Study Finds Positive Long-Term Impact of Agricultural Subsidies
A new study published in Frontiers in Sustainable Food Systems reveals a significant correlation between average agricultural subsidies per farm and increased agricultural value added over the long term in eleven European Union (EU) transition economies. Conducted by Mustafa Taytak and Emre Şakar from Uşak University in Turkey, the research analyzes data from 2013 to 2023, a period post the major reforms of the EU’s Common Agricultural Policy (CAP).
The study focuses on a unique set of countries—Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia—that joined the EU through successive enlargement rounds. These transition economies, with their diverse farm sizes and institutional structures, provide an ideal setting to examine the effects of CAP implementation in varied economic contexts.
Methodology
To establish relationships between average agricultural subsidies, GDP per capita, and agricultural value added, the authors employed a sequential panel data approach. They first conducted cross-sectional dependence tests, revealing interconnectedness among the countries due to shared policy frameworks and economic shocks. This finding was crucial as ignoring such dependence could lead to inaccurate statistical conclusions.
The study then utilized the second-generation Pesaran CIPS panel unit root test to confirm the stationarity of the variables, ensuring the use of appropriate econometric estimators.
Key Findings
The causal relationships between the variables were determined using the Emirmahmutoğlu and Köse heterogeneous panel causality test. This method revealed a bidirectional Granger causality between average agricultural subsidies per farm and agricultural value added, with subsidies influencing value added at a 5% significance level and vice versa at a 1% significance level.
Additionally, a strong Granger causality relationship was observed between GDP per capita and agricultural value added at a 1% significance level, indicating that economic development significantly impacts agricultural performance in these transition economies. The reverse relationship, from agricultural value added to GDP, was weaker and significant at a 10% level.
These findings underscore the complex interplay between agricultural subsidies, economic development, and agricultural sector performance in the post-enlargement EU context.