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Do decoupled payments affect investment financing constraints? Evidence from Irish agriculture

Conor O'Toole () and Thia Hennessy ()
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Thia Hennessy: Teagasc

Economic Papers from Trinity College Dublin, Economics Department

Abstract: This paper empirically tests whether decoupled subsidies decrease investment financing constraints faced by farms. Using a panel dataset from Ireland over the period 2005-2010, we test whether the CAP decoupled subsidy payments reduce credit constraints by altering the risk profile of farm earnings. We test for financing constraints in a neoclassical Q model using a measure of the financial composition of capital in ows as well as investment-cash ow sensitivities. Our econometric methodology controls for censoring, heterogeneity and endogeneity. We find that decoupled subsidies do reduce credit constraints and the result is robust to model selection and constraint measurement. The effect is greater for farms who face higher constraints: medium-sized farms relative to large farms and middle-age and older farm operators relative to younger farmers. This evidence suggests that, over and above the effect on production indicated in previous research, decoupling affects farm investment through financial channels.

Keywords: Decoupling; Farm investment; Access to finance; GMM; Q model of finance (search for similar items in EconPapers)
Pages: 35 pages
Date: 2013-08
New Economics Papers: this item is included in nep-agr
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Journal Article: Do decoupled payments affect investment financing constraints? Evidence from Irish agriculture (2015) Downloads
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