Does Subsidy Drive Productivity? A Cross-Country Analysis of Nordic Dairy Farms

• Main Authors: Nadine Mccloud, Subal C. Kumbhakar
• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Published: 2007
• Subjects: Southern; Central and Northern Sweden; Northern Sweden
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.492.5454; http://www.bus.lsu.edu/hill/aie/kumbhakar.pdf

One of the foremost objectives of the Common Agricultural Policy (CAP) in the European Union (EU) is to increase agricultural productivity. However, little empirical research has been done to examine the effects of subsidy on farm performance and, in particular, the channels through which subsidy affects productivity. Using a Bayesian hierarchical model in which input elasticities, efficiency change and tech-nical change depend on subsidy and other factors including farm location, we analyze empirically how subsidy affects the performance of farms. We use an unbalanced panel from the EU’s Farm Accountancy Data Network on Danish, Finnish and Swedish dairy farms and partition the data into 8 regions. The data set covers the period 1997- 2003 and has a total of 6609 observations. The results suggest that subsidy drives productivity through efficiency and input elasticities and the relative importance of these channels differ across regions. In stark contrast to existing studies, we find that subsidy has a positive impact of technical efficiency. The marginal product of subsidy is largest for dairy farms in Denmark