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Do Agricultural Subsidies Crowd-out or Stimulate Rural Credit Market Institutions?: The Case of CAP Payments

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  • Ciaian, Pavel
  • Pokrivcak, Jan
  • Szegenyova, Katarina

Abstract

In this paper we estimate the impact the CAP subsidies on farm bank loans. According to the theoretical results, if subsidies are paid at the beginning of the growing season they may reduce bank loans, whereas if they are paid at the end of the season they increase bank loans, but these results are conditional on whether farms are credit constrained and on the relative cost of internal and external financing. In empirical analysis we use the FADN farm level panel data to test the theoretical predictions for period 1995-2007. We employ the fixed effects and GMM models to estimate the impact of subsidies on farm loans. The estimated results suggest that (i) subsidies influence farm loans and the effects tend to be non-linear and indirect; (ii) both coupled and decoupled subsidies stimulate long-term farm loans, but the long-term loans of big farms increase more than those of small farms due to decoupled subsidies; (iii) the short-term loans are affected only by decoupled subsidies, and they are altered by decoupled subsidies more for small farms than for large farms; however (v) when controlling for the endogeneity, only the decoupled payments affect loans and the relationship is non-linear.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 103085.

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Date of creation: 2011
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Handle: RePEc:ags:aaea11:103085

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Keywords: Farm credit; CAP; Credit constraint; Agricultural and Food Policy; Agricultural Finance;

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  1. Nancy H. Chau & Harry de Gorter, 2005. "Disentangling the Consequences of Direct Payment Schemes in Agriculture on Fixed Costs, Exit Decisions, and Output," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(5), pages 1174-1181.
  2. Pavel Ciaian & Johan F.M. Swinnen, 2009. "Credit Market Imperfections and the Distribution of Policy Rents," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 1124-1139.
  3. Khanna, Madhu & Isik, Murat & Zilberman, David, 2002. "Cost-effectiveness of alternative green payment policies for conservation technology adoption with heterogeneous land quality," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 27(2), August.
  4. Khanna, Madhu & Isik, Murat & Zilberman, David, 2002. "Cost-effectiveness of alternative green payment policies for conservation technology adoption with heterogeneous land quality," Agricultural Economics, Blackwell, vol. 27(2), pages 157-174, August.
  5. Carter, Michael R., 1988. "Equilibrium credit rationing of small farm agriculture," Journal of Development Economics, Elsevier, vol. 28(1), pages 83-103, February.
  6. Maitra, Pushkar & Ray, Ranjan, 2003. "The effect of transfers on household expenditure patterns and poverty in South Africa," Journal of Development Economics, Elsevier, vol. 71(1), pages 23-49, June.
  7. Feder, Gershon, 1985. "The relation between farm size and farm productivity : The role of family labor, supervision and credit constraints," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 297-313, August.
  8. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  9. van Beers, Cees & van den Bergh, Jeroen C. J. M., 2001. "Perseverance of perverse subsidies and their impact on trade and environment," Ecological Economics, Elsevier, vol. 36(3), pages 475-486, March.
  10. de Gorter, Harry & Meilke, Karl D., 1988. "Efficiency Of Alternative Policies For The EC's Common Agricultural Policy," Working Papers 123559, University of Guelph, Department of Food, Agricultural and Resource Economics.
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Cited by:
  1. Bojnec, Štefan, 2011. "Agricultural and Rural Capital Markets in the EU Candidate Countries: Croatia, the Former Yugoslav Republic of Macedonia and Turkey," Factor Markets Working Papers 108, Centre for European Policy Studies.
  2. Bojnec, Stefan, 2011. "Agricultural and Rural Capital Markets in the EU Candidate Countries: Croatia, the Former Yugoslav Republic of Macedonia and Turkey," Working Papers 117489, Factor Markets, Centre for European Policy Studies.
  3. Petrick, Martin & Kloss, Mathias, 2012. "Drivers of agricultural capital productivity in selected EU member states," Working Papers 132838, Factor Markets, Centre for European Policy Studies.

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