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CAP Effects on Agricultural Investment Demand in Europe

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  • Guastella, G.
  • Moro, D.
  • Sckokai, P.
  • Veneziani, M.

Abstract

The paper develops a comparative analysis, among selected European Union Member States, of the investment demand, for farm buildings and machinery and equipment, of a sample of specialised arable crop farms as determined – inter alia – by different types and levels of Common Agricultural Policy (CAP) support. The empirical analysis investigates the role of long and short run determinants of investment levels as well as accounts for the presence of irregularities in the cost adjustment function due to the existence of threshold-type behaviours. Throughout the estimated models a consistent and significant long-run dynamic adjustment towards lower levels of the farms’ capital stocks is detected. The effect of CAP support on both types of investments is positive, although seldom significant. The elasticities of average net investment with respect to CAP payments are employed to simulate the effects of the recently proposed, reductions in the Pillar I CAP Direct Payments (DPs). Since these reform options imply, almost exclusively, a reduction in the level of support granted through DPs, simulated effects largely respect the expectation of a worsening of the farm investment prospects for both asset types (i.e., a larger negative investment or a smaller positive one). Notable exceptions concern investment in machinery and equipment in France and Italy which improve, irrespectively of the magnitude of the implemented cuts in DPs.

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Bibliographic Info

Paper provided by International Agricultural Trade Research Consortium in its series Proceedings Issues, 2013: Productivity and Its Impacts on Global Trade, June 2-4, 2013. Seville, Spain with number 152256.

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Date of creation: Jun 2013
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Handle: RePEc:ags:iatr13:152256

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Keywords: Agricultural and Food Policy; Demand and Price Analysis; International Relations/Trade;

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  14. Savvides, A. & Stengos, T., 2000. "Income Inequality and Economic Development: Evidence from the Threshold Regression Model," Working Papers 2000-2, University of Guelph, Department of Economics and Finance.
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  18. Oecd, 2005. "Modelling the Impact of Agricultural Policies on Farm Investments under Uncertainty: The Case of the CAP Arable Crop Regime," OECD Papers, OECD Publishing, vol. 5(11), pages 1-35.
  19. Guastella,Giovanni & Moro, Daniele & Sckokai, Paolo & Veneziani, Mario, 2013. "Investment behaviour of EU arable crop farms in selected EU countries and the impact of policy reforms," Factor Markets Working Papers 154, Centre for European Policy Studies.
  20. Guastella, Giovanni & Moro, Daniele & Sckokai, Paolo & Veneziani, Mario, 2013. "Investment behaviour of EU arable crop farms in selected EU countries and the impact of policy reforms," Working Papers 152083, Factor Markets, Centre for European Policy Studies.
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