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Do subsidies drive productivity? A cross-country analysis of Nordic dairy farms

In: Bayesian Econometrics

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  • Nadine McCloud
  • Subal C. Kumbhakar

Abstract

One of the foremost objectives of the Common Agricultural Policy (CAP) in the European Union (EU) is to increase agricultural productivity through subsidization of farmers. However, little empirical research has been done to examine the effect of subsidies on farm performance and, in particular, the channels through which subsidies affect productivity. Using a Bayesian hierarchical model in which input productivity, efficiency change, and technical change depend on subsidies and other factors, including farm location, we analyze empirically how subsidies affect the performance of farms. We use an unbalanced panel from the EU's Farm Accountancy Data Network on Danish, Finnish, and Swedish dairy farms and partition the data into eight regions. The data set covers the period 1997–2003 and has a total of 6,609 observations. The results suggest that subsidies drive productivity through efficiency and input productivities and the magnitudes of these effects differ across regions. In contrast to existing studies, we find that subsidies have a positive impact on technical efficiency. The contribution of subsidies to output is largest for dairy farms in Denmark and Southern, Central, and Northern Sweden.

Suggested Citation

  • Nadine McCloud & Subal C. Kumbhakar, 2008. "Do subsidies drive productivity? A cross-country analysis of Nordic dairy farms," Advances in Econometrics, in: Bayesian Econometrics, pages 245-274, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aecozz:s0731-9053(08)23008-2
    DOI: 10.1016/S0731-9053(08)23008-2
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    Cited by:

    1. Koiry, Subrata & Huang, Wei, 2023. "Do ecological protection approaches affect total factor productivity change of cropland production in Sweden?," Ecological Economics, Elsevier, vol. 209(C).
    2. Centorrino, Samuele & Pérez-Urdiales, María & Bravo-Ureta, Boris & Wall, Alan, 2022. "Binary endogenous treatment in stochastic frontier models with an application to soil conservation in El Salvador," Efficiency Series Papers 2022/02, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    3. Radek Zdeněk & Jana Lososová, 2020. "Investments of Czech farms located in less favoured areas after EU accession," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 66(2), pages 55-64.
    4. Stoicea Paula & Tudor Valentina Constanța & Stoian Elena & Micu Marius Mihai & Soare Elena & Militaru Dan Ciprian, 2023. "Subsidies’ Impacts on Technical–Economic Indicators in Large Crop Farms," Agriculture, MDPI, vol. 13(9), pages 1-17, August.
    5. Paweł Boczar & Lucyna Błażejczyk-Majka, 2022. "Efficiency of European Union wheat producers on world market and analysis of its determinants based on the data envelopment analysis method," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(12), pages 455-463.
    6. Centorrino, Samuele & Perez Urdiales, Mari­a & Bravo-Ureta, Boris & Wall, Alan, 2021. "Binary Endogenous Treatment in Stochastic Frontier Models with an Application to Soil Conservation in El Salvador," 95th Annual Conference, March 29-30, 2021, Warwick, UK (Hybrid) 312058, Agricultural Economics Society - AES.
    7. Kumbhakar, Subal C. & Li, Mingyang & Lien, Gudbrand, 2023. "Do subsidies matter in productivity and profitability changes?," Economic Modelling, Elsevier, vol. 123(C).

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