodies of the EU and in
the governments of the member countries. These measures include those adopted by the European Parliament to
guarantee democracy, transparency and accountability in management in all EU governing bodies. In addition, the
EU is carrying out a plan of reforms with the 2009 Lisbon Treaty, which affects the legislation of all member states.
The objective is to increase transparency and citizen participation in the institutions, since it considers that getting a
GoG is an essential step. The member states are in a process of profound change and modification of their regula-
tions to apply these measures and advance the GoG. This study reveals the differences between the member states
in GoG and the impact on the efficiency of the European Structural Funds. Another fundamental aspect is the
improvement in the Economic Freedom of the countries that are members of the EU. According to the EPICENTER
study, the need to adapt their regulations and economic system to meet the coverage criteria (deficit, debt level,
inflation) established in the EU increases their Economic Freedom.
5 | C O N CL U S I O N S
In this paper, the efficiency in the management of the ESF received by the 28 EU countries is analysed according to
three orientations defined by production functions related to employment, social development and globally.
The limiting effect that quality in the governance of the evaluated country has on the production frontier has
been evaluated. From the results obtained, it can be concluded that there is a technological gap between the two
groups of established countries, those with “Best Government” and “Worst Government.” The countries evaluated
with a lower score in Quality of Government have a restriction in the maximum possible achievable scores, which
can be considered as a responsibility not attributable to the managers of the ESF. The norms established in the EU
to obtain a GoG are applied in all member countries. However, in those countries that have joined the EU in recent
years and that come from administrative and economic systems further away from the existing member states, this
process will take place over a longer period of time. These differences are observed in our results.
The results allow us to conclude that the relationship between the Gini coefficient and the efficiency score is
always negative, for the three productive orientations, with an important and significant effect size, which differs
according to the productive orientation.
The analysis of the relationships between efficiency and Economic Freedom allows us to conclude that there is
a direct association between these variables, so it is possible to conclude that a greater degree of Economic Freedom
implies greater efficiency in the management of ESF.
Singularly, there is a significant and positive relationship between the efficiency score in the global productive
orientation and the values of the indicators of Economic Freedom RL and MO. These results are consistent with
those obtained by Adkins et al. (2002), Farhadi et al. (2015) and Axala and Fabro (2008). Therefore, simple and clear
regulations and greater transparency encourage investment, increasing economic development, productivity, and job
creation, all of which is necessary in the countries receiving ESF. This coincides with the conclusions of Cebula (2011)
and Cebula and Mixon (2012).
When the productive orientation towards employment is considered, the positive relationship remains signifi-
cant with respect to the indicators of economic freedom RL and MO in accordance with previous results obtained by
Gwartney et al. (2004), Christopoulos et al. (2005), Nickell et al. (2005) and Feldmann (2006).
Furthermore, when considering the productive welfare orientation, it is also concluded that there is a positive
association between the efficiency of the management of ESIF and the four Economic Freedom dimensions. These
results coincide with Cebula et al. (2013).
Additionally, there is variability in the performance of the countries in the management of the ESIF received. In
the three productive orientations there is a limitation on the production frontier that depends on the GoG. Economic
Freedom in each country is positively related to the measurement of the performance of the European Structural
Funds received, although with different intensity. With different effect sizes, the concentration of per capita dispos-
able income negatively affects the performance of the countries with respect to the ESIF.
Finally, the results of this research provide sufficient scientific evidence on the importance of Good of Gover-
nance, Economic Freedom and the Gini coefficient of equalized disposable income to improve performance in the
management of European Structural Funds. Therefore, these conclusions could be considered by the European orga-
nizations responsible for granting the ESIF for the purpose of establishing access and control criteria. The EU is car-
rying out a large number of actions and policies to apply the GoG and Economic Freedom in all its member states, as
it is vital to guarantee economic growth and coverage among member countries. These measures make the rest of
the EU policies, such as those carried out with the Structural Funds, more effective.
An inevitable limitation of this research lies in the fact that the objectives use information available at country
level and not at the regional level. This limitation could be overcome in future research by reformulating the research
goals.
ORCID
María del Rocío Moreno-Enguix https://orcid.org/0000-0001-9717-2500
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mez-Gallego, J. C., Moreno-Enguix, M. d. R., & Go

How to cite this article: Go mez-Gallego, M. (2022). The
relation between the index of economic freedom and good governance with efficiency of the European
Structural Funds. Papers in Regional Science, 101(2), 327–349. https://doi.org/10.1111/pirs.12655
DOI: 10.1111/pirs.12655
Resumen. Esta investigación evalúa la eficacia de la gestión de los Fondos Estructurales Europeos en función de si su
orientación productiva se basa en el empleo o en el desarrollo económico y social. Los datos se refieren a 2000–
2020 para los 28 países de la UE. El artículo incluye un análisis de la influencia de la gobernanza y la libertad
económica del país en la función de producción asociada a los fondos recibidos. Los resultados muestran que existe
una disparidad tecnológica entre los grupos de países definidos por su bondad de gobernanza. Por otra parte, existe
una relación positiva entre la libertad económica y las puntuaciones de eficiencia de los países.
抄録: 本研究では、欧州構造基金の運用効率を、その生産的指向が雇用に基づくものか、経済及び社会発展に基づ
くものかによって評価する。2000~2020年の28の欧州連合加盟国のデータを対象とする。本稿では、給付された資
金に関連する生産機能に対する、各国のガバナンスと経済的自由度の影響の分析を行う。結果から、ガバナンス
の有効性によって定義した国のグループ間に科学的ギャップが存在することが示される。一方、経済的自由度と
各国の効率性スコアには正の関連性がある。
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Received: 11 May 2021 Revised: 6 October 2021 Accepted: 17 December 2021

The relation between the index of economic

Pap Reg Sci. 2022;101:327–349. wileyonlinelibrary.com/journal/pirs 327

3.1 | The DEA models

TABLE 1 Summary of previous literature

Efficiency in Structual Funds

Paper by Central results

Efficiency in Structual Funds

Paper by Central results

3.2 | Technology gap ratio

3.3 | Tobit regression model and multicollinearity tests

θit ¼ β0 þ β1 X1it þ … þ βk Xkit þ εit,

3.4 | Sample, variables and models

TABLE 2 Description of input and output

Code Variable Definition

TABLE 3 Goodness of governance and economic freedom

Code Variable Definition

Code Variable Definition

Code Variable Definition

TABLE 4 Descriptive statistics of input and outputs

Variable Unit Period Mean Std Median Asymmetry Kurtosis

Variable Unit 2000 2006 2007 2013 2014 2019

TABLE 5 Descriptive statistics of GoG

Period N Mean Std L U Mín. Máx. Sig

TABLE 6 Descriptive statistics of economic freedom

Period N Mean Std L U Mín. Máx. Sig

FIGURE 2 Mean of Z-EF scores in period 2000 to 2020

Overall Model Employment Model Development Model Gap technology

GoG Country M-Fr G-Fr M-Fr G-Fr M-Fr G-Fr OM EM WM

Overall Model Employ Model Development Model Gap technology

GoG Country M-Fr G-Fr M-Fr G-Fr M-Fr G-Fr OM EM WM

Country Meta-Fr G-Fr Meta-Fr G-Fr Meta-Fr G-Fr OM EM DM

TABLE 10 Effects of GoG on the efficiency

N Mean Std LL UL Sig.

TABLE 11 Tobit regression results: OM

OM Meta-Frontier Coef. Std t P > jtj C.I. (95%) Pseudo R2

TABLE 12 Tobit regression results: EM

EM Meta-Frontier Coef. Std. Er. t P > jtj C. I. (95%) Pseudo R2

TABLE 13 Tobit regression results: DM

DM Meta.frontier Coef. Std. Er. t P > jtj C. I. (95%) Pseudo R2

mez-Gallego, J. C., Moreno-Enguix, M. d. R., & Go

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