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

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


Issue Date:
2011
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/103085
Total Pages:
27
Series Statement:
Selected Paper
12913




 Record created 2017-04-01, last modified 2017-08-26

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