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Agricultural soft budget constraints in new European Union member states

Published online by Cambridge University Press:  09 August 2019

Imre Fertő Open the ORCID record for Imre Fertő [Opens in a new window] ,
Štefan Bojnec ,
József Fogarasi  and
Ants Hannes Viira
Imre Fertő
Affiliation:
Institute of Economics, Centre for Economic and Regional Studies of the Hungarian Academy of Sciences, Budapest, and Kaposvar University, Hungary
Štefan Bojnec
Affiliation:
Faculty of Management, University of Primorska, Koper – Capodistria, Slovenia
József Fogarasi
Affiliation:
Research Institute of Agricultural Economics, Budapest, Hungary and Partium University, Oradea, Romania
Ants Hannes Viira
Affiliation:
Estonian University of Life Sciences, Estonia
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Abstract

This article investigates farm investment behaviour and the presence of soft budget constraints in the agricultural sectors of three Central and Eastern European countries – Estonia, Hungary and Slovenia – using individual farm accountancy panel data for the 2007–2015 period. Gross farm investment is positively associated with gross farm investment for the previous year, growth in real sales and public investment subsidies. Mixed results for debt square and cash flow variables imply that the different investment behaviour of farms pertains to different structures of investment sources among the countries under analysis. A particularly significant negative cash flow coefficient implies strong soft budget constraints for Estonian farms, while insignificant cash flow coefficients imply weak soft budget constraints for Hungarian and Slovenian farms.

Keywords

Farm investment behavioursoft budget constraintinvestment subsidypanel data analysisEuropean Union
Type
Research Article
Information
Journal of Institutional Economics , Volume 16 , Issue 1 , February 2020 , pp. 49 - 64
Copyright
Copyright © Millennium Economics Ltd 2019 

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