Impacts of Rural Development Policies: A Bi-Regional CGE Model Assessment

1. Demonstration of capabilities of a bi-regional CGE model to assess impacts of rural development policies (RURMOD-E) Demonstration WorkshopBrussels, 26.11.2008

2. SPECIFICATION OF POLICY SCENARIOS Demetrios Psaltopoulos Department of Economics University of Patras

3. Introduction Objective • Present specification of the 5 RURMOD-E Policy Scenarios • Including causal mechanisms Policy Scenarios • Full Decoupling • Increased Modulation (CAP H-C proposal): • i) Demand for construction • ii) Soft Modulation • Agriculture-centred RD Measures • Diversification of Rural Economy project • Renovation and Development of Villages project

4. Scenario 1: Full Decoupling (FULL DEC) • Coupled support flowing to the agricultural sector becomes fully decoupled. • CAP subsidies (base year) set to zero – value transferred from govt. to agricultural HSH (SFP). • No modulation assumed. • Two Direct Impacts • Increase in indirect activity tax rate for agriculture • Increase in the income of agricultural HSH

5. Scenario 1: Full Decoupling – Direct Impact 1  Net Indirect Activity Tax of Agricultural Sector  • Value Added of Agricultural Sector  • Activity of the Agricultural Sector  Domestic Production of Agricultural Products • Labour is free from agriculture   PCap.& PLand  Agricultural is linked with the other Rural/Urban Sectors  Second-order Production, Price, HHS Income Effects ()  AGGREGATE AND NET RURAL/ URBAN EFFECT DEPENDS ON COMPETING FORCES

6. Scenario 1: Full Decoupling – Direct Impact 2  Direct Income Transfers from GOV to Agr. HHS   Income and Spending of Agr. HHS  • Goods Produced in the study regions •  • Factor and Goods Prices  Production Leak towards the RoW  Second-order Production, Price & HHS Income effects () TOTAL EFFECT DEPENDS ON INTERACTION OF THE TWO MECHANISMS

7. Scenario 2: Increased Modulation (MODUL, SOFT MOD) • Income support to agricultural HSH is reduced by 13%. • Equivalent amount + national co-financing (25% of total) transferred to Pillar 2 as increased demand for: • Construction (MODUL) • Construction, Machinery, Education, Public Administration (equal % - SOFT MOD) • Private contribution not taken into account. • Three Direct Impacts • Scenario 1 Impacts • Increased investment demand impact

8. Scenario 2: Increased Modulation • Exogenous Investment Demand of the Construction (etc.) Commodity(ies)  • Domestic Production of the Construction (etc.) Commodity(ies)  • Domestic Activity of the Construction (etc.) Sector(s) What Happens with the Domestic Activity of other Sectors? Usually positive effects in other sectors, but possible trade-off due to decrease in AgrHHS Consumption.    Employment,   GDP

9. Scenario 3: Agriculture-centred RD Measures (RDM-AGRI (Axes 1,2)) • Income support to agricultural HSH is reduced by 13%. • Equivalent amount + national co-financing (25% of total) transferred to Pillar 2 for Axes 1 and 2 measures. • To that we add study-area-specific public expenditure on Axes 1 and 2 measures {average per annum for 2000-2006 (Greece) and 2004-2006.(Czech Republic)} • Distribution of expenditure to measures follows the 2000-2006 (Greece) and 2004-2006 (Czech Republic) patterns, respectively • Axis 1 expenditure: Increased demand for construction (70%) and machinery (30%) {Farm Investment Plans + Young Farmers + Processing} and increase in the income of Agricultural HHS (Early Retirement) • Axis 2 expenditure: Increased farm output (Agri-environment) and increase in the income of Agricultural HHS (LFA) • Archanes-Heraklion • Axis 1: 67% of P2 (16% Early Retirement – 51% FIS, YFS, FP) • Axis 2: 33% of P2 (1.4% Agri-env. – 31.6% LFA) • Bruntal: • Axis 1: 3.7% of P2 (2.6% FIS, YFS, FP – 1.1% Early Retirement) • Axis 2: 96.3% of P2 (43.3% Agri-env. – 53% LFA)

10. Scenarios 4 and 5: Rural Development (Axis 3) Projects • Diversification of Rural Economy project (311) • Renovation and Development of Villages project (322) • Real data from 2 projects implemented in the Greek study area • Same shock to both models • Expenditure (construction stage) • Business turnover (311) • Estimate of increase in tourism (322) • Real values (base-year) • Potentially we could also assess: • Effects of change in local purchasing pattern (311) • Effects of migration of urban HSH to rural area (322)

11. Scenario 4: Diversification of Rural Economy project (311, RDIVERS) • Agrotourism unit • 12 rooms – 24 beds • Surrounding area infrastructure + building + machinery and equipment • Total cost (2004 prices) is 519.200 Euro (55% Public Expenditure – 45% Private) • Distribution: • Energy (40-41): 0.4% • Wholesale Trade (50-51): 1.3% • Retail Trade (52): 0.5% • Other Manufacturing (29): 6.8% • Private Services (70-74): 4.4% • Furniture (36): 3.8% • Construction (45): 82.8% • New Business turnover (55): 119000 Euro per annum

12. Scenario 5: Renovation and Development of Villages project (322, RENOV) • Village Square • Total cost (2004 prices) is 228858 Euro (100% Public Expenditure) • Distribution: • Energy (40-41): 18.5% • Private Services (70-74): 18.9% • Construction (45): 62.6% • Estimate of increase in tourism flows: +10% per annum

13. Scenarios 4 and 5: Rural Development (Axis 3) Projects • Diversification of Rural Economy project (311) • Renovation and Development of Villages project (322) • Real data from 2 projects implemented in the Greek study area • Same shock to both models • Expenditure (construction stage) • Business turnover (311) • Estimate of increase in tourism (322) • Real values (base-year)

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