Contribution of Agriculture Sector in Economic Growth of Pakistan: An Empirical Analysis

Abstract

There has been controversy in the field of development economics about the significance of the role of agriculture sector in economic growth. Going through the data, it indicates that agriculture sector is significant contributor to the economy of Pakistan as it contributes about 19% in national GDP. This study was designed to statistically test the contribution of agriculture sector in economic growth of Pakistan through estimation of relationship between agriculture sector and Pakistan’s economic growth using Autoregressive Distributed Lag (ARDL) bounds test and Error Correction Model (ECM). Time series data on selected variables was utilized from 1961-2018. Study found that real agricultural value added has a significant positive impact on real GDP per capita in the long-run where one percent increase in real agricultural value added increases the real GDP/capita by 0.35%. This indicated that the promotion of agriculture sector leaves far reaching effects with respect to economic growth of the country. These results advocated for the development of agriculture sector in line with the long-term goals of economic growth and emphasized in investing in agriculture sector. Coefficient of error correction term (ECT) is -0.62 meaning that if there is any disequilibrium, it will restore @ 62 percent in the first period. Results also proved the importance of capital formation both the physical capital and human capital. Finding suggested that we should investment in human health to enhance the economic growth as suggested by exogenous growth theory. Moreover, it can also be suggested to create conducive environment and economic opportunities to reap the benefits of demographic dividends of decreased mortality in the long-run. As per analysis, maintaining stability is critically important for economic growth. Moreover, literature hypothesize the positive effect of TOT for economic growth, but analysis indicated that TOT has not been able to put any significant impact on economic growth. Further, trend analysis also pointed out that TOT has been fluctuating over the time. It can be inferred from the analysis that there is need to stabilize TOT and restructure the exports of the country to generate the significant positive impact.