Relevance of declining agriculture in economic development of South Asian countries: An empirical analysis

Abstract

Role of agriculture has been a matter of debate among development economist. Agriculture has been a major contributor in national income and employment in South Asian economies but its share in the national GDP has been declining over time. This study examines the relevance of declining agriculture due to structural transformation in economic growth of four South Asian countries namely India, Pakistan, Sri Lanka and Bangladesh. To analyze the long-run relationship between agriculture and economic growth, an empirical model based on Augmented Neoclassical Solow-Swan model is developed. Johansen and Juselius (1990) maximum likelihood technique based on VAR model and Granger causality test has been employed to analyze long run and short run causal relations between agriculture and economic growth respectively. Results show that in all four South Asian countries, agriculture has long-run association with economic growth and it is an important driver of economic growth. Short-run analysis indicates that agriculture stimulates economic growth in all South Asian countries except Bangladesh. Neglect of agriculture and excessive focus on industrialization may retard growth both in short and long run.