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A Cointegration Analysis of the Long-Run Supply Response of Spanish Agriculture to the Common Agricultural Policy

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  • Jose Mendez

    (Arizona State University)

  • Ricardo Mora

    (Universidad Carlos III de Madrid)

  • Carlos San Juan Mesonada

    (Universidad Carlos III de Madrid)

Abstract

Using cointegration techniques, we estimate two models that capture the long-term relationship between Spanish prices and agricultural production. The models were estimated over Spanish agricultural data from 1970 to 2000, a period spanning Spain’s implementation of the Common Agricultural Policy in 1986 and the application of the MacSharry Reforms in 1992. The models, as well as plausible counterfactual scenarios constructed to assess the production changes induced by the CAP, lead to three principal results. First, we find that Spanish agricultural output is responsive to agricultural prices. Second, we find that the MacSharry reforms have been instrumental in restraining agricultural production. Third, we find that Spanish agricultural output would have been higher if Spain had not applied the CAP. These results are important and have broad implications. First, they strengthen the position of those reformers both within and outside of Europe that argue for lower price supports as an appropriate policy for stemming European agricultural surpluses. Second, they indicate that recent EU reforms, which have in effect extended the MacSharry reforms, are appropriate measures for curbing European agricultural surpluses.

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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0512014.

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Date of creation: 23 Dec 2005
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Handle: RePEc:wpa:wuwpit:0512014

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Keywords: Keywords: Price Support Policy; MacSharry Reforms; Cointegration Techniques; European Economic Integration.;

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  1. Bullock, David S. & Salhofer, Klaus, 2003. "Judging agricultural policies: a survey," Agricultural Economics, Blackwell, vol. 28(3), pages 225-243, May.
  2. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
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  7. Thirtle, C. & Townsend, R. & Zyl, J. van, 1998. "Testing the induced innovation hypothesis: an error correction model of South African agriculture," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 19(1-2), September.
  8. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  9. Harbo, Ingrid, et al, 1998. "Asymptotic Inference on Cointegrating Rank in Partial Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 388-99, October.
  10. Diao, Xinshen & Roe, Terry & Somwaru, Agapi, 2002. "Developing country interests in agricultural reforms under the World Trade Organization," TMD discussion papers 85, International Food Policy Research Institute (IFPRI).
  11. Engle, Robert F., 1984. "Wald, likelihood ratio, and Lagrange multiplier tests in econometrics," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 13, pages 775-826 Elsevier.
  12. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
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