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Impact of agricultural exports

on the GDP growth of Pakistan


A case of Rice and Cotton
Introduction

Exports are crucial for economic growth


According to export led growth hypothesis exports
are main source of economic development
Most of the least developing countries ( LDCs) rely
on sectoral exports and agricultural exports play a
central role in this regard
Agriculture and GDP of Pakistan

Agriculture as an input of economic development can well


be seen in terms of provision of food to the nation,
contributing to exports, increasing capital formation and
preparing market for industrialization.
Agriculture shares almost 21.4% of GDP
45% of labor force is engaged in agricultural side
Total volume of exports of Pakistan comprises of 56% of
agricultural exports
Objective of the study

To investigate the impact of agricultural exports,


particularly the export of Rice and Cotton yarn on the
GDP growth of Pakistan.
To see the short and long run relationship between
the GDP growth and Cotton yarn and Rice Export
Hypothesis

H0 : Cotton export has no impact on GDP growth

H1 : Cotton export has impact on GDP growth

H0 : Rice export has no impact on GDP growth

H1 : Rice export has impact on GDP growth


Methodology

A modified version of Cobb Douglas production function is used


in the following manner after taking in to account the two core
variables as an additional input.

Yt = A
The final form of the equation is
LGDP = 0 +1LLFP + 2LGCF +3LCPI + 4LCT +5LRC + et
Data source

The main sources of data are:


Pakistan economic surveys
World Bank
Statistical hand book of State bank of Pakistan
Tests applied on the data

Test of stationarity
Rationale: Since a time series data is used therefore, it is
necessary to check the stationarity of the data.
The Augmented Dickey Fuller test is employed to check
the unit root.
Continued from previous slide

Co-Integration test. This test is used to check the long run


relationship between the variables.
Error Correction Model ( ECM). This model is used in order
to incorporate both the short and long run relationship in
the equation.
Residual diagnostic tests. These tests are used to check
Heteroscedasticity, and serial auto correlation in our error
terms.
Results and discussion
Dickey Fuller Test of stationarity
Variables t-statistics Critical values DECISION
1% -4.309824
GDP -6.855297 I(1)
5% -3.574244
1% -3.711457
CT -6.908999 I(1)
5% -2.981038
1% -2.656915
RC -6.057762 I(1)
5% -1.954414
1% -4.309824
LFP -9.112923 I(1)
5% -3.574244
-4.309824
1%
GCF -5.319322 I(1)
5%
-3.574244
1% -3.679322
CPI -6.782258 I(1)
5% -2.967767
Johansen Co-integration test
Hypothesized No of Eigen value Trace statistics 0.05 critical value
CE (s)

None* 0.826433 135.4558 95.75366

At most 1* 0.779414 86.42255 69.81889

At most 2 0.607306 44.10145 47.85613

At most 3 0.313748 17.92916 29.79707

At most 4 0.176037 7.386859 15.49471

At most 5 0.067780 1.965218 3.841466

The variables are co-integrate and there are two


co-integrating equations.
Normalized co-integrating
coefficients
Variables Coefficients Standard errors t-statistics

GDP 1.000 - -

LFP 10.3511 1.9272 5.371

CT -1.3184 0.4067 -3.241

RC -2.3982 0.33491 -7.162

CPI 1.98 2.3490 0.846

GCF -3.590 7.5069 -0.4782


Error correction model
Variable Coefficient Std. Error t-Statistic Prob.

C -0.124455 0.341281 -0.364670 0.7188


D(GCF) 0.678340 0.413138 1.641922 0.1148
D(LFP) 0.002777 0.076052 0.036514 0.9712
D(CT) 0.010096 0.011471 0.880062 0.3883
D(RC) 0.005785 0.008111 0.713223 0.4832
D(CPI) -0.154624 0.107413 -1.439520 0.1641
E(-1) -0.843374 0.232702 -3.624269 0.0015
Diagnostic test for residual
Serial autocorrelation (Breuch-Godfrey test)

F-statistic 1.001613 Probability 0.413622

Obs*R-squared 3.823500 Probability 0.281164

Heteroscedasticity-test (Breuch-Pagan Godfrey test)

F-statistic 0.531311 Prob. F(5,24) 0.7504

Obs*R-squared 2.989759 Prob. Chi-Square(5) 0.7016

Scaled explained SS 1.686055 Prob. Chi-Square(5) 0.8907


Conclusion

The main objective of this study was to investigate the impact of


agricultural exports on GDP of Pakistan considering the case of
Cotton and Rice export.
The results show that there is positive relationship between GDP
growth rate and the export of Rice and whereas Cotton has
negative relation with GDP in the long run

There exist a long run relationship between the variables which


was verified by the Co-integration test
Policy Recommendations

Train farmers and


producers in the
The positive relationship of contemporary farming
GDP growth with the and production
Cotton and Rice export techniques .. As a long
implies that the term policy which might
government should further be helpful in establishing
encourage the two sectors. a positive relation
It can be encouraged between cotton export
through: and GDP
Recommendations

Policies should be
Conceptualize better designed to bolster the
strategies for marketing in
the international trade
input supply system, i.e.
arena better fertilizers, improved
seed variety ( i.e. BT
Labor force should be
encouraged to participate cotton) a crop protection
in this sector because in chemicals and pesticides.
countries like Pakistan These initiatives will
labor is abundant and cost augment production and
effective export of these crops
manifold.
Limitations and further research
scope

LIMITATION
This study didnt include all the aspect of agricultural exports which contribute
to Pakistan economy
FURTHER SCOPE
This study didnt consider the impact of climate change on the agricultural
production so the prospective researcher can include this element in their
research
THANK YOU