The analysis of relationship between agricultural subsidy payments and agricultural production: Asymmetric causality approach

The agriculture sector constitutes an economic activity that still maintains its importance for many economies, not only cultivating the land, but also animal husbandry, forestry and fishing. The agriculture sector still creates both an important economic area and an important employment area, especially in many developing countries. With the modernization and development of the agricultural sector, basic economic variables such as rural development, economic growth, etc. are also positively affected. As a result of this and many reasons such as this, a lot of researches have been carried out regarding the agricultural sector in Turkey. The purpose of the present study is to investigate the causal relationship between agricultural incentive payments from the central government budget and agricultural production levels through using the quarterly data between the years of 2006Q1-2019Q4 in Turkey. The causal relationship was determined through Hacker and Hatemi-J Bootstrap Causality Test (2006) and Hatemi-J (2012) Asymmetric Causality Test. The results of cointegration analysis that was carried out before causality analysis indicate that there is a long-term relationship between the agricultural incentive payments and the level of agricultural production in Turkey. According to the results of Hacker and Hatemi-J Bootstrap Causality Test (2006), one-way causality was determined from agricultural incentive payments to the level of agricultural production. On the other hand, Hatemi-J (2012) Asymmetric Causality Test results show that there is a causal relationship between positive and negative shocks in agricultural incentive payments and negative shocks at the level of agricultural production. Evaluating the results as a whole, it could be observed that agricultural incentive payments have a long-term effect on the level of agricultural production in Turkey. Especially, the fact that positive and negative shocks in agricultural incentive payments are in a causal relationship with negative shocks in the level of agricultural production reveals the necessity of policy making by determining the reasons for the decrease in this sector.