The political economy of differentiated integration: The case of common agricultural policy

The past and arguably the future of the European Union (EU) are characterized by Differentiated Integration (DI). Whereas a number of studies examine country variance in the realization of DI due to state-level characteristics, scholars have rarely addressed sector-specific differentiation. We select Common Agricultural Policy (CAP) for such an analysis - the policy domain with the largest budget, most contestation in the Council of Ministers, most redistribution, and most differentiated legal acts. Building on liberal intergovernmentalism, we develop a demand and supply model to explain the number of opt-outs a country realizes in CAP legislation. We hypothesize that the member states' demand for differentiation is driven by agricultural lobbyism and by the political receptiveness of governments; the supply-side is driven by member states' voting or bargaining power; and the realized differentiations are a consequence of the interaction of demand and supply. Using all differentiations in new CAP legal acts from 1993 to 2012, we test these hypotheses in a time-series cross-section design. We find that the domestic level of agricultural protectionism, conservative parties in government and voting power are robust predictors of the realization of differentiation in CAP. Our results support the general claim of liberal intergovernmentalism, that domestic societal and economic interests and political bargaining power shape the course of (differentiated) integration.