The effect of public spending on agricultural growth: Evidence from 1972 to 2014 in Pakistan

Abstract

The purpose of this study is to analyse the impact of government spending on agricultural growth in Pakistan. The relationship among agriculture value added per worker and public spending on education, health, road length, the number of tube wells in the agriculture sector, improved seed distribution has been estimated through various econometric approaches in the study. Pakistan's agriculture growth has registered mixed trends from 1972 to 2014. Empirical evidence from developing countries suggests that public spending has a profoundly positive relationship with agricultural growth. Agriculture is the second largest sector of Pakistan's economy, accounting for more than one-fifth of Gross Domestic Product (GDP) and employing almost half of the country's workforce. The study utilized time series data for the period 1972 to 2014. The stationarity of time series data has checked through Augmented Dickey-Fuller (ADF) test. Johansen Co-integration test and Error Correction Model (ECM) have employed for the long run and short run empirical estimation. The Co-integration test results show the presence of a long run relationship among the variables. The coefficient of the ECM term (-.537563) in the ECM model is negative and statistically significant, which validates stable long-run equilibrium relationship among the variables, with speed of 53 per cent to restore disequilibrium in case of any shock. The regression results reveal that public spending on education, health and road length has a positive influence on agriculture value addition in Pakistan. The study recommends the allocation of greater resources to education, health and transport and communication sectors for agricultural growth.