Finance

Agricultural productivity

International trade

Common Agricultural Policy

Structural engineering

Subsidy

Biology

Pillar

Agriculture

Macroeconomics

Engineering

Conditional convergence

Payment

Econometrics

Economics

Natural resource economics

Ecology

Productivity

Convergence (economics)

European union

Agricultural economics

Market economy

Panel data

Agricultural Economics

This paper investigates the relationship between EU agricultural subsidies and agricultural labor productivity growth by estimating a conditional convergence growth model. We use more representative subsidy indicators and a wider coverage (panel data from 213 EU regions over the period 2004–2014) than have been used before. We find that, on average, EU's Common Agricultural Policy (CAP) subsidies increase agricultural labor productivity growth, but this aggregate effect hides important heterogeneity of effects of different types of subsidies. The positive effect on productivity comes from decoupled subsidies, that is, Pillar I decoupled payments and some Pillar II payments. Coupled Pillar I subsidies have the opposite effect: they slow down productivity growth.

Subsidies and agricultural productivity in the EU