Determinants of Sectoral Growth in Pakistan: A Kalman Filter Based Time Varying Parametric Approach

Abstract

Structure of the economy changes over a time. Fixed parameter approaches do not consider impact of structural changes on constancy of estimated parameters. The study addresses the weaknesses of non-varying parametric techniques and uses non fixed parametric technique to examine association between sectoral growth and their determining factors. The findings reveal that capital formation, foreign remittances, and permanent crop land reduce agricultural sector growth while gross national expenditures results in growth of the sector. The significant factors that affect industrial growth are external debt, foreign direct investment and gross national expenditures. Above mentioned determinants are positively associated with the industrial sector growth in Pakistan. Services sector growth is determined by consumer price index, gross national expenditures and foreign direct investment. The foreign direct investment and gross national expenditures cause services sector growth while consumer price index retard it. While considering findings, the concerned authorities should control growth retarding factors and augment the factors that increase sectoral growth of the country.