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Open AccessArticle

Effects of Government Payments on Agricultural Productivity: The Case of South Korea

by Youngjune Kim 1 and Ji Yong Lee 2,*
1
Food and Agricultural Policy Research Institute, University of Missouri, 200 Mumford Hall, Columbia, MO 65211, USA
2
Department of Agricultural and Resource Economics, Kangwon National University, Chuncheon 24341, Korea
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(9), 3505; https://doi.org/10.3390/su12093505
Received: 4 March 2020 / Revised: 5 April 2020 / Accepted: 22 April 2020 / Published: 25 April 2020
(This article belongs to the Section Economic and Business Aspects of Sustainability)
The South Korean government provides large amounts of its total agricultural budget on direct payments to increase farm productivity due to the importance of the agricultural sector in South Korea. Providing direct payments can positively influence farm productivity by liquidating farm credit in input markets, while it can negatively affect farm productivity by distorting farmers’ behaviors. Therefore, it is necessary to rigorously assess the effect of direct payments on productivity. This study investigated the impact of direct payments on farm productivity with a better estimation strategy, using a farm-level panel dataset from the Korean Farm Household Economy Survey. We first derived an individual farm-level productivity measure using a control function approach. We then estimated the effect of direct payments on farm productivity using the propensity score matching method. Our results showed that direct payments were associated with an increase in agricultural productivity by about 12 percent on average. The results imply that direct payments play an important role in farm production. Given that the South Korean government is currently revising the direct-payment system, our results have implications for the design of the new direct-payment system and deserve attention from policy makers. View Full-Text
Keywords: direct payments; production functions; productivity; propensity score matching direct payments; production functions; productivity; propensity score matching
MDPI and ACS Style

Kim, Y.; Lee, J.Y. Effects of Government Payments on Agricultural Productivity: The Case of South Korea. Sustainability 2020, 12, 3505.

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