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

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

In this paper we estimate the impact of 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 credit constraint and on the relative cost of internal and external financing. In empirical analysis we use the FADN farm level panel data for period 1995-2007. We employ the fixed effects and the 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 appear to affect loans and the relationship is non-linear.

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File URL: http://purl.umn.edu/114289
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Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114289.

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Date of creation: 2011
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Handle: RePEc:ags:eaae11:114289
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  1. Carter, Michael R., 1988. "Equilibrium credit rationing of small farm agriculture," Journal of Development Economics, Elsevier, vol. 28(1), pages 83-103, February.
  2. 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..
  3. Ciaian, Pavel & Swinnen, Johan F.M., 2008. "Credit Market Imperfections and the Distribution of Policy Rents," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44050, European Association of Agricultural Economists.
  4. 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.
  5. 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.
  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. 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.
  8. 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.
  9. 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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