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Abstract
Further coordination and coherence of the EU funds and policies has been increasingly called for, implying
that the territorial perspectives should be included as a major element in the future policies. In this paper,
CAP modulation is considered in a framework of a regional development such that it compares the effects on
modulation funds first, as they are allocated as income subsidies to farm related, diversified economic
activities and second, as they are channeled from agriculture to increased regional investment demand. A
rural-urban Social Accounting Matrix is used as a base year data for the CGE-model. The results suggest that
transferring CAP payments from actual agriculture as income support to diversified activity does not
promote rural development and economic activity measured at the regional level. Accordingly, traditional
agriculture seems to be able to exploit the subsidies more efficiently. On the contrary, the investment shocks
resulted in positive total impacts in terms of the gross regional domestic product and regional employment.
However, the positive GDP impacts were greater in the urban area, thus suggesting possible agglomeration
development.