Unpacking regional development in the EU: The interplay of cohesion, institutions, and sustainability

Abstract

This paper examines regional development in the European Union from a multidimensional and dynamic perspective, addressing the limited understanding of how economic, social, institutional, and environmental dimensions interact over time. While existing research often treats these dimensions separately or relies on static indicators, less attention has been paid to their temporal interdependencies and adjustment dynamics. Using a panel vector autoregressive model with common correlated effects (PVAR-CCE) applied to 233 NUTS-2 regions over the period 2000–2022, the analysis identifies the dynamic interactions linking these dimensions while accounting for cross-sectional dependence and regional heterogeneity. The results provide evidence of a structured system of interdependencies governing regional development. They reveal a dual adjustment structure characterised by a fast-moving economic–social cycle linking employment, income, and youth exclusion, and a slower structural dynamic driven by institutional quality, human capital, and environmental conditions. These dynamics vary across regions and income levels, highlighting persistent structural constraints in lagging regions and more integrated development trajectories in advanced regions. Environmental sustainability emerges as a constitutive component of regional development rather than a peripheral outcome, extending place-based approaches beyond income-based frameworks. Overall, the findings contribute to a more integrated understanding of regional development and provide an empirical basis for assessing the feasibility of EU policy objectives related to cohesion, sustainability, and balanced territorial development.