Impact of Agriculture Volatility on Economic Growth: A Case Study of Pakistan

Abstract

Agriculture plays a crucial role in the economy of developing countries, and it is the main source of food, income and employment for the rural population. So developing countries like Pakistan need to sustain growth of agriculture sector. But in past few decades huge variations occurred in agriculture production. Stability is an important objective for any economy because development requires sustain growth of different sectors. So this study is an attempt to view the nature of volatility of the agriculture sector in Pakistan and trying to find out that to what extant do volatility, production and employment in agriculture sector associated with the economic growth. In first step, Auto Regressive Conditional Heteroscadesticity (ARCH) family models applied to detect volatility of agriculture sector in Pakistan. In second step, augmented dickey fuller is applied for unit root and shows that all the variables are integrated of order one. In third step, Co-integration: Trace Statistics and Eigen Values Tests are used to capture the long term effect of these variables on economic performance.The Empirical results of co-integrating equation show that agriculture productivity and employment in agriculture sector and positively and significantly associated with economic growth. While agricultural volatility is negatively contributing in economic growth in case of Pakistan. On the basis of empirical findings of this study, it is suggested for long term and sustain economic growth is that Government should take widespread transparent programs for agriculture sector and rural development, so that agriculture volatility can be controlled.