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Technical change and the Common Agricultural Policy

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  • Khafagy, Amr
  • Vigani, Mauro

Abstract

This paper adopts an alternative method for the analysis of the CAP’s impact on farms’ productivity based on a system of equations derived from a non-nested three-factors CES production function. With this method, we estimate the elasticity of substitution between labour, capital, and land in the EU agricultural sector, the magnitude and direction of technical change, and the impact of the CAP subsidies. The system of equations is estimated using the GMM estimator on a farm-level panel dataset covering 117,179 farms from all EU MS for the period from 2004 to 2015. Our results suggest that land, labour, and capital in EU farms are complementary production factors characterised by a slow decline or stagnation in the land-, labour-, and capital-augmented technical change. Higher levels of Pillar I and Pillar II CAP payments as percentage of total agricultural income have negative or no impact on farms’ technical change, but higher nominal amounts of Pillar I decoupled subsidies, Pillar II investment and LFA subsidies have a positive impact. Moreover, the larger the share of subsidies in total agricultural income the stronger is the negative impact of the CAP on agricultural technical change.

Suggested Citation

  • Khafagy, Amr & Vigani, Mauro, 2022. "Technical change and the Common Agricultural Policy," Food Policy, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:jfpoli:v:109:y:2022:i:c:s0306919222000483
    DOI: 10.1016/j.foodpol.2022.102267
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    More about this item

    Keywords

    Common Agricultural Policy; Factor-augmenting technical change; CES production function; GMM estimator;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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