Farm Size and Output in Bangladesh Agriculture: Evidence from Cointegration, Vector Error Correction, Granger Causality and Investigating Returns to Scale

Abstract

The foremost objective of the paper is to analyze the cointegration, vector error correction mechanism, vibrant causal relationship between farm size and output and investigating returns to scale in Bangladesh agriculture. Applying all requisite time series econometric techniques and covering the period from 1979 to 2013 establishes a stable long run relationship among the considered variables. The paper performs Augmented Dicky Fuller (ADF) and Phillips-Perron (PP) tests to verify the whether the time series are stationary and the long run stable relationship by Johansen and Juselius cointegration test. The paper examines short-term dynamic relationship among the considered variables using a vector error-correction model and Granger causality test is also occupied to find out causal relationship between farm size and output. The paper found short run and long run dynamic stable relationship, unidirectional pair wise Granger causal relationship and decreasing returns to scale among considered variables.

Keywords: Farm Size, Output, Integration, Cointegration, Vector Error Correction Model, Granger Causality and Returns to Scale.