The relation between agricultural and non-agricultural economic development: Technical report on an empirical analysis of European regions

Support of agriculture is justified, among others, by its contribution to rural economic development. Nevertheless, the relation between agricultural and general economic development may be ambiguous. On the one side, agriculture may affect other sectors positively via multiplier and income effects. On the other side, competition effects may arise due to the application of common factors, specifically labour, by agriculture and other sectors. Under these circumstances, support of agricultural production may create distorted market signals and thereby affect the medium and long-term economic development negatively. This research analyses the regionally differentiated relation between the agricultural and the non-agricultural development empirically. The panel estimation model applies data of the common regional accounts from NUTS3 regions of the EU27. It identifies different development regimes with different roles for agriculture. In the most developed economies, competition effects dominate. Nevertheless, in low-productivity regions of Eastern Europe, agriculture stabilises the development of employment and value added. Thereby, policy faces the challenge to support simultaneously structural change in agriculture and the development of other sectors in rural regions.