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Do agricultural subsidies crowd out or stimulate rural credit institutions? The Case of CAP Payments

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  • Ciaian, Pavel
  • Pokrivcak, Jan

Abstract

In this paper we estimate the impact of subsidies from the EU’s common agricultural policy 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 whether farms are credit constrained and on the relative cost of internal and external financing. In the empirical analysis, we use farm-level panel data from the Farm Accountancy Data Network to test the theoretical predictions for the period 1995–2007. We employ fixed-effects and generalised method of moment models to estimate the impact of subsidies on farm loans. The results suggest that subsidies influence farm loans and the effects tend to be non-linear and indirect. The results also indicate that both coupled and decoupled subsidies stimulate long-term loans, but the long-term loans of large farms increase more than those of small farms, owing to decoupled subsidies. Furthermore, the results imply that 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, when controlling for endogeneity, only the decoupled payments affect loans and the relationship is non-linear.

Suggested Citation

  • Ciaian, Pavel & Pokrivcak, Jan, 2011. "Do agricultural subsidies crowd out or stimulate rural credit institutions? The Case of CAP Payments," Factor Markets Working Papers 100, Centre for European Policy Studies.
  • Handle: RePEc:eps:fmwppr:100
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    Cited by:

    1. Van Herck, Kristine & Swinnen, Johan F.M. & Deconinck, Koen, 2012. "How the East Was Won: Supply Chain Restructuring in the Eastern European Beer Market," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 61(4).
    2. Petrick, Martin & Kloss, Mathias, 2012. "Drivers of agricultural capital productivity in selected EU member states," Factor Markets Working Papers 137, Centre for European Policy Studies.
    3. Bojnec, Štefan, 2011. "Agricultural and Rural Capital Markets in the EU Candidate Countries: Croatia, the Former Yugoslav Republic of Macedonia and Turkey," Factor Markets Working Papers 108, Centre for European Policy Studies.
    4. Toth Kristof & Toth Jozsef, 2012. "Credit Level Influencing Factors At Hungarian Farms," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 533-537, December.
    5. Bojnec, Stefan, 2011. "Agricultural and Rural Capital Markets in the EU Candidate Countries: Croatia, the Former Yugoslav Republic of Macedonia and Turkey," Working Papers 117489, Factor Markets, Centre for European Policy Studies.
    6. Veselinović, Branislav & Drobnjaković, Maja, 2014. "Qualitative And Quantitative Analysis Of Micro And Macro Aspects Of Agricultural Finance," Economics of Agriculture, Institute of Agricultural Economics, vol. 61(3).
    7. József Tóth & Gábor Kemény & Kristóf Tóth, 2012. "Effects of Production and Other Factors on Hungarian Agricultural Farm’s Creditability," MIC 2012: Managing Transformation with Creativity; Proceedings of the 13th International Conference, Budapest, 22–24 November 2012 [Selected Papers], University of Primorska, Faculty of Management Koper.

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