Title: Do Agricultural Subsidies Crowd Out or Stimulate Rural Credit Market Institutions? The Case of EU CAP Payments
Authors: CIAIAN PAVELPOKRIVCAK JanSZEGENYOVA Katarina
Citation: EUROPEAN INTEGRATION ONLINE PAPERS-EIOP vol. 16 p. Article 15
Publisher: ECSA AUSTRIA
Publication Year: 2012
JRC N°: JRC76935
ISSN: 1027-5193
URI: http://eiop.or.at/eiop/index.php/eiop/article/view/2012_015a
http://publications.jrc.ec.europa.eu/repository/handle/JRC76935
DOI: 10.1695/2012015
Type: Articles in periodicals and books
Abstract: In this paper we estimate the impact of agricultural subsidies granted under the European Union’s Common Agricultural Policy (CAP) on bank loans extended to farms. According to our theoretical analysis, subsidies may either stimulate or crowd out bank loans depending on the timing of subsidies, severity of credit constraint, type of subsidies and bank loans, and on the relative cost of internal and external financing. In empirical analysis we use the FADN farm level panel data for the period 1995-2007. We employ the fixed effects and GMM models. The estimated results suggest that (i) big farms tend to use subsidies to increase long-term loans, whereas small farms tend to use subsidies to obtain short-term loans; (ii) subsidies tend to crowd out short-term loans for big farms and long-term loans for small farms; (iii) when controlling for the endogeneity, the crowding out effect becomes smaller, but the positive causal effect of subsidies on bank loans remains significant.
JRC Directorate:Growth and Innovation

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