Technical Change and the Common Agricultural Policy

Khafagy, Amr ORCID: 0000-0001-8976-6405 and Vigani, Mauro ORCID: 0000-0003-2442-7976 (2022) Technical Change and the Common Agricultural Policy. Food Policy, 109. Art 102267. doi:10.1016/j.foodpol.2022.102267

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This paper adopts an alternative method for the analysis of the CAP’s impact on farms’ productivity based on a system of equations derived from a non-nested three-factors CES production function. With this method, we estimate the elasticity of substitution between labour, capital, and land in the EU agricultural sector, the magnitude and direction of technical change, and the impact of the CAP subsidies. The system of equations is estimated using the GMM estimator on a farm-level panel dataset covering 117,179 farms from all EU MS for the period from 2004 to 2015. Our results suggest that land, labour, and capital in EU farms are complementary production factors characterised by a slow decline or stagnation in the land-, labour-, and capital-augmented technical change. Higher levels of Pillar I and Pillar II CAP payments as percentage of total agricultural income have negative or no impact on farms’ technical change, but higher nominal amounts of Pillar I decoupled subsidies, Pillar II investment and LFA subsidies have a positive impact. Moreover, the larger the share of subsidies in total agricultural income the stronger is the negative impact of the CAP on agricultural technical change.

Item Type: Article
Article Type: Article
Uncontrolled Keywords: Common Agricultural Policy; Factor-augmenting technical change; CES production function; GMM estimator
Subjects: S Agriculture > S Agriculture (General)
S Agriculture > S Agriculture (General) > S560 Farm Economics
S Agriculture > S Agriculture (General) > S589.75 Agriculture and the environment
Divisions: Schools and Research Institutes > Countryside and Community Research Institute
Research Priority Areas: Place, Environment and Community
Depositing User: Sofia Raseta
Date Deposited: 11 May 2022 15:39
Last Modified: 26 Sep 2022 09:23

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