Investments, subsidies and financial constraints in Estonian agriculture

Olha Aleksandrova, Imre Fertő and Ants-Hannes Viira

Agricultural Finance Review, 2023, vol. 83, issue 4/5, 597-616

Abstract: Purpose - The purpose of this study is to explore the determinants of investment decisions of Estonian farms after the transition to market economy and accession to the European Union (EU), in the period 2006–2019. Design/methodology/approach - The paper employs Estonian Farm Accountancy Data Network (FADN) individual farm-level data from the period 2006–2019, and standard and augmented accelerator investment models. Generalised methods of moments (GMM) and bias-corrected least-squares dummy variables (LSDVC) regressions were used to estimate parameters of these models. Findings - In the considered period, farm investments were positively affected by sales growth, investment subsidies and the cash flow. Decomposition of cash flow into volatile, market income related part, and more stable, farm subsidies related part indicated that investments do not depend on market income part of cash flow. Instead, the stable part of the cash flow (farm subsidies) had a significant and positive effect on investments. This suggests that credit rationing could be present in the EU agriculture, and it depends on the farm subsidies not market income of farms. Originality/value - Despite the wealth of literature on the investment behaviour of farmers, this article is the first attempt to decompose farm cash flow into stable (farm subsidies) and volatile (market income) parts to explain the role of subsidies as a part of cash flow in credit rationing.

Keywords: Farm investment behaviour; Soft budget constraints; Investment subsidies; Cash flow; Common agricultural policy (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:afrpps:afr-10-2022-0132

DOI: 10.1108/AFR-10-2022-0132

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