IDEAS home Printed from https://ideas.repec.org/a/erp/eiopxx/p0231.html
   My bibliography  Save this article

Do agricultural subsidies crowd out or stimulate rural credit market institutions? The case of EU Common Agricultural Policy

Author

Listed:
  • Ciaian, Pavel
  • Pokrivcak, Jan and Katarina Szegenyova

Abstract

In this paper we estimate the impact of agricultural subsidies granted under the European Union’s Common Agricultural Policy (CAP) on bank loans extended to farms. According to our theoretical analysis, subsidies may either stimulate or crowd out bank loans depending on the timing of subsidies, severity of credit constraint, type of subsidies and bank loans, and the relative cost of internal and external financing. In empirical analysis we use the Farm Accountancy Data Network (FADN) farm level panel data for the period 1995-2007. We employ the fixed effects and generalised method of moment (GMM) models. The estimated results suggest that (i) big farms tend to use subsidies to increase long-term loans, whereas small farms tend to use subsidies to obtain short-term loans; (ii) subsidies tend to crowd out short-term loans for big farms and long-term loans for small farms; (iii) when controlling for the endogeneity, the crowding out effect becomes smaller, but the positive causal effect of subsidies on bank loans remains significant.

Suggested Citation

  • Ciaian, Pavel & Pokrivcak, Jan and Katarina Szegenyova, 2012. "Do agricultural subsidies crowd out or stimulate rural credit market institutions? The case of EU Common Agricultural Policy," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 16, November.
  • Handle: RePEc:erp:eiopxx:p0231
    as

    Download full text from publisher

    File URL: http://eiop.or.at/eiop/texte/2012-015a.htm
    File Function: Abstract
    Download Restriction: no

    File URL: http://eiop.or.at/eiop/pdf/2012-015.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Pavel Ciaian & Jan Falkowski & d'Artis Kancs, 2012. "Access to credit, factor allocation and farm productivity: Evidence from the CEE transition economies," Agricultural Finance Review, Emerald Group Publishing, vol. 72(1), pages 22-47, May.
    2. Salhofer, K., 1996. "Efficient income redistribution for a small country using optimal combined instruments," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 13(3), February.
    3. 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..
    4. Cox, Donald & Hansen, Bruce E. & Jimenez, Emmanuel, 2004. "How responsive are private transfers to income? Evidence from a laissez-faire economy," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2193-2219, August.
    5. 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.
    6. Karel Janda, 2003. "Credit guarantees in a credit market with adverse selection," Prague Economic Papers, University of Economics, Prague, vol. 2003(4).
    7. Charles A. Towe & Mitchell J. Morehart, 2009. "Credit Constraints: Their Existence, Determinants, and Implications for U.S. Farm and Nonfarm Sole Proprietorships," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 275-289.
    8. Lampman, Robert J & Smeeding, Timothy M, 1983. "Interfamily Transfers as Alternatives to Government Transfers to Persons," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 29(1), pages 45-66, March.
    9. Eiji Yamamura & Inyong Shin, 2012. "Heterogeneity, Trust, Human Capital and Productivity Growth: Decomposition Analysis," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 55(2), pages 51-77.
    10. Harry de Gorter & Karl D. Meilke, 1989. "Efficiency of Alternative Policies for the EC's Common Agricultural Policy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(3), pages 592-603.
    11. Stéphane Blancard & Jean-Philippe Boussemart & Walter Briec & Kristiaan Kerstens, 2006. "Short- and Long-Run Credit Constraints in French Agriculture: A Directional Distance Function Framework Using Expenditure-Constrained Profit Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 351-364.
    12. Carter, Michael R., 1988. "Equilibrium credit rationing of small farm agriculture," Journal of Development Economics, Elsevier, vol. 28(1), pages 83-103, February.
    13. Catherine Benjamin & Euan Phimister, 2002. "Does Capital Market Structure Affect Farm Investment? A Comparison using French and British Farm-Level Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 1115-1129.
    14. Paolo Sckokai & Daniele Moro, 2006. "Modeling the Reforms of the Common Agricultural Policy for Arable Crops under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 43-56.
    15. 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.
    16. Khanna, Madhu & Isik, Murat & Zilberman, David, 2002. "Cost-effectiveness of alternative green payment policies for conservation technology adoption with heterogeneous land quality," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 27(2), August.
    17. 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.
    18. Roberts, Russell D, 1984. "A Positive Model of Private Charity and Public Transfers," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 136-148, February.
    19. Petrick, Martin & Latruffe, Laure, 2003. "Credit access and borrowing costs in Poland's agricultural credit market: a hedonic pricing approach," IAMO Discussion Papers 46, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    20. Pavel Ciaian & Jan Pokryvcak, 2004. "Agricultural Reform in Slovakia," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 54(9-10), pages 420-435, September.
    21. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-389, September.
    22. Chantal Le Mouel, 2004. "Impacts of alternative agricultural income support schemes on multiple policy goals," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(2), pages 125-148, June.
    23. Greenaway, David & Morgan, Wyn & Wright, Peter, 2002. "Trade liberalisation and growth in developing countries," Journal of Development Economics, Elsevier, vol. 67(1), pages 229-244, February.
    24. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    25. Kamil Galuscak & Jan Pavel, 2012. "Taxes and Benefits: Work Incentive Effects of Policies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(1), pages 27-43, February.
    26. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Martinho, Vítor João Pereira Domingues, 2018. "Financial realities for farms in the European Union: Relationships between farming and governmental interactions within the Triple Helix concept," EconStor Preprints 173284, ZBW - German National Library of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:erp:eiopxx:p0231. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Editorial Assistant). General contact details of provider: http://edirc.repec.org/data/ecsaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.