Cost-effectiveness of the common agricultural policy and environmental policy in country districts: Spatial spillovers of pollution, bio-uniformity and green schemes in Poland

A significant part of the common agricultural policy (CAP) focuses on implementing environmentally friendly practices, which have been evaluated in many studies. However, these analyses do not usually consider spatial spillovers that may concern pollution and biodiversity, as well as participation in policy schemes. Most studies evaluate national environmental policies at the macroeconomic level, focusing on cities. However, the majority of natural resources are in rural districts, and environmental policy is mainly implemented at the local level, where most of the budgets for environmental protection are decided. Thus, in this paper, our first objective is to assess the cost-effectiveness of Poland's environmental policy schemes, combining local expenditures at the county level with the CAP's green schemes. Additionally, we investigate the spatial (neighbourhood) effects of environment quality and the policy, as well as their mutual interactions. First, the environmental quality at the county level is proxied by the composite environmental quality index (CEQI); second, the Spatial Durbin Model (SDM) with endogenous covariates is estimated. Third, the interactions among the policy's spatial effects are explored using the structural equation model (SEM). We find that the CAP's green component not only positively affects the environmental quality in the long term but also generates positive spillovers that have been hitherto underestimated.