Factors Affecting Agricultural Sector Growth in Pakistan: A Structural Vector Auto Regression (SVAR) Analysis

Abstract

The study followed structural vector auto regression (SVAR) approach proposed by the so-called AB-model of Amisano and Giannini (1997) to find out relevant macroeconomic determinants of agricultural sector growth in Pakistan. Before that ARDL bound testing and TVP approach with general to specific approach were employed to get relevant significant determinants of economic growth. To best of our knowledge no author made such a study in empirical literature that employed above mentioned estimation techniques but current study will bridge this gap. Annual data was taken from World Development Indicators (2014) during period 1976-2014. Akaike information criterion and Schwarz information criterion were considered for the lag length in each estimated equation. Gross fixed capital formation, gross national expenditures, permanent crop land and remittances lead to increase the agricultural sector growth while a positive shock on inflation and population lead to decrease the agricultural sector growth.Based on these empirical findings, we conclude that government should focus on variables augmenting agricultural sector growth while formulating any policy relevant to the concerned sector.

Keywords: Structural VAR, Time varying parametric approach, Remittances, economic growth, gross national expenditures and inflation.