Access to finance in Europe’s disadvantaged regions: Can ‘new’ financial instruments fill the gap?

Cite as: Mason, C., Michie, R., & Wishlade, F. (2012) Access to finance in Europe's disadvantaged regions: Can 'new' financial instruments fill the gap? Paper for the 33rd meeting of the EoRPA Regional Policy Research Consortium, European Policies Research Centre, Glasgow.

Support for SMEs and entrepreneurship is an important aspect of economic developmentpolicy and there has been increasing policy focus on nurturing of high growth firms. Therole of access to finance has attracted increasing policymaker attention, partly because ambitious new firms cite access to finance as a constraint, and partly because of the rolethat private venture capital is considered to have played in the development of hightechnology firms in certain locations. At the European level these considerations have led to various regulatory and policy initiatives, notably ‘new’ financial instruments through JEREMIE.

There is a spatial dimension to the use of financial instruments and four broad (but overlapping) types of approach can be identified: Financial instruments that are restricted to designated disadvantaged regions; nationwide financial instruments which favour designated development areas; nationwide financial instruments that are administered at the subnational level orearmark funding for certain regions; subnational funds that operate only in a given region. There is strong evidence to show that most support under (ostensibly non-spatiallydiscriminating) national schemes goes to the most developed regions.

However, evaluations show that regionally-focused instruments have a number of limitations, although the evidence mainly relates to venture capital. There are also questions over whether pubic venture capital funds are as ‘smart’ as private ones and the tension between the pursuit of purely commercial investment strategies at the same time as regional policy objectives. An important issue is whether geographical variations in investment activity reflect demand side rather than supply side gaps. In any economy, there are few firms able to provide thehigh return sought by venture capitalists; these firms are likely to be even fewer in the non-core regions. Arguably the key problem is one of ‘thin’ markets in disadvantaged regions.

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