Estimation of the Impact of CAP Reform on the Structure of Farming in the Disadvantaged Areas of Ireland

In this paper the Johansen model was used to examine the impact of CAP Reform on the structure of farming in the Disadvantaged Areas of Ireland. The model is essentially a policy impact model using an elasticity set. Application of the model requires information on all relevant elasticities of outputs and inputs with respect to all output and input prices. These elasticities were estimated directly for a translog profit function from a combination of cross section and time series data. In order to test the usefulness of the model, a validation exercise was undertaken for the period 1992-1995. The model performed reasonably well in that the predicted direction of change in the volume of outputs and inputs was generally in the same direction as actual volume changes in outputs and inputs over the period tested.