NEW MEDIT N. 4/2014
Beyond income transfers to farmers, the macroeconomic spillover of CAP payments in Aragon (Spain), 2007-2013 Luis PÉREZ Y PÉREZ*, José Ramón MONROBEL ALCÁNTARA**, Ana Medina LÓPEZ**
Jel Classification: C68, E01, Q18
1. Introduction Abstract ment scheme is the lar- This paper provides an assessment of the macroeconomic impact of the Com- gest budget component of Rural areas represent mon Agricultural Policy (CAP) on Aragon (Spain) through a computable ge- CAP. It aims to support more than 77 percent of neral equilibrium (CGE) model. During the EU programming period 2007- the income of farmers 2013, Aragon received agricultural subsidies worth 4,055 million Euros. The- the EU territory and host and in return, they under- about half of the 500 mil- se grants are received by farmers and then redistributed through their spen- ding towards other institutional sectors. CAP funds carry in Aragon an ave- take to meet the stan- lion people who make up rage annual GDP growth of 2.6 % or an average annual increase of agricul- dards of environmental the total EU population. tural GVA by 19.6% among other results. This analysis is important because protection, animal welfa- The EU has 13.7 million CAP is changing and resources for this EU policy are expected to be reduced. re and food safety and en- full-time farmers who prac- In February 2013, the European Council approved the Multiannual Financial Framework 2014-2020 in which the overall EU budget decreases, is redistri- sure proper maintenance tice many different pro - buted and clearly restricts allocations for agricultural policies. of the territory. Secondly, duction systems, from in- the CAP contains measu- tensive agriculture, through Keywords: Computable General Equilibrium Model, European Agricultural res which regulate the conventional to organic a- Guarantee Fund, European Agricultural Fund for Rural Development, Com- agricultural markets that mon Agricultural Policy, Aragon. griculture. This diversity maintain a number of has increased with the specific payments to pro- joining of Central and Résumé Dans ce travail, nous allons présenter une évaluation macroéconomique de la ducts and industries that Eastern Europe countries politique agricole commune (PAC) en Aragon (Espagne) en nous appuyant sur process and sell them. In to the European Union. In un modèle d’équilibre général calculable (MEGC). Au cours de la période de third place, regarding ru- general, these are family programmation 2007-2013 de l’UE, l’Aragon a reçu des subventions agricoles ral development policy, farms with an average size totalisant 4,055 millions d’euros. Ces subventions ont été perçues par les a- the CAP aims to improve of 12 hectares. griculteurs qui les ont ensuite redistribuées à travers des dépenses en faveur d’autres secteurs institutionnels. En Aragon, les fonds PAC génèrent une aug- agriculture and forestry The Common Agricultu- mentation annuelle moyenne du PIB de 2,6% ou une augmentation annuelle competitiveness while ral Policy (CAP) aims to moyenne de la VAB agricole de 19,6%, entre autres résultats. Cette analyse protecting the environ- support agriculture to en- s’avère être très importante puisque les objectifs de la PAC sont en train de ment and the natural sure food security in the changer et les ressources disponibles devraient diminuer. Le Conseil Européen conditions and improving a approuvé en février 2013 le Cadre Financier Pluriannuel 2014-2020 qui context of climate change comporte une réduction du budget global de l’UE, sa redistribution et une lim- the quality of life and di- and facilitate a balanced itation évidente des allocations pour les politiques agricoles. versification of the rural development in all rural a- economy. Finally, the reas of Europe, even in a- Mots-clés: Modèle d’équilibre général calculable, Fonds européen de garantie Leader initiative provi- reas where production agricole, Fonds européen agricole pour le développement rural, Politique A- des funding opportunities gricole Commune, Région d’Aragón. conditions are more diffi- to local rural develop- cult. At the same time, Eu- ment initiatives. The CAP ropean agriculture must be multifunctional, since it has to budget covers two types of expenses: respond to citizens’ concerns about food (availability, price, The income support for farmers through direct single range, quality and safety), protect the environment and al- payment scheme is subject to compliance with the Eu- low farmers to live in dignity in their work. ropean standards in food safety, environmental protec- The reform of CAP in 2003 introduced a new system of tion and health and animal welfare. These payments are payments, known as the single payment scheme, which funded entirely by the EU and account for about 70 per- will no longer be linked to production aid. The single pay- cent of the budget of the CAP. Market support measures are also included, as for example, when natural disasters destabilize agricultural markets. These payments repre- *Centro de Investigación y Tecnología agroalimentaria de Aragón, Zaragoza, Spain. sent less than 10 percent of the CAP budget. **Universidad Rey Juan Carlos, Spain. Rural development measures are to help farmers to
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modernize their farms and become more competitive, Aragon, meanwhile, has a total population of 1.3 million while protecting the environment and contribute to the people surveyed on January 1, 2013, a total area of 47,719 maintenance of rural communities. These payments are km² and a population density of 28 inhabitants/km². It is financed by the EU and the Member States and they rep- therefore a large territory, with the majority of the popula- resent about 20 percent of the budget of the CAP. The tion concentrated in the capital, 704,239 inhabitants in rural development measures are intended not only to 2013, and small populations spread across the rest of the support farmers, but also to other agents who are present 730 municipalities, of which more than 600 do not get to in rural areas through, inter alia, Leader programs. The have a thousand neighbors. Leader initiatives are to strengthen the rural economy by The agricultural sector in this region has a special social encouraging local and non-agricultural actors. Current- and economic relevance. According to the last agricultural ly, Member States must allocate at least 5 percent of census, in 2009 Aragon had 2.3 million hectares of utilized their budget to finance Leader rural development proj- agricultural area, of which 1.6 million corresponded to ara- ects. ble land, and the rest to permanent grassland. Total agricul- All these measures are interrelated and must be managed tural area was divided into 52,774 farms, with an average consistently. For example, direct payments help ensuring a size of 45.5 hectares. stable income for farmers and get paid in return for meeting In 2012, the agricultural sector in the region generated to provide environmental public goods. Similarly, rural de- about 36,000 jobs, which employed 31,300 people and ac- velopment measures encourage additional public services, counted for 4.3 percent of the regional Gross Value Added while facilitating the modernization of farms. For over 50 (GVA). The number of food industries rounds 1,200 and years, the CAP has been, and still is, the most important they employed more than 11,000 workers. Despite the eco- common policy of the EU although in recent years its par- nomic crisis, agricultural income in Aragon experienced a ticipation in the EU budget has been declining slightly. Cur- 2.3 percent increase in 2012 in current terms over the pre- rently, the communitarian CAP spending is financed by two vious year. The CAP support granted in 2012 amounted up funds from the general budget of the EU: to 504 million Euros, representing a third of Aragon’s agri- The European Agricultural Guarantee Fund (EAGF), cultural income (Tables 1 and 2). which fully finances direct payments to farmers and the Funding programs for regional economic development measures to regulate agricultural markets. Direct pay- have been an important support for agricultural income ments help to support farmers’ income not linked to the Table 1 - Aragon´s agricultural sector macromagnitudes. agricultural production. In return, farmers are commit- (Figures in Million € and thousands of people) ted to comply with environmental protection, animal 2010 2011 2012 welfare and food safety and ensure proper maintenance Agricultural Final Production 1,184 1,291 1,214 of the territory. Direct payments help keep agriculture Livestock Final Production 1,639 1,860 2,121 throughout the EU to ensure a stable income for farmers. Agrarian Final Production 2,918 3,247 3,437 Such payments allow ensuring long-term viability of % Agrarian GVA/Total GVA 4.19% 4.29% 4.29% farms and make them less vulnerable to price fluctua- Net Value Added (revenue) 1,435 1,507 1,543 tions. Employees 34.5 32.1 31.3 The European Agricultural Fund for Rural Development (EAFRD), which co-finances rural development pro- Sources: Department of Agriculture, Livestock and Natural Environ- mental of the Government of Aragon, General Treasury of the Social grams of the Member States. These funds are intended Security and the National Statistics Institute (INE). to contribute to improving the competitiveness of agri- culture and forestry, protecting the environment, impro- ving the quality of life and diversification of the rural Table 2 -CAP funds in Aragon during 2007-2013. (Figures in Euros) economy and funding local rural development projects. Under the CAP, rural development aims to preserve the Year EAGF EAFRD EAFRD + Total CAP National vitality of rural areas by supporting investment pro- Payments grams, modernization and support for agricultural and non-agricultural activities in these areas. Member States 2007 456,241,849 20,413,402 51,541,797 507,783,646 2008 442,632,364 72,250,273 187,372,603 630,004,967 shall develop and carry out their own development pro- 2009 451,533,371 48,735,783 138,229,799 589,763,170 grams and the EU co-finances a portion of its cost, ta- 2010 471,650,696 54,586,135 137,527,499 609,178,195 king into account that Member States must devote at 2011 462,451,885 58,382,626 135,981,943 598,433,827 least 10 percent of their budget to strengthen the com- 2012 459,781,660 44,411,263 100,331,853 560,113,512 petitiveness of agriculture and forestry, at least 25 per- 2013 (*) 459,781,660 44,411,263 100,331,853 560,113,512 cent to improving the environment and landscape and at Total 3,204,073,484 343,190,745 851,317,346 4,055,390,830 least 10 percent to the diversification of the rural econo- my. Source: European Agricultural Guarantee Fund (EAGF). (*) Estimated Data.
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from the origins of the EU in the middle of last century. This type of analysis through model simulation is only Agricultural aids represent around 7,240 million Euros for possible if a Social Accounting Matrix (SAM) is available Spain as a whole, according to recent data referring to 2012 for the economy under analysis. A SAM represents the eco- (FEGA, 2013). Such a figure implies almost a third of nomic structure studied and it is used as the database which farms income or 0.7 percent of GDP for that year. replicates the initial benchmark equilibrium in the model in The macroeconomic effects of CAP expenditure in a re- the base year. gional economy can be analyzed in detail through a Com- The aim of a CGE model is to make an empirical repre- putable General Equilibrium (CGE) model. The economic sentation of the real characteristics of the economic struc- impact is the result of the comparison between the follo- ture to be analysed. The calculation of the equations is wing alternative scenarios: obtained through its theoretical formulation. This begins The benchmark equilibrium refers to the Aragonese eco- with the specification of the goods and services and the nomy prior to receiving EU agricultural funds in the per- agents that make up the economy, with the determination of iod 2007-2013. the conditions of the functioning of markets for goods and The simulated equilibrium considers the balanced figu- factors and based on the rational optimizing behavior of all res through the model once Aragon has received the agents. CAP support. The formulation of this CGE model for Aragon includes Among these types of models developed in Spain we five types of institutional sectors involved in the economy: might particularly note the work of Lima and Cardenete producers, households, companies, public sector and (2007), where, at regional level, the model is applied to foreign sector. More detail on the properties of these analyze the impact of European Structural Funds for the institutional sectors can be found in Pérez y Pérez and period 2000-2006, evaluating their effects on production, Monrobel (2012). prices and rent in Andalusia. Furthermore, mention must be Producers made, on the one hand, of the work by Monrobel et al. (2013), which develops a model for the economy of Madrid The model consists of 26 regional production sectors or in order to estimate the impact of the European Regional industries, compiled according to the Regional Accounts Policy for this region in the period 2007-2013 and, on the published by the National Statistics Institute (INE). It is other, of the work by Cardenete and Delgado (2013), which considered that they produce and sell goods and services assesses the impact of the hypothetical abolition of with the goal of maximizing their benefits. European Funds in Andalusia during the period 2007-2013. The total production of each of them is a three level nes- Finally, Cámara et al. (2014) synthesize SAM and CGE ted production function. Under the assumption that goods models developed at the regional level in Spain. from different countries or regions are imperfect substitu- After this introduction, the paper is organized in two co- tes, in the first production level domestic production, Yj, is re sections and final conclusions. The second section of this combined with the imports of sector Mj through a Cobb- paper presents the methodological development of the CGE Douglas function to obtain the total production function: model, describing its main features and formulation, the 4<0MM interaction in the economy between factor markets and MMMM [1] composition of goods and the data specification for calibra- ting the model. The third section analyses the macroecono- At the second level, domestic output of each sector of mic effects of CAP aids in Aragon along the period 2007- production is obtained by combining the use of intermedia- 2013. Finally, main results and discussion are detailed. ry goods and a primary factor composite, value added, in fixed proportions by means of a Leontief-type function: 2. Material and methods ;9$ 2.1 The CGE model LM M < M PLQ [2] L The effects of these agricultural aids on recipients and on DYLM M their subsequent redistribution, through spending to other productive activities and institutional sectors, can be analy- Finally, at the third level, to allow substitution amongst zed through a CGE Model. A CGE model is a system of capital and labour, the value added of each sector of pro- nonlinear equations which includes the equilibrium condi- duction is incorporated through a Cobb-Douglas function tions of an economy, the functioning of markets and the with constant returns to scale: linkages between sectors and institutions, assuming a ra- MM tional and optimizing behavior of different agents. 9$MMMM . / [3] One of the most important utilities of these simulation models is the ability to quantitatively assess the macroeco- The goal of each producer is to maximize their benefits, nomic effects of certain economic policies, through the va- considering constant returns to scale, resulting in the mini- riation of the exogenous variables representing the policy mization of production costs, given their technological measures analyzed. function. Therefore, the model equations that determine the
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various values of the variables are obtained by solving the the same preferences. The decisions on consumption and optimization programs, so that the producer´s behavior savings are determined assuming an optimizing behavior of consists in minimizing costs on each of the three levels of their welfare. This welfare is represented by maximizing a nesting. That is, they minimize total and domestic produc- Cobb-Douglas utility function which depends on demand tion costs and value added costs. for consumer goods and savings, subject to households At the first nesting level, with the minimization of total disposable income (YD). production costs optimal, the levels of domestic production PD[ X& &M & and imports are obtained: VM$+ M [11] M 4SP VW S& <' 0 MMM MM M [4] M MMM S Where Cj represents the consumption of the produced good j and C the part devoted to savings. P M AH 4SMMM [5] Therefore, the equations of the model that determine the 33 NEW MEDIT N. 4/2014 62 + 50 [15] gional economy, but still to and from the foreign sector. It $+62 7 62 U . 62 LSF 763 762 762 is also assumed that salaries are flexible and, therefore, they Public Sector are considered as an endogenous variable of the model. Fi- In this CGE model, the public sector represents all public nally, the model incorporates the imbalance in the labour administrations and its main role is to act as a consumer of market not to consider full employment. Therefore, it in- goods and services and as tax collector, although its income cludes an unemployment rate (u), an endogenous variable comes from different sources: reported income from its which underestimates households labour endowment with own capital, r · KSP; different taxes collected and the in- respect to the demand for this factor by the productive sys- come received from the net transactions carried out in the tem in Aragon. SP rest of the world (TRM ). This tax collection is disaggregated between those deri- X/ +M / [18] ved from taxes on production and VAT, (RTP), the social se- M curity contributions by employers, (RTCS), corporate taxes, With the assumption that capital is not internationally (RSO), and finally, the income tax imposed on consumers, mobile but is perfectly flexible to changes between region- (RD). al productive sectors, and taking into account that the sup- The public sector uses these revenues to finance expendi- ply of capital comes from the different institutional sectors, ture on consumer goods, which is considered constant, al- the market clearing condition of this factor is determined though its expenditure may vary as a result of changes in under these conditions: prices. That is, consumption in each of the assets by the pu- SP blic sector is considered to be exogenous variables, C j . In ..+6263M . . [19] addition to the consumption of goods, the public sector per- M forms various transfers to the rest of institutional sectors: to Equilibrium the foreign sector (TRMSP), to companies (TSPSO) and to H Taking into account the conditions described on model households in the form of social benefits (TSP ) and unem- agents behavior, along with the equations of the emptying ployment benefits (TDES). of goods and equality between savings and investment and Therefore, the public deficit or surplus is endogenously macroeconomic closure, the model formulation is comple- determined as the difference between income minus public ted with the introduction of the concept of equilibrium ge- expenditure and transfers mentioned, which are weighted nerally used. by a consumer price index, and are intended to complement private savings to finance their investment. 2.2. Model calibration After describing the model specification and once the '3 U .63 573 57&6 562 5' [16] concept of the theoretical equilibrium is defined, it is now 63 + 62 63 S MM & LSF 763 7'(6 763 750 possible to perform an analysis of the impact of different M economic policies. For such objective it is necessary to de- Foreign Sector termine the numerical values of all the coefficients of func- The foreign sector appears as the only aggregated account tions and exogenous variables. That is, it is necessary to ca- in the model, which buys and sells goods and services to librate the model (Mansur and Whalley, 1984). It is there- Aragon’s producers, in addition to making various transfers fore essential to have a Social Accounting Matrix (SAM) of to private and public agents. the studied economy, which can provide the data required Under the assumption that the regional economy of Ara- for the calculation of the parameters and the values of the gon is a small open economy, import supply is perfectly exogenous variables. elastic and the price of goods in international markets is as- In this CGE model for Aragon, the calibration has been sumed to stay on the same levels. Regarding export levels performed using the SAM database of Aragon by base year consumer goods, these are considered to remain constant 2005 (Pérez y Pérez and Cámara, 2010). As this original (exogenous). Thus, the trade balance of the regional econo- SAM was valuated at basic prices, in order to transform it in- my by the foreign sector will be determined endogenously to one valued at acquisition prices, an adjustment of the sub as: matrix of intermediate and final consumption by the Cross- Entropy Minimization method was performed using the last P50+63 '50 SMM 0 S MM (3 LSF 762 750 750 [17] MM Input-Output Framework available in the region (Pérez y Pé- rez and Parra, 2009). This method has been previously ap- Markets of factors plied to update SAM matrices, among others, by Robinson et The model has introduced two inputs. With regard to la- al.(2001), Cardenete and Sancho (2006) or Monrobel et al. bour, it comes from a representative consumer who is assu- (2013). Nevertheless, the modifications performed do not med to have a constant working capacity (LH). That is, la- change the initial data matrix. Such a fact only represents an bour supply is inelastic. On the other hand, it is considered adjustment into the model variables changing their valuation as moving between different productive branches of the re- from basic prices to acquisition prices. 34 NEW MEDIT N. 4/2014 As a result of these adjustments, a new SAM was obtai- genous variables of the model, FRM and FSP, which in the ned valued at acquisition prices which serves as the initial equilibrium were null, will be increased up to the to- straightforward database for the formulation of the ARA- tal sum of such amounts in the simulation. GON-CGE model and constitutes the starting point for its According to Monrobel et al (2013), the CAP and the initial calibration. This matrix, used as the database for the internal funds in Aragon have been incorporated as a posi- model, is structured in a total of 37 accounts. tive shock over the regional final demand materialized in It is assumed that the economic reality reflected in the the increase of the Fj variables which have been introduced SAM corresponds to the equilibrium levels of the Aragone- in the model in an ad hoc manner. These Fj variables mea- se economy described in the model. Solving the system of sure the shock in the demand for the corresponding good to equations represented by the model leads to the calculation the j-th branch of production as a result of receiving CAP of the endogenous accounts. This implies that it replicates funds directly. Thus, the demand increase in monetary the overall equilibrium which is reflected in the SAM solu- terms will be determined by, p'j Fj being that p'j is the final tion obtained as the initial equilibrium values. Later on this sale price of the good. Consequently, the amount of money equilibrium will have to be compared with those obtained received by each productive industry matches the total re- by introducing or changing the values of the variables af- gional funds coming from the CAP. fected by certain economic policies. Once the model has been formulated and calibrated, it is S) MM ) 50 ) 63 [21] an ideal tool for evaluating the impact that certain economic M policies would have on the regional economy. Simulations In conclusion, by increasing the representative CAP funds are introduced in the model as variations in some of its exo- variables, a new solution to the model has been obtained genous variables and/or the equation coefficients. Specifi- with a new equilibrium of the regional economy “with CAP cally, in this paper we analyze the effects of CAP on the funds”. This first study has assumed that all of the CAP Aragonese economy. Macroeconomic effects are analyzed support is received directly by the “Agriculture, livestock in Aragon of the total aid coming from the European Agri- and fishing” account. cultural Guarantee Fund and the European Agricultural The effects of CAP support in Aragon during 2007-2013 Fund for Rural Development (co-financed by the Spanish are obtained by comparing the benchmark scenario “wi- public administrations) received during the period 2007- thout funds” and the simulated scenario “with CAP funds”. 2013. The model has been solved using the GAMS softwa- This makes it possible to analyze the effects of CAP, to ob- re with its CONOPT solver. jectively quantify the multiplier effects resulting from inter- dependencies between the productive and other institutio- 3. Results nal sectors when incorporating the CAP funds to the regio- Once the benchmark equilibrium without funds is set, the nal circular flow of income through the model simulation. model is ready to perform various simulations by changing some parameters or some exogenous variables, obtaining 3.1. Effects on the regional productive sector new balances. The simulated rebalancing must collect the Aragon received from CAP an estimated total amount of incorporation of CAP support in the Aragonese economy. 4,055 million Euros between 2007 and 2013. This repre- Thus, changes in the exogenous variables of the model sents an increase on the total demand in the region of 0.65 should reflect both the amount of the aid and its distribution percent on annual average. The CAP funds represent a di- between the productive sectors of Aragon. rect push of 1.14 per cent per year on the regional value ad- The resources allocated by the EU through CAP to Ara- ded. In particular, for the agriculture sector, as the only one gon have been introduced in the CGE model as a variable, receiving this aid, CAP funds represent annually about 29 denoted by FRM, which represents the foreign sector spen- per cent of its value added. Considering the circular flow of ding. This investment modifies the model equation with income, the CAP subsidies involve a 2.4 percent increase respect to foreign sector balance set out in equation [17]. per annum out of the regional value added (Table 3). It must be emphasized that all productive sectors of the P50+63 '50 SMM 0 S MM (3 LSF 762 750 750 ) 63[20] economy benefit from the CAP aids showing an increase in MM their respective value added. Notable increase of 137 per- Along with resources coming from the EU, CAP funds in cent in value added can be observed in the “Agriculture, li- Aragon are completed with internal investment (Table 2). vestock and fishing” sector, being the only one that receives direct aid. However, emphasis must be given to the value Variable FSP represents such an investment in the model and it is considered as a public sector spending which has increases above 20 percent, in sectors such as “Wholesale been included in the equation that determines the deficit. and retail trade” (28.6 percent), “Electricity, gas and water According to data collected in Table 2, the total amount supply” (24.6 percent) and “Food, beverage and tobacco in- invested by EAGF and by EAFRD in Aragon during the dustry” (21 percent), although these three branches have period 2007-2013 is estimated at 3,547.2 million Euros and important links with agriculture in terms of intermediate national funding at 508.1 million Euros. Therefore, the exo- consumption (Figure 1). By contrast, “Metallurgy and ma- 35 NEW MEDIT N. 4/2014 Table 3 - Effects of CAP on GDP. 2013 (Table 3). On the income side, it is estimated (Figures in Thousand EUR) that salaries in this period have grown, as a result 6FHQDULR 6FHQDULR³:LWK 7RWDO LQFUHDVH $QXDOLQFUHDVH *'3&RPSXWDWLRQ ,QFRPHDSSURDFK ³:LWKRXW of the aid, by 2.0 percent per year while the Gross &$3IXQGV´ IXQGV´ Surplus of Exploitation or corporate profits have :DJHVDQG6DODULHV grown by 4.4 percent per year. Meanwhile, net *URVV2SHUDWLQJ6XUSOXV 7D[HV taxes on production and imports fell by 0.14 per- *'3 cent per year, a clear example of the importance of public subsidies, especially in the agricultural sec- *'3&RPSXWDWLRQ ([SHQGLWXUHVDSSURDFK tor. +RXVHKROGFRQVXPSWLRQ On the demand side, the CAP drives private 3XEOLF6HFWRUH[SHQGLWXUH households’ consumption to a 2.16 per cent in- *URVV&DSLWDO)RUPDWLRQ crease per year, while collective consumption ma- ([SRUWV ,PSRUWV kes it only by 0.83 percent. Besides, Gross Capital *'3 Formation, a magnitude that incorporates the *'3&RPSXWDWLRQ 6XSSO\DSSURDFK amount of funds received, achieves a growth of up $JUDULDQ9DOXH$GGHG to 7.34 percent per year, while foreign trade has a ,QGXVWULDO9DOXH$GGHG negative balance; exports increased by 0.8 percent 6HUYLFHV9DOXH$GGHG 5HJLRQDO9DOXH$GGHG and imports by 2.12 percent per year. Source: Own elaboration. 3.3. Effects on prices of goods production Referring to changes in prices of goods as well nufacture of metal products”, “Electrical, electronic and op- as in other price indices of the model, it should be noted that tical equipment” and “Education” have increased their va- their variations after the model simulation are to be consi- lue added by less than 3.2 percent, due to their little linka- dered as related to wages, given that this price has been ges with agriculture. fixed as the numeraire of the model. Regarding changes in prices of goods that are produced 3.2. Effects on key macroeconomic aggregated thanks to CAP, it should be noted that “Agriculture” is not figures the only one experiencing the greatest increase in its price. CAP funds represented to Aragon an average increase of We find “Electricity, gas and water supply” with an increa- 2.68 percent of regional GDP per year in the period 2007- se of 14.6 percent, a sector that is closely linked to the pri- mary sector, and also “Real estate Figure 1 - Increase in the value added of productive sectors in 2007-2013. and business services” with a simi- (Figures in percentages) lar increase in prices. While this branch is not directly related to far- R1 Agriculture, livestock and fishing 59,1% R17 Wholesale distribution, retail trade and repair 22,6% ming, its large increase may be due R3 Electricity, gas and water supply 21,1% to the importance that the housing R4 Food, beverage and tobacco industry 18,4% market still had, in the beginning of R21 Real estate and business services 16,2% the programming period, both in R19 Transport and communication 15,6% R18 Hotels, restaurants and catering 15,4% the Spanish and in the Aragonese R25 Other social work and personal activities 14,6% economy (Figure 2). On an overall R2 Metal ores extraction, other mining and quarrying 14,0% basis, the effect of including R26 Private households with employed persons 13,1% R20 Financial intermediation 12,6% Aragon in the CAP program would R8 Chemical industry 12,3% imply, on average, a 9.5 percent in- R7 Paper industry; printing and publishing 12,2% crease of their Consumer Price In- R16 Construction 10,1% R15 Miscellaneous manufacturing industries 9,2% dex. R12 Machinery and mechanical equipment 8,1% R10 Other non-metallic mineral products 7,8% 3.4. Effects on labour market R14 Manufacture of transport equipment 7,7% R5 Textile and clothing; leather goods and footwear 7,6% Finally, we would like to high- R9 Manufacture of rubber and plastic products 6,2% light the impact of CAP on salaries, R22 Public administration 5,6% in terms of the variation of labour R13 Electrical, electronic and optical equipment 4,9% R11 Metallurgy and manufacture of metal products 4,8% demand by different economic sec- R6 Manufacture of wood and cork 4,0% tors after incorporating the CAP R24 Health and veterinary services; social services 3,6% funds in the model. R23 Education 2,5% When analyzing variations in sa- 0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 60,0% laries and taking into account the Source: Own elaboration. effects of CAP funds, it must be in- 36 NEW MEDIT N. 4/2014 Figure 2 - Price index variation in productive sectors during the period. dicated that such funds involve (Figures in percentages) more than half of the salary of Aragon’s agricultural sector. In addition to such a direct benefit R3 Electricity, gas and water supply of the CAP, the funds represent R26 Private households with ZϮϭZĞĂůĞƐƚĂƚĞĂŶĚďƵƐŝŶĞƐƐ͙ employed persons 16,0% R25 Other social work and personal a demand rise over 20 percent R23 Education 14,0% activities R13 Electrical, electronic and optical R1 Agriculture, livestock and fishing in “Wholesale and retail trade” equipment 12,0% and “Electricity, gas and water R11 Metallurgy and manufacture of 10,0% R17 Wholesale distribution, retail metal products trade and repair supply”. In summary, we can 8,0% R24 Health and veterinary services; see in Table 4, after the incorpo- 6,0% R18 Hotels, restaurants and catering social services 4,0% ration of the CAP funds in the R9 Manufacture of rubber and R20 Financial intermediation regional economy, that they re- plastic products 2,0% 0,0% present a 12.3 percent of wages R2 Metal ores extraction, other R19 Transport and communication and salaries in Aragon. mining and quarrying 4. Discussion R8 Chemical industry R16 Construction The importance of the use of R14 Manufacture of transport R7 Paper industry; printing and CGE models for the analysis of equipment publishing R5 Textile and clothing; leather the CAP is based on the possi- R22 Public administration goods and footwear R12 Machinery and mechanical bility to analyze not only the ef- ZϭϱDŝƐĐĞůůĂŶĞŽƵƐŵĂŶƵĨĂĐƚƵƌŝŶŐ͙ equipment R6 Manufacture of wood and cork R4 Food, beverage and tobacco fects of agricultural aids on re- R10 Other non-metallic mineral industry cipients productive sectors, but products also to deduct all the induced Increase in the Consumer Price Index of the Productive Sectors (CPI)=9,5% effects in the rest of productive and institutional sectors of a specific regional economy as Source: Own elaboration. well as in its main macro-mag- nitudes. When evaluating the Table 4 - Effects of the CAP funds on the labour factor. results of this European policy it can be seen that CAP funds represented to Aragon an average in- 6FHQDULR :$*(6 $1' 6$/$5,(6 %< 352'8&7,9( 6FHQDULR 3HUFHQWDJH ³:LWKRXW crease of 2.68 percent of regional GDP per year 6(&7256 ³:LWK&$3IXQGV´ LQFUHDVH³:LWK IXQGV´ 7KRXVDQG /DERXU)DFWRU$FFRXQW 7KRXVDQG(85 &$3IXQGV´ (85 over the period 2007-2013. In terms of income, 5$JULFXOWXUHOLYHVWRFNDQGILVKLQJ wages and salaries have increased at an average 5:KROHVDOHGLVWULEXWLRQUHWDLOWUDGHDQGUHSDLU annual rate of 2.01 percent, which shows the 5(OHFWULFLW\JDVDQGZDWHUVXSSO\ strong dependence of the agricultural sector and 5)RRGEHYHUDJHDQGWREDFFRLQGXVWU\ the Aragon regional economy as a whole on Euro- 55HDOHVWDWHDQGEXVLQHVVVHUYLFHV pean aids. Aragon’s GDP responds significantly to 5 7UDQVSRUWDQGFRPPXQLFDWLRQ 5+RWHOVUHVWDXUDQWVDQGFDWHULQJ the agricultural subsidies and it should seek to re- 52WKHUVRFLDOZRUNDQGSHUVRQDODFWLYLWLHV duce the dependence on European agricultural 50HWDORUHVH[WUDFWLRQRWKHUPLQLQJDQGTXDUU\LQJ subsidies and improve the competitiveness of its 53ULYDWHKRXVHKROGVZLWKHPSOR\HGSHUVRQV products in domestic and European markets. 5)LQDQFLDOLQWHUPHGLDWLRQ When comparing the simulated results of GDP 5&KHPLFDOLQGXVWU\ by the supply side, we can emphasize that the a- 53DSHULQGXVWU\ SULQWLQJDQGSXEOLVKLQJ 5&RQVWUXFWLRQ gricultural sector is the main beneficiary in terms 50LVFHOODQHRXVPDQXIDFWXULQJLQGXVWULHV of the value added, being the direct recipient sec- 50DFKLQHU\DQGPHFKDQLFDOHTXLSPHQW tor of CAP funds. The results of this study high- 52WKHUQRQPHWDOOLFPLQHUDOSURGXFWV light the importance of agriculture as a sector with 50DQXIDFWXULQJRIWUDQVSRUWHTXLSPHQW a major role within the economy, for the effects 57H[WLOHDQGFORWKLQJ OHDWKHUJRRGVDQGIRRWZHDU over other sectors are significant, as a result of the 5 0DQXIDFWXUHRIUXEEHUDQGSODVWLFSURGXFWV 53XEOLFDGPLQLVWUDWLRQ circular effects of the incorporation of the funds. 5(OHFWULFDOHOHFWURQLFDQGRSWLFDOHTXLSPHQW The increase in value added in the services sector 50HWDOOXUJ\DQGPDQXIDFWXUHRIPHWDOSURGXFWV is smaller than in agriculture. This difference be- 50DQXIDFWXUHRIZRRGDQGFRUN tween the two sectors is consistent with the lower 5+HDOWKDQGYHWHULQDU\VHUYLFHV VRFLDOVHUYLFHV weight that the industrial sector has in the region- 5(GXFDWLRQ Total 8,951,034.23 10,211,671.77 12.3% al economy. Source: Own elaboration. This work has added a new method, so far not 37 NEW MEDIT N. 4/2014 used for economic policy analysis in Aragon and many other Cardenete M. A., Delgado M.C.,2013. Analysis of the im- Mediterranean regions, revealing the importance of the CAP pact of the European funds in Andalusia in 2007-2013 using in Aragon and its very significant role played, not only in the a General EquilibriumModel. Modern economy, 4: 448-452. Agricultural sector, but in the regional economy as a whole. De Miguel F. J., Manresa A.,2008.Removal of farm sub- On one hand, it is of great importance to defend such sidies in a regional economy: a computable general equi- funds by the regional and state governments when facing librium analysis.Applied Economics, 40 (16-18): 2109- the forthcoming programming periods, as a part of the Eu- 2120. ropean Union. On the other hand, given that future cuts in EuropeanCommission,2013.La política Agraria Común. agricultural EU funds are not discardable and they would Accessible in: http://ec.europa.eu/agriculture/index_fr.htm affect several European regions in the future, this analysis Fondo Españolde Garantía Agraria (FEGA),2013.Series is crucial to predict the macroeconomic effects resulting de ayudas concedidas FEAGA/FEADER. Accessiblein: from the next EU agricultural policy. http://www.fega.es In sum, to improve regional agricultural efficiency and Gobierno de Aragón,2013.Macromagnitudes del sector lessen environmental problems, and to ensure uninterrupted agrario. Departamento de Agricultura, Ganadería y Medio food supply and sustainable growth, national and regional Ambiente.Gobierno de Aragón. Accesible en: http://www. governments should continue to incorporate and explore aragon.es more efficient and cost-effective agricultural practices, in Lima M. C., Cardenete M. A.,2007. The effects of Euro- particular supporting those good quality agrarian products pean Structural Funds in a regional economy: an Applied which are more competitive in international markets and General Equilibrium Analysis.Applied Economic Letters, less dependent on European public aids. 14(11): 851-855. Lastly, this work poses some limitations that must be ta- Mansur A. H.,Whalley J.,1984. Numerical specification ken into account and constitute further research avenues on of Applied General EquilibriumModels: estimation, cali- the topic. Future research should include the examination of bration, and data. In: Scarf H. E.,ShovenJ.B. (eds.).Applied the relationship between agricultural production and subsi- General Equilibrium Analysis.Cambridge:Cambridge Uni- dies to determine which agricultural subsectors are more versity Press, pp. 69-127. dependent on subsidies. One might also consider the emer- Monrobel J.R., Cámara A.,Marcos M.A.,2013.Modelling gence of new food chains reflecting the spectrum of sensi- European Regional Policy 2007–2013: Applied General E- tivities to food, and the need to adopt a position of greater quilibrium Analysis of the Economic Impact on the Madrid efficiency and equity in times of crisis. It should not be for- Region. European Planning Studies, 21(3): 264-280. gotten the social and economic situation of rural society and Pérez y Pérez L.,Cámara A.,2010. Estimación de la ma- adaptation strategies in particular changing times. Finally, triz de contabilidad social de Aragón 2005. DT 53/2010. other limitation is that the analysis had been only conduct- Fundación Economía Aragonesa (Fundear). Zaragoza. ed in the Mediterranean region of Aragon in Spain and re- Pérez y Pérez L.,Monrobel J.R.,2012.Un Modelo de sults must take into account this geographical coverage. Equilibrio General Aplicado para la simulación de políti- Further research extending the analysis to other European regions should be done. cas en la economía aragonesa. Zaragoza: Fundación Eco- nomía Aragonesa (Mimeo). 5. References Pérez y Pérez L.,Parra F.,2009. Estructura productiva y Cámara A., Cardenete M.A., Monrobel J.R.,2014. Matri- actualización del Marco Input-Output de Aragón. Zarago- ces de contabilidad social y modelos de equilibrio general za:Consejo Económico y Social de Aragón - Fundación aplicado elaborados en España a nivel regional, Estudios de Economía Aragonesa (Fundear). Economía Aplicada, 32 (1): 427-454. Robinson S., Cattaneo A.,El-Said M.,2001.Updating and Cardenete M. A., Sancho F.,2006. Elaboración de una estimating social accounting matrix using cross entropy matriz de contabilidad social a través del método de entro- methods.Economic Systems Reseach, 13(1): 47-64. pía cruzada: España 1995. Estadística Española, 48(161): Wald A.,1951.On some systems of equations of mathe- 67-100. matical economics.Econometrica, 19(4):368-403. 38