Examining the Impact of Agriculture Sector Components on Economic Growth of Pakistan’s Economy: an Econometric Analysis

Abstract

The study aimed at assessing the impact of Agriculture Sector Components in terms of Total Cropped Area, Wheat Production, Rice Production, Sugarcane Production, Cotton Production, Fertilizer Offtake and Credits disbursed on economic growth of Pakistan (GDP_t) from 1994-95 to 2020-21. In this regard, Economic analysis was performed by employing econometric techniques and tests i.e Augmented Dickey Fuller (ADF) Test, Ordinary Least Square (OLS) Regression,  Autoregressive Distribute Lags (ARDL) Model, Bound Test,  Error Correction Mechanism (ECM), Variance Inflation Factor (VIF), Heteroscedasticity Test, Lagrange Multiplier (LM) Test, Normality Test, Granger Causality Test, Impulse Response Function and Wald Test. Findings revealed that respective variables (LGDP_t, A_t, TCA_t, W_t, R_t, S_t, Ct, FOt, CD_t) were stationary at level I(0) and I(1) order of integration in the model. OLS regression followed by ARDL indicated positive and significant impact of Agriculture Sector (A_t) and Sugarcane Production (S_t) on GDP Growth Rate of Pakistan (LGDP_t) over a period of time 1994-95 to 2020-21. F-value of Bound Test (3.89) was greater than upper bound critical value revealing long run relationship established between tested variables in the model. The value of Co-integrating equation was negative, depicting speed of adjustment; hence variables will adjust positively towards their long-run equilibrium. No serial correlation, no severe multicollinearity after removal of three highly collinear variables i.e RP_t, FO_t and CD_t, from the model and normally distributed sample data was witnessed in the model. Findings revealed uni and bi-directional causal relationship between tested variables. Impulse Response Analysis indicated negative as well as positive responses; shock to GDP noticed symmetric impact on tested variables in short as well as in long run. Wald test confirmed the significance of independent variables (LGDP_t, A_t, TCA_t, W_t, R_t, S_t, Ct, FOt, CD_t) for a model. The study may look into consideration the significance contribution of Agriculture sector components towards GDP growth rate of Pakistan. Hence, it is mandatory on the part of Government and also responsibility of the Private Sector to introduce latest and novel agricultural technologies and innovations making sure practically applicable to help solve growing concerns of farming community such as modest farm mechanization practices, improved seeds, advanced processing units, standardization of agriculture, quality delivery services right from seed bed preparation till the disposal of final product, provision of agriculture credits in kind depending upon the dire need of farmers on subsidized rates, correct usage of fertilizers and farm yard manures for improved soil fertility status, plant protection measures through integrated pest management thresholds etc for bringing about structural change of revolutionary improvements in the field of agriculture industry, which will ultimately results in boosting economic growth of economy at large.