The impact of the Common Agricultural Policy on income distribution and welfare in Central and Eastern European Countries

In this paper we develop a partial equilibrium model for agricultural sector to assess the impact of CEE integration with the EU on welfare and income distribution of agricultural factors. The modelling framework is based on the concept of market imperfections and transaction costs. We perform several policy simulations with different levels of direct payments as given in the most recent European Commission proposal. We find that even the most sceptical European Commission proposal of awarding the CEE farmers only 25% of the direct payments will increase welfare and income of farmers. However, the distribution of CAP rents are affected by the institutional structure. We find an adverse impact on allocation of incomes and welfare that are generated by the integration in Slovakia and in the Czech Republic. The major part of it - between 65% to 93% - is transferred to owners of production factors, such as hired labour, landowners and variable capital suppliers, but not as desired to support farmer incomes. In Poland the gains resulting from the integration are allocated more favourably to farmers. Factor owners retain only around 24% to 61%, depending on the level of direct payments.Partial equilibrium, model CAP, EU enlargement, Common Agricultural Policy, Decoupling, Computable General Equilibrium

Credit Rationing with Heterogeneous Borrowers in Transition Economies: Evidence from Slovakia

This paper investigates the macroeconomic importance of credit rationing and whether banks use characteristics such as ownership structure and institutional type of borrowers in order to regulate the risk of loaned funds. To test this, monthly data for 2000–2002, extracted from the National Bank of Slovakia monetary review, were used. The paper finds that credit rationing was not present during the period analysed, implying that the credit market can be approximated with a typical supply and demand relationship. The second finding of the paper is that intermediaries use the ownership type and institutional form of borrowers to regulate risk.Credit rationing, heterogeneous borrowers, transition countries

Agricultural Reform in Slovakia

This paper analysis the development of Slovak agriculture during the country?s economic transition and during the parallel reforms of the common agricultural policy (CAP) of the European Union from a political-economy perspective. Agricultural-policy formation in Slovakia and the EU has been driven largely by political considerations, with relatively low emphasis on economic efficiency. CAP will have a profound effect on agricultural prices and on production and consumption levels in Slovakia. Agricultural producers? income is expected to increase, while consumer welfare is expected to decline due to the CAP.agricultural policy; political economy; Common Agricultural Policy

Do agricultural subsidies crowd out or stimulate rural credit institutions? The Case of CAP Payments

In this paper we estimate the impact of subsidies from the EU’s common agricultural policy 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 the empirical analysis, we use farm-level panel data from the Farm Accountancy Data Network to test the theoretical predictions for the period 1995–2007. We employ fixed-effects and generalised method of moment models to estimate the impact of subsidies on farm loans. The results suggest that subsidies influence farm loans and the effects tend to be non-linear and indirect. The results also indicate that both coupled and decoupled subsidies stimulate long-term loans, but the long-term loans of large farms increase more than those of small farms, owing to decoupled subsidies. Furthermore, the results imply that 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, when controlling for endogeneity, only the decoupled payments affect loans and the relationship is non-linear.

Interdependencies in the Energy-Bioenergy-Food Price Systems: A Cointegration Analysis

The present paper examines a long-run relationship between the energy, bioenergy and food prices. In the recent years the bioenergy production has increased significantly around the world. The increase has been driven by rising energy prices as well as by environmental policies aiming at reducing the harmful effects of conventional sources of energy, such as climate change. Bioenergy, in turn, affects agricultural markets, because it uses agricultural commodities as inputs. The theoretical model we develop predicts that, because of price inelastic food demand, the agricultural price increase may be substantial. The empirical findings confirm the theoretical hypothesis that energy prices do affect prices of agricultural commodities. However, the co-integration is weaker than theoretically predicted. The price effect of bioenergy might be mitigated by new technological development, which improve yields and lead to an offsetting effect in the supply of agricultural commodities, and by fallow land brought into cultivation, when agricultural profitability is rising.Energy, bioenergy, crude oil, prices, cointegration.

Factor Content of Agricultural Trade

Replaced with revised version of paper 08/25/09.Factor content, Heckscher-Ohlin, Factor abundance, Agricultural trade, International Relations/Trade, F12, F14, D23, Q12, Q17,

The Impact of the EU Blue Card Policy on Economic Growth in the African Sending Countries

In 2009 the EU adopted a new migration policy instrument - the Blue Cards (BC) - for attracting highly skilled workers to the EU. The present paper examines the potential impacts, which BC may cause on the less developed sending countries (LDC). According to the adopted framework of innovative capital, the BC will reduce human capital in LDC. In addition, BC will also have a negative impact on knowledge capital. These findings suggest that the BC is not coherent with the EU’s development policy. Without appropriate policy responses, BC fade the developing country growth prospects away. In order to address the skill drain issues, we propose and examine alternative migration policy options for the LDC.African sending countries, high-skill migration, EU Blue Cards, innovative capital, economic growth, LDC.

Why Some Sectors of Transition Economies are less Reformed than Others? The Case of Research and Education

We analyze university research and education in transition countries. University system differs from industry in the nature of product that it produces. University system is engaged in production of public goods rather than private goods. The sector also suffers from measurement problem. We argue that because of these factors reforms were slower in this sector leading to low productivity growth. Lobby groups succeeded to gain significant control inside administrative structures regulating the sector. The case studies from the Czech Republic and Slovakia provide the evidence in support of this argument.Research, education, public good, transition, reform, productivity

Modelling the Flow of Knowledge and Human Capital: A Framework of Innovative Capital

Recently, the EU Council adopted a new labour migration policy instrument - the EU Blue Cards (BC) - for attracting the highly skilled workers to the EU. The present paper examines the potential impacts, which BC may cause on less developed sending countries (LDC). Our results suggest that the EU BC will reduce human capital in LDC. In addition, BC will also have a negative impact on knowledge capital. These findings suggest that without appropriate policy responses, BC makes developing country growth prospects rather bleak than blue. Therefore, we propose and analyse alternative migration policy instruments for LDC. We find that policies implemented on the demand side of the skilled labour market are the most efficient. In contrast, policies that address the supply side of the skilled labour market are the least efficient, though they might be less costly to implement.Knowledge capital, human capital, high-skill migration, innovative capital, economic growth.

Income Distribution Effects of EU Rural Development Policies: The Case of Farm Investment Support

This paper analyses income distribution effects of investment support granted under the EU Rural Development Policies (RDP). In the short-run and with perfect credit markets, the size of gains for farms depends on the extent to which investment additionality is enforced. If additionality is not enforced, farms gain an important share of the total support but do not have incentive to increase capital use. If additionality is enforced, gains for farms are lower and farms can even lose. With imperfect rural credit markets, farms would most likely prefer to increase capital use even without enforcement of investment additionality and total welfare increases. In the long-run farm benefits from this investment may be enhanced because of the multiplier effect. Introducing minimum thresholds as eligibility criteria may deter small farms from uptaking the investment support even if investment additionally is not enforced. Benefits from investment support are shared with capital suppliers. Gains of capital suppliers depend on the size of the capital supply elasticity and are conditional on the EU support to increase farm capital demand.Rural development policies, policy rents, policy modelling, farm investment.