Farm-level agricultural subsidies and agricultural value added in European Union transition economies: evidence from the post-enlargement period

Introduction Average agricultural subsidies per farm are a key instrument of the European Union’s Common Agricultural Policy (CAP), supporting farm incomes, competitiveness, and sustainable rural development. However, their effects on agricultural value added remain inconclusive, particularly in EU transition economies following the 2013 CAP reform. This study examines the short- and long-run relationships and Granger-causality interactions among average agricultural subsidies per farm, GDP per capita, and agricultural value added in 11 EU transition economies over 2013–2023. Methods The study uses a balanced panel dataset. Cross-sectional dependence is assessed through complementary tests, and variable stationarity is examined using the second-generation CIPS panel unit root test. Causal relationships are investigated using the Emirmahmutoğlu-Köse heterogeneous panel causality test, while short- and long-run coefficients are estimated using the Panel Autoregressive Distributed Lag–Pooled Mean Group (ARDL-PMG) estimator. Results The findings reveal significant cross-sectional dependence and panel-level evidence against the unit-root null for all variables in levels. Bidirectional Granger causality exists between average agricultural subsidies per farm and agricultural value added. GDP per capita also Granger-causes agricultural value added, although reverse causality is weaker. The ARDL-PMG estimates indicate that a 1% increase in average agricultural subsidies per farm is associated with an approximately 0.17% increase in agricultural value added in the long run. GDP per capita also exhibits a positive long-run coefficient, although its statistical significance is weaker. Conversely, subsidies have a negative and statistically significant short-run coefficient, while short-run changes in GDP per capita are insignificant. The error-correction coefficient is −0.833956 and statistically significant at the 1% level ( p < 0.001). The negative and statistically significant coefficient indicates convergence toward the long-run equilibrium, with approximately 83.4% of short-run disequilibrium corrected within one year. Given that the variables are stationary at levels, this adjustment reflects convergence toward an equilibrium relationship rather than conventional cointegration among integrated series. Discussion The findings suggest that agricultural subsidies support value added in the long run despite adverse short-run adjustment effects. They highlight the importance of predictable, productivity-oriented CAP instruments tailored to the structural characteristics of EU transition economies.