INCOME CONVERGENCE IN THE AGRICULTURAL SECTOR IN THE CONTEXT OF THE EUROPEAN UNION’S COMMON AGRICULTURAL POLICY

Abstract

Agricultural income support is to remain one of the main objectives of the European Union (EU)’s Common Agricultural Policy (CAP) after 2020. Subsidies contribute to increases in income, but the occurrence of income convergence between member states remains questionable. The aim of this article was to assess the phenomenon of convergence of agricultural income (labour factor remuneration) against a background of income in the broader economy. Eurostat data for the years 2001-2019 were used. Convergences were searched for using basic methods (beta and sigma convergence tests), as well as a stochastic framework (Pesaran unit root test) and the robust Phillips and Sul convergence test for comparison. These analyses indicate that there is convergence in the EU’s agricultural sector, specifically in terms of labour compensation, but also that this convergence is merely relative. This means that while countries’ income growth rates converge, their real income levels do not move to the same level. This conclusion may be an argument for the need to further equalise direct payment rates. The Phillips and Sul test results indicate that incomes in the overall economy are characterised by divergence, but it is possible to identify four convergence clubs.

Keywords

• agricultural income
• European Union
• convergence
• panel unit root test
• Phillips and Sul test