Rural-Urban Impacts of Common Agricultural Policy Options. A Dynamic Recursive CGE Approach

In this work, a dynamic recursive CGE model is applied to assess rural-urban impacts of three scenarios of the EU Common Agricultural Policy. The analysis is specific to six EU NUTS 3 regions, which are heterogeneous in terms of economic diversification, remoteness and rurality. Two of the scenarios redistribute funding within Pillar 2 of the CAP, either towards the agricultural sector (Scenario 1) or to other rural sectors (Scenario 2), while Scenario 3 considers a 30 percent reduction of Pillar 1 support. Results show that small aggregate regional impacts mask more significant adjustments at the sectoral and sub-regional level. Further, the combination of economic structure and rural development policy mix within a region mediates the direction and magnitude of policy effects. An "agricultural" rural development policy benefits rural economic activity in agriculturally dependent rural economies, while a "diversification" approach benefits already diversified rural areas. Also, the analysis shows that coupled farm support may be constraining rural economic activity in some areas. Results confirm previous findings indicating that CAP policy measures trigger a trade-off between agricultural and rural economic activity gains.