Without support, the levels of agricultural public goods will fall short of the demand in high cost countries like Norway, Finland and Iceland. However, as demonstrated in this paper using Norway as a case, the current support and agricultural activity is far out of proportions from a public goods perspective. Model simulations show that at most 40% of the current support level can be defended by the public good argument. Furthermore, the present support, stimulating high production levels, is badly targeted at the public goods in question. Since agricultural land is a major component of both food security and landscape preservation, thus giving rise to a high degree of cost complementarities between the two public goods, it would be more efficient to support land extensive production techniques, than production per se.

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Studies of convergence of regional growth in Western Europe have given varying results, depending on the addition of conditioning variables and estimation methods, as well as underlying models. This exploration adds agricultural variables to the basic convergence model, which suggests that initially poorer regions grow faster than initially more wealthy regions. Subsidising agriculture may be expected to impact growth in different ways than initial gross value added per capita. We find some support for our hypothesis that agricultural support has a negative impact on convergence. The coefficients have the right sign and are significant or nearly significant, but the results of both the basis model and our augmented model may be subject to other mis-specification problems, possibly including non-stationarity, even after including the spatially lagged dependent variable. This is examined using geographically weighted regression.JEL Classification: R11, O40, C29

Abstract. The work discussed in Bivand and Brunstad (2003) was an attempt to throw light on apparent variability in regional convergence in relation to agriculture as a sector subject to powerful political measures, in Western Europe, 1989-1999. The present study takes up a number of points made in conclusion in that paper. Since it is possible that the non-stationarity found there is related to further missing variables, including the inadequacy of the way in which agricultural subsidies are represented, we attempt to replace the agriculture variables with better estimates of producer subsidy equivalents. It is also sensible to check that agricultural support is not masking or masked by other variables, for example human capital. The article is also an account of the development of software contributed to the R project (R Development Core Team, 2005) as packages, in particular the spdep package for spatial econometrics. New functions generously contributed by researchers will be presented and compared. We find that agricultural support does impact regional economic growth after human capital is taken into consideration, and that we can show that apparent non-stationarity is alleviated by adding these variables.We further find that the moderated remaining spatial autocorrelation can best be represented by a substantive spatial lag model. JEL classification: C13, C80, C88, Q18, R11

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